ВОЗДЕЙСТВИЕ ИÐ?Ð?ОВÐ?ЦИИ ВЛИЯÐ?ИЕ ДЕМОÐ?СТРÐ?ЦИЯ 79883 IMPACTO INNOVACIÓN INFLUENCIA DEMOSTRACIÓN IMPACT INNOVATION v3 INFLUENCE DÉMONSTRATION 效益 创新 å½±å“? 示范 IMPACT INNOVATion influence demonstration インパクト イ ノベーション 影響力 デモンストレーション IMPACTO INOVAÇÃO INFLUÊNCIA DEMONSTRAÇÃO ВОЗДЕЙСТВИЕ ИÐ?Ð?ОВÐ?ЦИИ ВЛИЯÐ?ИЕ ДЕМОÐ?СТРÐ?ЦИЯ IMPACTO INNOVACIÓN INFLUENCIA DEMOSTRACIÓN IMPACT INNOVATION INFLUENCE DÉMONSTRATION 效益 创新 å½±å“? 示范 INNOVATion Impact / RESults influence demonstration インパクト イ ノベーション 影響力 デモンストレーション IMPACTO INOVAÇÃO INFLUÊNCIA DEMONSTRAÇÃO ВОЗДЕЙСТВИЕ ИÐ?Ð?ОВÐ?ЦИИ ВЛИЯÐ?ИЕ ДЕМОÐ?СТРÐ?ЦИЯ IMPACTO INNOVACIÓN INFLUENCIA DEMOSTRACIÓN IMPACT INNOVATION INFLUENCE DÉMONSTRATION 效益 创新 å½±å“? 示范 IMPACT INNOVATion influence demonstration インパクト イ ノベーション 影響力 デモンストレーション IMPACTO INOVAÇÃO INFLUÊNCIA DEMONSTRAÇÃO ВОЗДЕЙСТВИЕ ИÐ?Ð?ОВÐ?ЦИИ ВЛИЯÐ?ИЕ ДЕМОÐ?СТРÐ?ЦИЯ IMPACTO INNOVACIÓN INFLUENCIA DEMOSTRACIÓN IMPACT INNOVATION INFLUENCE DÉMONSTRATION 效益 创新 å½±å“? 示范 IMPACT INNOVATion influence demonstration インパクト イ ノベーション 影響力 デモンストレーション IMPACTO INOVAÇÃO INFLUÊNCIA IFC Financials and projects 2012 DEMONSTRAÇÃO TABLE OF Management’s Discussion and Analysis 2 CONTENTS Overview of Financial Results Client Services 2 5 Liquid Assets 11 Funding Resources 12 Enterprise Risk Management 13 Critical Accounting Policies 20 Results of Operations 21 Governance and Control 27 Consolidated Financial Statements and Internal Control Reports 30 Management’s Report Regarding Effectiveness of Internal Control over External Financial Reporting 30 Independent Auditors’ Report on Management’s Assertion Regarding Effectiveness of Internal Control over External Financial Reporting 32 Consolidated Balance Sheets 34 Consolidated Income Statements 35 Consolidated Statements of Comprehensive Income 36 Consolidated Statements of Changes in Capital 37 Consolidated Statements of Cash Flows 38 Consolidated Statement of Capital Stock and Voting Power 40 Notes to Consolidated Financial Statements 41 Independent Auditors’ Report 94 Project Commitments 95 Investment Portfolio—Statement of Cumulative Gross Commitments 120 Notes and Deï¬?nitions 124 MANAGEMENT’S 2 DISCUSSION AND ANALYSIS Management’s Discussion The Management’s Discussion and Analysis contains forward looking statements which may be identiï¬?ed by such terms as “antici- and Analysis pates,â€? “believes,â€? “expects,â€? “intends,â€? “plansâ€? 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. I. Overview of Financial Results BASIS OF PREPARATION OF IFC’S CONSOLIDATED International Finance Corporation (IFC or the Corporation) is an FINANCIAL STATEMENTS international organization, established in 1956, to further economic growth in its developing member countries by promoting private The accounting and reporting policies of IFC conform to account- sector development. IFC is a member of the World Bank Group, ing principles generally accepted in the United States (US GAAP). which also comprises the International Bank for Reconstruction and IFC’s accounting policies are discussed in more detail in Section Development (IBRD), the International Development Association VI. Critical Accounting Policies and in Note A to IFC’s Consolidated (IDA), the Multilateral Investment Guarantee Agency (MIGA), and Financial Statements as of and for the year ended June 30, 2012 the International Centre for Settlement of Investment Disputes (FY12 Consolidated Financial Statements). (ICSID). It is a legal entity separate and distinct from IBRD, IDA, MIGA, and ICSID, with its own Articles of Agreement, share capital, FINANCIAL PERFORMANCE SUMMARY ï¬?nancial structure, management, and staff. Membership in IFC is open only to member countries of IBRD. As of June 30, 2012, IFC’s From year to year, IFC’s net income is affected by a number of fac- entire share capital was held by 184 member countries. tors that can result in volatile ï¬?nancial performance. Such factors are IFC helps developing countries achieve sustainable growth by detailed more fully in Section VII, Results of Operations. ï¬?nancing private sector investment, mobilizing capital in international IFC reported income before grants to IDA of $1,658 million in ï¬?nancial markets, and providing advisory services to businesses and FY12, as compared to $2,179 million in the year ended June 30, 2011 governments. IFC’s principal investment products are loans and (FY11) and $1,946 million in the year ended June 30, 2010 (FY10). equity investments, with smaller debt securities and guarantee port- The decrease in income before grants to IDA in FY12 when com- folios. IFC also plays an active and direct role in mobilizing additional pared to FY11 was principally as a result of: (i) lower unrealized funding from other investors and lenders through a variety of means. income from non-trading investments and other non-trading ï¬?nan- Such means principally comprise: loan participations, parallel loans, cial instruments accounted for at fair value; (ii) higher other-than- sales of loans, the non-IFC portion of structured ï¬?nance transactions temporary impairment losses on equities and debt securities; (iii) which meet core mobilization criteria, the non- IFC portion of com- lower income from liquid assets; (iv) higher provisions for losses mitments in IFC’s initiatives, and the non- IFC investment portion of on loans and guarantees; and (v) higher administrative expenses commitments in funds managed by IFC’s wholly owned subsidiary, partially offset by: (i) higher realized gains on equity investments IFC Asset Management Company LLC (AMC), (collectively Core and gains on non-monetary exchanges; (ii) lower advisory services Mobilization). Unlike most other development institutions, IFC does expenses, net of advisory services income; and (iii) higher foreign not accept host government guarantees of its exposures. IFC raises currency transaction gains and losses on non-trading activities. IFC’s virtually all of the funds for its lending activities through the issuance ï¬?nancial performance is detailed more fully in Section VII, Results of debt obligations in the international capital markets, while main- of Operations. taining a small borrowing window with IBRD. Equity investments are Grants to IDA totaled $330 million in FY12, as compared to funded from net worth. For the year ended June 30, 2012 (FY12), $600 million in FY11 and $200 million in FY10. Accordingly, net IFC had an authorized borrowing program of up to $10 billion, and income totaled $1,328 million in FY12, as compared with $1,579 mil- up to $2 billion to allow for possible prefunding during FY12 of the lion in FY11 and $1,746 million in FY10. funding program for the year ending June 30, 2013 (FY13). For FY13, IFC’s net income (loss) for each of the past ï¬?ve ï¬?scal years ended IFC has an authorized borrowing program of up to $10 billion, and June 30, 2012 is presented below (US$ millions): up to $2 billion to allow for possible prefunding during FY13 of the funding program for the year ending June 20, 2014. Fiscal Year Ended June 30 IFC’s capital base and its assets and liabilities, other than its equity 2008 investments, are primarily denominated in US dollars. IFC seeks to 2009 minimize foreign exchange and interest rate risks by closely matching 2010 the currency and rate bases of its assets in various currencies with 2011 liabilities having the same characteristics. IFC generally manages 2012 non-equity investment related and certain lending related residual -250 0 250 500 750 1,000 1,250 1,500 currency and interest rate risks by utilizing currency and interest rate swaps and other derivative instruments. IFC Financials and Projects 2012 3 The table below presents selected ï¬?nancial data for the last ï¬?ve ï¬?scal years (in millions of US dollars, except where otherwise stated): AS OF AND FOR THE YEARS ENDED JUNE 30 2012 2011 2010 2009 2008 Net income highlights: Income from loans and guarantees $ 938 $ 877 $ 801 $ 871 $ 1,065 (Provision) release of provision for losses on loans & guarantees (117) 40 (155) (438) (38) Income (loss) from equity investments 1,457 1,464 1,638 (42) 1,688 Of which: Realized gains on equity investments 2,000 737 1,290 990 1,219 Gains on non-monetary exchanges 3 217 28 14 177 Unrealized (losses) gains on equity investments accounted for at fair value (128) 454 240 (299) 12 Dividends and proï¬?t participations 274 280 285 311 428 Other-than-temporary impairment losses (692) (218) (203) (1,058) (140) Fees and other – (6) (2) – (8) Income from debt securities 81 46 108 71 163 Income from liquid asset trading activities 313 529 815 474 473 Charges on borrowings (181) (140) (163) (488) (782) Other income Service fees 60 88 70 39 58 Advisory services income 269 – – – – Other 119 134 106 114 55 Other expenses Administrative expenses (798) (700) (664) (582) (549) Advisory services expenses (290) (153) (108) (134) (150) Expense from pension and other postretirement beneï¬?t plans (96) (109) (69) (34) (3) Other (23) (19) (12) (14) (3) Foreign currency transaction gains (losses) on non-trading activities 145 (33) (82) 10 (39) Income (loss) before net gains and losses on other non-trading ï¬?nancial instruments accounted for at fair value and grants to IDA 1,877 2,024 2,285 (153) 1,938 Net (losses) gains on other non-trading ï¬?nancial instruments (219) 155 (339) 452 109 Of which: Realized gains 11 63 5 – – Gains on non-monetary exchanges 10 22 6 45 – Unrealized (losses) gains (240) 70 (350) 407 109 Income before grants to IDA 1,658 2,179 1,946 299 2,047 Grants to IDA (330) (600) (200) (450) (500) Net income (loss) $ 1,328 $ 1,579 $ 1,746 $ (151) $ 1,547 Consolidated balance sheet highlights: Total assets $75,761 $68,490 $61,075 $51,483 $49,471 Liquid assets, net of associated derivatives 29,721 24,517 21,001 17,864 14,622 Investments 31,438 29,934 25,944 22,214 23,319 Borrowings drawn-down and outstanding, including fair value adjustments 44,665 38,211 31,106 25,711 20,261 Total capital $20,580 $20,279 $18,359 $16,122 $18,261 Of which: Undesignated retained earnings $17,373 $16,032 $14,307 $12,251 $12,366 Designated retained earnings 322 335 481 791 826 Capital stock 2,372 2,369 2,369 2,369 2,366 Accumulated other comprehensive income (AOCI) 513 1,543 1,202 711 2,703 MANAGEMENT’S 4 DISCUSSION AND ANALYSIS AS OF AND FOR THE YEARS ENDED JUNE 30 2012 2011 2010 2009 2008 Financial ratios: 1 Return on average assets (GAAP basis) 2 1.8% 2.4% 3.1% (0.3)% 3.4% Return on average assets (non-GAAP basis) 3 2.8% 1.8% 3.8% (1.1)% 3.7% Return on average capital (GAAP basis)4 6.5% 8.2% 10.1% (0.9)% 9.6% Return on average capital (non-GAAP basis) 5 9.9% 6.0% 11.8% (3.0)% 9.0% Cash and liquid investments as a percentage of next three years’ estimated net cash requirements 77% 83% 71% 75% 62% External funding liquidity level6 327% 266% 190% 163% 96% Debt to equity ratio7 2.7:1 2.6:1 2.2:1 2.1:1 1.6:1 Total reserves against losses on loans to total disbursed portfolio8 6.6% 6.6% 7.4% 7.4% 5.5% Capital measures: Capital to risk-weighted assets ratio9 n/a n/a n/a 44% 48% Total Resources Required ($ billions)10 15.5 14.4 12.8 10.9 10.4 Total Resources Available ($ billions)11 19.2 17.9 16.8 14.8 15.0 Strategic Capital12 3.7 3.6 4.0 3.9 4.6 Deployable Strategic Capital13 1.8 1.8 2.3 2.3 3.1 Deployable Strategic Capital as a percentage of Total Resources Available 9% 10% 14% 16% 21% 1 Certain ï¬?nancial ratios, as described below, are calculated excluding the effects of unrealized gains and losses on investments, other non-trading ï¬?nancial instruments, AOCI, and impacts from consolidated Variable Interest Entities (VIEs). 2 Net income for the ï¬? scal year as a percentage of the average of total assets at the end of such ï¬? scal year and the previous ï¬? scal year. 3 Net income excluding unrealized gains and losses on certain investments accounted for at fair value, income from consolidated VIEs, and net gains and losses on non-trading ï¬?nancial instruments accounted for at fair value, as a percentage of total disbursed loan and equity investments (net of reserves) at cost, liquid assets net of repos, and other assets averaged for the current period and previous ï¬? scal year. 4 Net income for the ï¬? scal year as a percentage of the average of total capital (excluding payments on account of pending subscriptions) at the end of such ï¬? scal year and the previ- ous ï¬? scal year. 5 Net income excluding unrealized gains and losses on certain investments accounted for at fair value, income from consolidated VIEs, and net gains and losses on non-trading ï¬?nancial instruments accounted for at fair value, as a percentage of paid in share capital and retained earnings (before certain unrealized gains and losses and excluding cumula- tive designations not yet expensed) averaged for the current period and previous ï¬? scal year. 6 IFC’s objective is to maintain a minimum level of liquidity, consisting of proceeds from external funding to cover 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. 7 The ratio of outstanding borrowings plus outstanding guarantees to subscribed capital plus undesignated retained earnings (less cumulative unrealized gains and losses on loans, equity investments, and other non-trading ï¬?nancial instruments accounted for at fair value in net income) at the end of the ï¬? scal year. 8 Total reserves against losses on loans to total disbursed loan portfolio is deï¬?ned as reserve against losses on loans as a percentage of the total disbursed loan portfolio at the end of the ï¬? scal year. 9 The ratio of capital (including paid-in capital, retained earnings, and portfolio (general) loan loss reserves) to risk-weighted assets, both on- and off-balance sheet. The ratio does not include designated retained earnings reported in total capital on IFC’s consolidated balance sheet. IFC’s Board of Directors has approved the use of a risk-based economic capital framework beginning in the year ended June 30, 2008 (FY08). Parallel use of the capital to risk-weighted assets ratio has now been discontinued. 10 The minimum capital required consistent with the maintenance of IFC’s AAA rating. It is computed as the aggregation of risk-based economic capital requirements for each asset class across the Corporation. 11 Paid in capital plus retained earnings net of designated retained earnings plus general and speciï¬? c reserves against losses on loans. This is the level of available resources under IFC’s risk-based economic capital adequacy framework. 12 Total resources available less total resources required. 13 90% of total resources available less total resources required. IFC Financials and Projects 2012 5 II. Client Services IFC carefully supervises its projects to monitor project perfor- mance and compliance with contractual obligations and with IFC’s internal policies and procedures. BUSINESS OVERVIEW IFC fosters sustainable economic growth in developing countries Investment Products by ï¬? nancing private sector investment, mobilizing capital in the Loans— IFC ï¬?nances projects and companies through loans, typi- international ï¬?nancial markets, and providing advisory services to cally for seven to twelve years. IFC also makes loans to intermedi- businesses and governments. ary banks, leasing companies, and other ï¬?nancial institutions for IFC has ï¬?ve strategic focus areas: on-lending. IFC’s loans traditionally have been dominated in the • strengthening the focus on frontier markets currencies of major industrial nations, but has a growing local cur- • addressing climate change and ensuring environmental and rency product line. social sustainability Equity— IFC’s equity investments provide developmental support • addressing constraints to private sector growth in infrastructure, and long-term growth capital for private enterprises, and opportuni- health, education, and the food-supply chain ties to support corporate governance and enhanced social respon- • developing local ï¬?nancial markets sibility. IFC invests directly in companies’ equity, and also through • building long-term client relationships in emerging markets private equity funds. IFC generally invests between 5 and 20 percent For all new investments, IFC articulates the expected impact on of a company’s equity. IFC also invests through proï¬?t-participating sustainable development, and, as the projects mature, IFC assesses loans, convertible loans, and preferred shares. the quality of the development beneï¬?ts realized. Debt Securities— Investments typically in the form of bonds and IFC’s strategic focus areas are aligned to advance the World Bank notes issued in bearer or registered form, securitized debt obliga- Group’s global priorities. tions and preferred shares that are mandatorily redeemable by the IFC’s three businesses: Investment Services, Advisory Services, issuer or puttable by IFC are classiï¬?ed as debt securities in IFC’s and Asset Management. consolidated balance sheet. Trade and Supply Chain Finance— IFC’s Global Trade Finance Program (GTFP) guarantees trade-related payment obligations of INVESTMENT SERVICES approved ï¬?nancial institutions. Separately, the Global Trade Liquidity IFC’s investments are normally made in its developing member Program (GTLP) and Critical Commodities Finance Program (CCFP) countries. The Articles of Agreement mandate that IFC shall invest in provides liquidity for trade in developing countries. productive private enterprise. The requirement for private ownership Loan Participations— IFC’s loan participation program mobilizes does not disqualify enterprises that are partly owned by the public capital from international commercial banks, emerging market banks, sector if such enterprises are organized under local commercial and funds, insurance companies, and development-ï¬?nance institutions corporate law, operate free of host government control in a market for development needs. context and according to proï¬?tability criteria, and/or are in the pro- Structured Finance— IFC uses structured and securitized prod- cess of being totally or partially privatized. ucts to provide forms of ï¬?nancing that may not otherwise be available IFC provides a range of ï¬?nancial products and services to its to clients to help clients diversify funding, extend maturities, and clients to promote sustainable enterprises, encourage entrepreneur- obtain ï¬?nancing in particular currencies. Products include partial ship, and mobilize resources that wouldn’t otherwise be available. credit guarantees, structured liquidity facilities, portfolio risk transfer, IFC’s ï¬?nancing products are tailored to meet the needs of each securitizations, and Islamic ï¬?nance. project. Investment services product lines include: loans, equity Client Risk Management Services—IFC provides derivative prod- investments, trade ï¬?nance, loan participations, structured ï¬?nance, ucts to its clients to allow them to hedge their interest rate, currency, client risk management services, and blended ï¬?nance. or commodity-price exposures. IFC intermediates between clients in IFC’s investment project cycle can be divided into the follow- developing countries and derivatives market makers to provide such ing stages: clients with access to risk-management products. • Business Development Blended Finance— IFC combines concessional funds, typically • Concept Review from donor partners, with IFC’s resources to ï¬?nance initiatives. • Appraisal (Due Diligence) • Investment Review • Negotiations • Public Disclosure • Board of Director Review and Approval • Commitment • Disbursement of funds • Project Supervision and Development Outcome Tracking • Evaluation • Closing MANAGEMENT’S 6 DISCUSSION AND ANALYSIS ADVISORY SERVICES INVESTMENT PROGRAM Advisory services are an increasingly important tool for IFC to deliver Commitments its development mandate. Advisory services projects include advise In FY12, total commitments were $20,358 million, compared with to national and local governments on improving the investment cli- $18,660 million in FY11, an increase of 9%, of which IFC commit- mate and strengthening basic infrastructure and assistance to invest- ments totaled $15,462 million ($12,186 million—FY11) and Core ment clients in improving corporate governance and sustainability. Mobilization totaled $4,896 million ($6,474 million—FY11). Advisory services are funded by donor partners, IFC, and clients. FY12 and FY11 commitments and Core Mobilization comprised IFC’s advisory services are organized into four business lines: the following (US$ millions): Access to ï¬?nance—to help increase the availability and afford- FY12 FY11 ability of ï¬?nancial services for individuals, as well as micro, small, and medium enterprises. Total commitments 1 $20,358 $18,660 Investment climate—to help governments implement reforms to IFC commitments improve the business environment and encourage and retain invest- Loans $ 6,668 $ 4,991 ment, thereby fostering competitive markets, growth and job creation. Equity investments 2,282 1,968 Public-private partnerships—to help governments design and Guarantees: implement public-private partnerships (PPPs) in infrastructure and Global Trade Finance Program 6,004 4,638 Other 398 529 other basic public services. Client risk management 110 60 Sustainable business—to help companies adopt environmental, Total IFC commitments $15,462 $12,186 social and governance practices and technologies that create a Core Mobilization competitive edge. Loan participations, parallel loans, and other mobilization AMC Loan participations $ 1,764 $ 3,457 Parallel loans 927 1,127 AMC, a wholly-owned subsidiary of IFC, invests third-party capital, Other mobilization 814 134 enabling outside investors to beneï¬?t from IFC’s expertise in achiev- Total loan participations, parallel loans, and other mobilization $ 3,505 $ 4,718 ing strong equity returns, as well as positive development impact in AMC the countries in which it invests in developing and frontier markets. Sub-Debt Capitalization Fund $ 215 $ 252 Investors in funds managed by AMC comprise sovereign wealth Equity Capitalization Fund 24 113 funds, national pension funds, multilateral and bilateral develop- ALAC Fund 190 85 ment institutions, national development agencies and international Africa Capitalization Fund 8 4 ï¬?nancial institutions. AMC helps IFC mobilize additional capital Total AMC $ 437 $ 454 resources for investment in productive private enterprise in develop- Other initiatives ing countries. Global Trade Liquidity Program and Critical Commodities Finance Program $ 850 $ 1,050 At June 30, 2012, AMC managed ï¬?ve funds, with $4.5 billion Infrastructure Crisis Facility 63 252 under management: the IFC Capitalization (Equity) Fund, L.P. (the Public-Private Partnership (PPP) Mobilization 41 – Equity Fund); the IFC Capitalization (Subordinated Debt) Fund, Total other initiatives $ 954 $ 1,302 L.P. (the Sub- Debt Fund); the IFC African, Latin American and Total Core Mobilization $ 4,896 $ 6,474 Caribbean Fund, L.P. (the ALAC Fund); the Africa Capitalization Core Mobilization Ratio 0.32 0.53 Fund, Ltd. (the Africa Capitalization Fund) and the IFC Russian 1 Debt security commitments are included in loans and equity investments based on Bank Capitalization Fund, L.P. (the Russian Capitalization Fund). their predominant characteristics. The Equity Fund and the Sub-Debt Fund are collectively referred to as the Global Capitalization Fund. The Global Capitalization Fund, established in the year ended June 30, 2009 (FY09), helps strengthen systemically important banks in emerging markets. The ALAC Fund was established in FY10. The ALAC Fund invests in equity investments across a range of sectors in Sub-Saharan Africa, Latin America, and the Caribbean. The Africa Capitalization Fund was established in FY10 to capitalize systemically important commercial banking institutions in northern and Sub-Saharan Africa. The Russian Capitalization Fund was established in FY12 to invest in mid-sized, commercial banks in Russia that are either privately owned and controlled or state-owned or controlled and on a clear path to privatization. IFC Financials and Projects 2012 7 Disbursements ($28,731 million at June 30, 2011), comprising the disbursed loan IFC disbursed $7,981 million for its own account in FY12 ($6,715 mil- portfolio of $21,043 million ($19,884 million at June 30, 2011), lion in FY11): $5,651 million of loans ($4,519 million in FY11), the disbursed equity portfolio of $7,547 million ($6,732 million $1,810 million of equity investments ($1,884 million in FY11), and at June 30, 2011), and the disbursed debt security portfolio of $520 million of debt securities ($312 million in FY11). $2,110 million ($2,115 million at June 30, 2011). IFC’s disbursed investment portfolio is diversiï¬?ed by industry sec- Disbursed Investment Portfolio tor and geographic region with a focus on strategic high development IFC’s total disbursed investment portfolio (a non- US GAAP impact sectors such as ï¬?nancial markets and infrastructure. performance measure) was $30,700 million at June 30, 2012 The following charts show the distribution of the disbursed investment portfolio by geographical region and industry sector as of June 30, 2012, and June 30, 2011: Distribution by Region Distribution by Industry Sector FY12 FY11 Finance and insurance Europe and Central Asia Europe and Central Asia Electric power Collective investment vehicles Asia Asia Transportation and warehousing Latin America and Caribbean Oil, gas and mining Latin America and Caribbean Chemicals Middle East and North Africa Middle East and North Africa Sub-Saharan Africa Sub-Saharan Africa Agriculture and forestry Other Other Industrial and consumer products Nonmetallic mineral product manufacturing Information Food and beverages Health care Utilities Wholesale and retail trade Primary metals Accommodation and tourism services Pulp and paper Construction and real estate Textiles, apparel and leather Education Services Other Percentage 0 5 10 15 20 25 30 35 40 FY11 FY12 MANAGEMENT’S 8 DISCUSSION AND ANALYSIS Disbursed Loan Participations The currency composition of the disbursed loan portfolio at The portfolio of disbursed and outstanding loan participations which June 30, 2012, and June 30, 2011, is shown below: are serviced by IFC at June 30, 2012, totaled $6,463 million, as compared with $5,865 million at June 30, 2011. Currencies Additional information on IFC’s investment portfolio as of and for the years ended June 30, 2012, and June 30, 2011, can be found in Notes B, D, E, F, G, H and I to IFC’s FY12 Consolidated US dollars Financial Statements. Euro Loans Loans generally have the following characteristics: Indian rupees Term—typically amortizing with ï¬?nal maturities generally for seven to twelve years, although some loans have been made for tenors as Mexican pesos long as 20 years Currency—primarily in major convertible currencies, principally Chinese renminbi US dollar, and to a lesser extent, Euro, but with a growing local cur- Philippine pesos rency loan portfolio Interest rate—typically variable (or ï¬?xed and swapped into variable) Russian rubles Pricing—reflects such factors as market conditions and country and project risks South African rand IFC’s loans traditionally have been made in major currencies, based on client demand and on IFC’s ability to economically hedge Brazilian reais loans in these currencies through the use of mechanisms such as cross-currency swaps or forward contracts. Fixed-rate loans and Indonesian rupiah loans in currencies other than US dollars are normally economically hedged using currency and/or interest rate swaps, into US dollar Colombian pesos variable rate assets. Turkish lira Loans traditionally have been denominated in the currencies of major industrial nations, but IFC has a growing portfolio of local Vietnamese dong currency products. IFC typically offers local currency products in other currencies where it can economically hedge the local cur- Other rency loan cash flows back into US dollars using swap markets or 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 where it can fund itself in local bond markets. IFC’s disbursed loan FY11 FY12 portfolio at June 30, 2012 includes $2,314 million of currency prod- ucts denominated in Indian rupee, Mexican peso, Chinese renminbi, Philippine pesos, Russian ruble, South African rand, Brazilian reais, Equity Investments Indonesian rupiah, Colombian pesos, Turkish lira and Vietnamese IFC’s equity investments are typically in the form of common or dong ($2,206 million at June 30, 2011). IFC has also made loans preferred stock which is not mandatorily redeemable by the issuer in a number of frontier market currencies such as West African and or puttable to the issuer by IFC and are usually denominated in the Central African CFA francs, Rwandan francs, Zambian kwachas, currency of the country in which the investment is made. and Kyrgyz som. IFC’s disbursed equity portfolio totaled $7,547 million at June 30, IFC’s disbursed loan portfolio totaled $21,043 million at June 30, 2012 ($6,732 million at June 30, 2011), an increase of 12%. 2012 ($19,884 million at June 30, 2011). The carrying amount of The carrying amount of IFC’s equity investment portfolio (com- IFC’s loan portfolio on IFC’s consolidated balance sheet (comprising prising the disbursed equity portfolio, together with adjustments as the disbursed loan portfolio together with adjustments as detailed detailed in Note D to IFC’s FY12 Consolidated Financial Statements), in Note D to IFC’s FY12 Consolidated Financial Statements) grew grew 5% to $9,774 million at June 30, 2012 ($9,313 million at 6% to $19,496 million at June 30, 2012 ($18,455 million at June 30, June 30, 2011). 2011). The fair value of IFC’s equity portfolio2 was $12,985 million at Loans comprise 68% of the disbursed investment portfolio as June 30, 2012 ($14,060 million at June 30, 2011). of June 30, 2012 (69% at June 30, 2011) and 62% of the carrying Equity investments accounted for 25% of IFC’s disbursed invest- amount of the investment portfolio as of June 30, 2012 (62% at ment portfolio at June 30, 2012, compared with 24% at June 30, June 30, 2011). 2011 and 31% of the carrying amount of the investment portfolio at At June 30, 2012, 74% (71% at June 30, 2011) of IFC’s disbursed June 30, 2012 (31% at June 30, 2011). loan portfolio was US dollar-denominated. 2 Including “equity-likeâ€? securities classiï¬? ed as debt securities in IFC’s consolidated balance sheet and equity-related options. IFC Financials and Projects 2012 9 Debt Securities Core Mobilization Debt securities are typically in the form of bonds and notes issued Core Mobilization is ï¬? nancing from entities other than IFC that in bearer or registered form, securitized debt obligations (e.g. asset- becomes available to clients due to IFC’s direct involvement in raising backed securities (ABS), mortgage-backed securities (MBS), and resources. lFC ï¬?nances only a portion, usually not more than 25%, of other collateralized debt obligations) and preferred shares that are the cost of any project. All IFC-ï¬?nanced projects, therefore, require mandatorily redeemable by the issuer or puttable to the issuer by IFC. other ï¬?nancial partners. IFC mobilizes such private sector ï¬?nance IFC’s disbursed debt securities portfolio totaled $2,110 million at from other entities through loan participations, parallel loans, partial June 30, 2012 ($2,115 million at June 30, 2011). credit guarantees, securitizations, loan sales, and risk sharing facili- The carrying amount of IFC’s debt securities portfolio (compris- ties. In FY09, IFC launched AMC and a number of other initiatives, ing the disbursed debt securities portfolio, together with adjust- each with a Core Mobilization component, and revised its mobili- ments as detailed in Note D to IFC’s FY12 Consolidated Financial zation deï¬?nition accordingly to include these in the measure. The Statements), was $2,168 million at June 30, 2012 ($2,166 million components of Core Mobilization are as follows: at June 30, 2011). Debt securities accounted for 7% of IFC’s disbursed investment Loan Participations portfolio at June 30, 2012 (7% at June 30, 2011) and 7% of the The principal direct means by which IFC mobilizes private sector carrying amount of the investment portfolio at June 30, 2012 (7% ï¬?nance is through the sale of participations in its loans. Through the at June 30, 2011). loan participation program, IFC has worked primarily with commercial banks but also with nonbank ï¬?nancial institutions in ï¬?nancing projects Guarantees since the early 1960s. Global Trade Finance Program Whenever it participates a loan, IFC will always make a loan for its FY12 commitments include $6,004 million ($4,638 million—FY11) own account, thereby sharing the risk alongside its loan participants. relating to GTFP. IFC acts as the lender of record and is responsible for the administra- tion of the entire loan, including the loan participation. IFC charges Other Guarantees fees to the borrower at prevailing market rates to cover the cost of IFC offers partial credit guarantees to clients covering, on a risk- the loan participation. sharing basis, client obligations on bonds and/or loans. IFC’s guar- Loan participation commitments were $1,764 million in FY12 antee is available for debt instruments and trade obligations of ($3,457 million in FY11). clients and covers commercial as well as noncommercial risks. IFC will provide local currency guarantees, but when a guarantee is Parallel Loans called, the client will generally be obligated to reimburse IFC in US Loans from other ï¬?nancial institutions that IFC helped arrange for dollar terms. Guarantee fees are consistent with IFC’s loan pricing clients and received a fee, but for which IFC is not the lender of policies. FY12 commitments include $398 million of guarantees record, in FY12 were $927 million ($1,127 million in FY11). ($529 million—FY11). Other Mobilization Client Risk Management Products Other case-by-case mobilization decisions totaled $814 million in IFC provides derivative products to its clients to allow them to hedge FY12 ($134 million in FY11). their interest rate, currency or commodity price exposures. IFC intermediates between its developing country clients and deriva- tives market makers in order to provide IFC’s clients with full market access to risk management products. FY12 commitments included $110 million of such products ($60 million—FY11). MANAGEMENT’S 10 DISCUSSION AND ANALYSIS AMC The activities of the funds managed by AMC at June 30, 2012 and June 30, 2011 can be summarized as follows (US$ millions unless otherwise indicated): Equity Sub-Debt Africa Russian Bank Cap Fund Cap Fund ALAC Fund Cap Fund Cap Fund Total Assets under management at June 30, 2012: $ 1,275 $ 1,725 $1,000 $182 $275 $4,457 From IFC 775 225 200 – 125 1,325 From other investors 500 1,500 800 182 150 3,132 For the year ended June 30, 2012: Fund commitments to investees: From IFC 36 32 48 – – 116 From other investors 24 215 190 8 – 437 Disbursements from investors to Fund: From IFC 62 28 52 – – 142 From other investors 40 186 208 14 – 448 Disbursements made by Fund 97 208 174 11 – 490 Disbursements made by Fund (number) 6 2 8 3 – 19 Equity Sub-Debt Africa Russian Bank Cap Fund Cap Fund ALAC Fund Cap Fund Cap Fund Total Assets under management at June 30, 2011: $ 1,275 $ 1,725 $1,000 $ 55 $ – $4,055 From IFC 775 225 200 – – 1,200 From other investors 500 1,500 800 55 – 2,855 For the year ended June 30, 2011: Fund commitments to investees: From IFC 168 38 21 – – 227 From other investors 109 252 85 4 – 450 Disbursements from investors to Fund: From IFC 214 47 17 – – 278 From other investors 138 316 64 1 – 519 Disbursements made by Fund 344 359 78 – – 781 Disbursements made by Fund (number) 4 3 4 – – 11 Other Initiatives Core Mobilization Ratio GTLP and CCFP The core mobilization ratio is deï¬?ned as: IFC’s FY12 Core Mobilization included $850 million ($1,050 mil- Loan participations + parallel loans + other mobilization + lion—FY11) relating to GTLP and CCFP. non- IFC investment part of structured ï¬?nance which meets core mobilization criteria + non- IFC commitments in Infrastructure Crisis Facility initiatives + non- IFC investments committed in funds The infrastructure crisis facility is a facility that includes debt and managed by AMC + PPP Mobilization equity components and provides short- to medium-term ï¬?nancing for infrastructure projects. It also includes advisory services to help Commitments (IFC investments + IFC portion of structured governments design or redesign public-private-partnership proj- ï¬?nance + IFC commitments in initiatives + ects. FY12 Core Mobilization includes $63 million relating to the IFC investments committed in funds managed by AMC) Infrastructure Crisis Facility ($252 million—FY11). For each dollar that IFC committed, IFC mobilized (in the form of loan participations, parallel loans, other mobilization, the non-IFC por- PPP Mobilization tion of structured ï¬?nance and the non-IFC commitments in Initiatives, FY12 resources mobilized includes $41 million relating to PPP and the non-IFC investments committed in funds managed by AMC) Mobilization, which is the non-IFC, non-government portion of ï¬?nanc- $0.32 in FY12 ($0.53 in FY11). ing made available for PPP projects due to IFC’s mandated lead advisor role to national/local government or other government entity ($0—FY11). IFC Financials and Projects 2012 11 ADVISORY SERVICES The IFC Advisory Services Portfolio as of June 30, 2012 totaled $894 million, as compared to $822 million as of June 30, 2011. The break- down of the Advisory Services Portfolio at June 30, 2012 and Jun 30, 2011, by Business Line, is summarized as follows (US$ millions): Sustainable Access Investment Public-Private Business to Finance Climate Partnerships Advisory Active portfolio as of June 30, 2012 $ 296 $ 226 $106 $ 266 Active portfolio as of June 30, 2011 $ 293 $ 204 $ 91 $ 234 III. Liquid Assets IFC invests its liquid assets portfolio in highly rated ï¬?xed and floating risk associated with these investments through a variety of hedging rate instruments issued by, or unconditionally guaranteed by, gov- techniques including derivatives, principally currency and interest ernments, government agencies and instrumentalities, multilateral rate swaps and ï¬?nancial futures. IFC’s liquid assets are invested in organizations, and high quality corporate issuers; these include six separate portfolios, internally named P0 through P4, and P7. All ABS and MBS, time deposits, and other unconditional obligations six portfolios are accounted for as trading portfolios. IFC’s liquid of banks and ï¬?nancial institutions. Diversiï¬?cation in multiple dimen- assets portfolio is summarized as follows: sions ensures a favorable risk return proï¬?le. IFC manages the market Portfolio Fair Value ($ Billions)* Comprising Managed by Invested in Benchmark P0 $0.5 Proceeds from discount note IFC’s Treasury Money market instruments Overnight US dollar London ($1.4) program and cash inflows from Department Interbank Bid Rate (LIBID) investment operations P1 $21.9 Proceeds from market IFC’s Treasury Principally global government Custom-created index of a ($16.3) borrowings invested pending Department bonds, ABS, bank deposits, series of six, equally weighted disbursement of operational and high-quality corporate 6-month LIBID deposits loans bonds generally swapped into that mature on the 15th of 3-month US dollar LIBOR each month—average life of 3 months** P2 $5.6 Primarily IFC’s paid-in capital IFC’s Treasury US Treasuries, ABS, and other Lehman Brothers US 1–3 year ($5.1) and accumulated earnings Department sovereign and agency issues maturity Treasury Index*** that have not been invested in equity and quasi-equity investments P3 $0.9 An outsourced portion of the External managers Global government bonds and Same as for P1 ($0.9) P1 portfolio appointed by IFC other high-quality corporate bonds, as well as mortgage- backed securities P4 $0.8 An outsourced portion of the External managers Global government bonds, Same as for P2 ($0.8) P2 portfolio appointed by IFC and other high-quality corporate bonds as well as mortgage-backed securities Total $29.7 bn ($24.5 bn) * at June 30, 2012 (June 30, 2011) ** The net duration of the P1 and P3 benchmarks is approximately 0.25 years. *** The net duration of the P2 and P4 benchmark is 1.9 years. MANAGEMENT’S 12 DISCUSSION AND ANALYSIS The P7 portfolio was created in FY10, and contains the after-swap During FY12, IFC repurchased and retired $0.6 billion of outstand- proceeds from variable-rate borrowings denominated and invested in ing debt ($0.3 billion in FY11 and $0.9 billion in FY10), generating Euros. The P7 portfolio was less than $10 million at June 30, 2012. gains on buybacks of $19 million in FY12 ($10 million—FY11 and IFC has a flexible approach to managing the liquid assets portfolios $62 million—FY10). by making investments on an aggregate portfolio basis against its IFC diversiï¬?es its borrowings by currency, country, source, and benchmark within speciï¬?ed risk parameters. In implementing these maturity to provide flexibility and cost-effectiveness. IFC also has portfolio management strategies, IFC utilizes derivative instruments, a developmental role in helping open up new domestic markets to including futures and options, and takes positions in various industry foreign issuers in its member countries. In FY12 IFC borrowed in sectors and countries. eleven currencies and in ï¬?nal maturities ranging from one to 30 years. All liquid assets are managed according to an investment authority Outstanding market borrowings have remaining maturities ranging approved by IFC’s Board of Directors and liquid asset investment from less than one year to approximately 30 years, with a weighted guidelines approved by IFC’s Corporate Risk Committee, a subcom- average remaining contractual maturity of 5.5 years at June 30, mittee of IFC’s Management Team. 2012 (5.9 years at June 30, 2011). Actual maturities may differ from In addition to the six liquid asset portfolios, a P6 portfolio was contractual maturities due to the existence of call features in certain created in FY08 in support of IFC’s local currency lending capa- of IFC’s borrowings. bilities. The P6 portfolio contains the proceeds of liquidity raised Market borrowings are generally swapped into floating-rate obliga- in local currency prior to disbursement and is managed by IFC’s tions denominated in US dollars. As of June 30, 2012, IFC had gross Treasury Department against local interbank rate indices. At June 30, payables from borrowing-related currency swaps of $18.3 billion 2012, this portfolio contained short-term money market instruments ($16.0 billion at June 30, 2011) and from borrowing-related interest denominated in South African rand, Turkish lira, Polish zloty, Russian rate swaps in the notional principal payable amount of $35.2 billion rubles, Mexican pesos and Brazilian reais. The P6 portfolio totaled ($30.7 billion at June 30, 2011). After the effect of these derivative $0.8 billion at June 30, 2012 ($0.6 billion at June 30, 2011). instruments is taken into consideration, 99% of IFC’s market bor- rowings at June 30, 2012 were variable rate US dollar-denominated (99%—June 30, 2011). IV. Funding Resources IFC’s mandate to help develop domestic capital markets can result in providing local currency funds for onlending to its clients rather IFC’s funding resources (comprising borrowings, capital and retained than being swapped into US dollars. At June 30, 2012, $0.4 billion earnings) as of June 30, 2012 and June 30, 2011 are as follows: of non-US dollar-denominated market borrowings in Russian rubles, Chinese renminbi and West African and Central African CFA francs FY12 FY11 were used for such purposes. The weighted average cost of market borrowings after currency and interest rate swap transactions was 0.7% at June 30, 2012 (0.3% at June 30, 2011). In the fourth quarter of FY09, IFC launched a short term discount Borrowings from market Borrowings from market sources sources note program to provide an additional liquidity management tool for IFC and to support certain of IFC’s crisis response initiatives. The discount note program provides for issuances with maturities rang- ing from overnight to one year. At June 30, 2012, $1.4 billion was outstanding under this program ($1.5 billion—June 30, 2011). Retained earnings Retained earnings CAPITAL AND RETAINED EARNINGS Paid-in capital Paid-in capital Discount Note Program Discount Note Program Borrowings from IBRD Borrowings from IBRD As of June 30, 2012, IFC’s total capital as reported in IFC’s con- solidated balance sheet amounted to $20.6 billion, up from the June 30, 2011 level of $20.3 billion. At June 30, 2012, total capital comprised $2.4 billion of paid-in capital, substantially unchanged BORROWINGS from June 30, 2011, $17.7 billion of retained earnings ($16.4 billion at June 30, 2011), and $0.5 billion of accumulated other comprehensive The major source of IFC’s borrowings is the international capital income ($1.5 billion at June 30, 2011). markets. Under the Articles of Agreement, IFC may borrow in the As of June 30, 2012, IFC’s authorized capital was $2.58 billion public markets of a member country only with approvals from that ($2.45 billion – June 30, 2011), of which $2.37 billion was sub- member, together with the member in whose currency the borrow- scribed and paid in at June 30, 2012 and June 30, 2011. On July 20, ing is denominated. IFC borrowed (after the effect of borrowing- 2010, the IFC Board of Directors recommended that the IFC Board related derivatives) $11.9 billion during FY12 ($10.3 billion in FY11 of Governors approve an increase in the authorized share capital of and $8.8 billion in FY10). In addition, IFC’s Board of Directors has IFC of $130 million, to $2,580 million, and the issuance of $200 mil- authorized the repurchase and/or redemption of debt obligations lion of shares (including $70 million of unallocated shares). The issued by IFC, which enhances the liquidity of IFC’s borrowings. Board of Directors also recommended that the Board of Governors IFC Financials and Projects 2012 13 approve an increase in Basic Votes aimed at enhancing the voice Deployable Strategic Capital and participation of developing and transition countries (DTCs) and IFC’s deployable strategic capital decreased from 9.9% at June 30, requiring an amendment to IFC’s Articles of Agreement. 2011 to 9.3% at June 30, 2012. This decrease represents the effects The resolution recommended by the Board of Directors was of strong realized gains offset by increases in business commitments adopted by the Board of Governors on March 9, 2012. The amend- and the net unfunded status of the pension plans as of June 30, 2012 ment to the Articles of Agreement and the increase in the authorized when compared to June 30, 2011. share capital have become effective on June 27, 2012. As of the same date, eligible members have been authorized to subscribe to their allocated IFC shares. The subscription period will end on June 27, V. Enterprise Risk Management 2014 and payment of subscribed shares must occur no later than June 27, 2015. In executing its sustainable private sector development business, IFC assumes various kinds of risks. Active management of these risks is Designations of Retained Earnings a key determinant of IFC’s success and its ability to maintain a stable Beginning in the year ended June 30, 2004, IFC began a process capital and earning base, and is an essential part of its operations. of designating retained earnings to increase its support of advisory IFC’s Senior Management has deï¬?ned a comprehensive enter- services and, subsequently, for performance-based grants (PBG) prise risk management framework within which risks are continu- (year ended June 30, 2005), grants to IDA (year ended June 30, ously identiï¬?ed, measured, controlled, monitored and analyzed. The 2006 (FY06)), the Global Infrastructure Project Development Fund framework is deï¬?ned in terms of several interrelated dimensions. Its (FY08), and IFC SME Ventures for IDA Countries (FY08). The levels guiding principles provide the foundation for active management of and purposes of retained earnings designations are set based on risk in the conduct of IFC’s business at all levels and across all areas Board of Director-approved principles, which are applied each year of the organization under the supervision of the Board of Directors, to assess IFC’s ï¬?nancial capacity and to determine the maximum the Audit Committee, the Executive Vice President/CEO and the levels of retained earnings designations. Management Team. Risk appetite is deï¬?ned and implemented in Amounts available to be designated are determined based on a the form of exposure limits, and policies and procedures. The Risk Board of Director-approved income-based formula and, beginning Management, Financial Reporting, and Corporate Strategy Vice in FY08, on a principles-based Board of Director-approved ï¬?nancial Presidency, together with independent institutional oversight bod- distribution policy, and are approved by IFC’s Board of Directors. ies, monitors conformity with these. Risk governance is provided Expenditures for the various approved designations are recorded by a sub-committee of the Management Team, the Corporate Risk as expenses in IFC’s consolidated income statement in the year in Committee which reviews and approves all risk policies and sets which they occur, and have the effect of reducing retained earnings risk standards for the Corporation and receives regular reports on designated for this speciï¬?c purpose. different aspects of risk exposure and mitigation. On August 4, 2011, IFC’s Board of Directors approved a designa- With guidance from the World Bank Group Chief Risk Ofï¬?cer, tion of $330 million of IFC’s retained earnings for grants to IDA and IFC continues building on the collaboration on risk management $69 million for advisory services. On September 23, 2011, IFC’s with IBRD, IDA and MIGA to ensure that where there is a need for Board of Governors noted with approval these designations. an integrated World Bank Group perspective on risk it can be met. At June 30, 2012, retained earnings comprised $17,373 million of undesignated retained earnings ($16,032 million at June 30, 2011; KEY RISK MANAGEMENT PRINCIPLES and $14,307 million at June 30, 2010), $219 million of retained earn- ings designated for advisory services ($217 million at June 30, 2011; The key principles that guide IFC’s integrated risk management and $313 million at June 30, 2010), $41 million of retained earnings framework are effective balancing of development impact, risk and designated for PBG ($54 million at June 30, 2011; and $101 million reward; ensuring business decisions are based on an understanding at June 30, 2010), $30 million of retained earnings designated for of risks; being extremely selective in undertaking activities that could the Global Infrastructure Project Development Fund ($30 million at have adverse reputational impact; and shared responsibility for risk June 30, 2011; and $30 million at June 30, 2010), and $32 million of management across the Corporation. retained earnings designated for IFC SME Ventures for IDA countries ($34 million at June 30, 2011; and $37 million at June 30, 2010). RISK PROFILE In FY12, IFC disbursed $330 million ($600 million in FY11) to IDA pursuant to the signing of the grant agreement. IFC recognized At the highest level, IFC’s risk management objective is to preserve expenditures for advisory services and expenditures against other its reputation and ï¬?nancial soundness. There are diverse potential designated retained earnings totaling $82 million, compared to sources of adverse reputational and ï¬?nancial impact. Regarding $156 million in FY11. reputation, the most signiï¬?cant factors include IFC’s ability to adapt to a continuously changing world, the integrity and corporate gov- FY12 Designations ernance of its business partners and clients, and the environmental On August 9, 2012, IFC’s Board of Directors approved a designa- and social effects of the projects with which IFC is associated. tion of $340 million of IFC’s retained earnings for grants to IDA and Financial soundness is impacted, among other things, by the level a designation of $80 million of IFC’s retained earnings for advisory of deployable strategic capital, cost of funding for its activities, and services. These designations are expected to be noted with approval the liquidity of its liquid assets portfolio. by the Board of Governors, and thereby concluded, in FY13. MANAGEMENT’S 14 DISCUSSION AND ANALYSIS RISK APPETITE and marketing, collaborates across the Corporation to develop and implement effective communications strategies. IFC’s risk appetite is the amount and type of risk that IFC is willing to take or tolerate in pursuit of its objectives. IFC translates its risk FY12 Enterprise Risk Highlights appetite into risk limits, policies, procedures and directives and Highlights of signiï¬?cant changes made in FY12 are as follows: regularly measures, monitors and evaluates its risk proï¬?le to ensure • Completed the testing phase for IFC Development Goals on Health that appropriate action is taken when the risk proï¬?le diverges from the and Education, and Financial Services for which targets are to risk appetite. IFC’s capacity to take risks is limited by its capital base. be set, reported, and monitored as inputs into strategy and new business selection, starting FY13. RISK GOVERNANCE • Continued to reï¬? ne the Economic Capital approach capital charges as well as in setting and monitoring limits to ensure that IFC’s Board of Directors and Board Committees oversee the overall risk differentiations are taken into account in investment decisions. risk tolerance for the Corporation and provide the highest level of over- • Participated in World Bank Group-wide stress tests that were sight. Centralized risk management is provided by IFC’s Management based on uniformly developed scenarios. Committees and Senior Management. IFC’s Management Team, • Added a Regional Chief Risk Ofï¬? cer (“RCROâ€?) for the Asia under the direction of the Executive Vice President/CEO, is respon- Paciï¬?c region. sible for the day-to-day operations of the Corporation, including • Launched annual written assertions on operational risk manage- oversight and management of existing and potential risks. The Risk ment by Vice Presidents and Directors. Management, Financial Reporting, and Corporate Strategy Vice • Continued to perform signiï¬?cant activities to ensure that internal Presidency has oversight responsibility for ï¬?nancial and operational controls over external ï¬?nancial reporting were working effectively. risks. Project-speciï¬?c environmental, social and corporate gover- nance issues that arise out of IFC’s engagements are overseen by STRATEGIC RISK the Business Advisory Services Vice Presidency, and legal issues are overseen by the General Counsel Vice Presidency. There is a IFC deï¬?nes strategic risk as the potential reputation, ï¬?nancial, and common and shared accountability for strategic and stakeholder risk other consequences of a failure to achieve its strategic mission, and management at the IFC Management Team level. in particular, the risk of not achieving IFC’s purpose of furthering eco- Two independent bodies that serve to ensure IFC remains account- nomic development by “encouraging the growth of productive private able to shareholders on the one hand, and accessible by impacted enterprise in member countriesâ€? and its vision “that people should and concerned stakeholders on the other hand, are the Independent have the opportunity to escape poverty and improve their lives.â€? Evaluation Group and the Compliance Advisor/Ombudsman, The overall management of strategic risk is effected through the respectively. In addition, the World Bank Group’s Internal Audit deï¬?nition and implementation of an annual strategy for meeting Vice Presidency monitors internal controls and governance and the IFC’s mission and guidelines for its investment operations, advisory World Bank Group’s Integrity Vice Presidency is responsible for services, and treasury business lines. The strategy is developed monitoring integrity in operations and investigating allegations of by Senior Management and is approved by the Board of Directors. fraud and corruption. IFC monitors the implementation of strategy through many pro- cesses, including: corporate and department scorecards, cascading MANAGING FINANCIAL AND REPUTATIONAL IMPACT objectives and the Integrated Quarterly Management Report. The Independent Evaluation Group conducts ex post evaluations of the The consequence of not managing risks optimally is either ï¬?nancial implementation of IFC’s strategy on an ongoing basis. loss or adverse impact to IFC’s reputation. Reputational impact is of Given the nature and scope of products and services that IFC signiï¬?cant concern for IFC as the negative perception on the part of provides its clients in furtherance of its development mandate, stakeholders and public in general can adversely affect IFC’s ability operational or business conflicts of interest can arise in the normal to maintain existing, or establish new business relationships and course of its activities. IFC recognizes that adverse reputational, continued access to sources of funding. client-relationship and other implications can arise if such conflicts Financial and reputational impact of risks that IFC takes during the are not properly managed. In order to properly manage operational course of its business are closely monitored by risk oversight units or business conflicts, IFC has implemented processes directed at and discussed with IFC’s Senior Management formally by analyz- (i) the identiï¬?cation of such conflicts as and when they arise; and ing and reviewing trends in IFC’s risk reports and by analyzing key (ii) the application of mitigation measures speciï¬?cally tailored to the ï¬?nancial indicators, ï¬?nancial ratios, external market conditions and circumstances pertaining to the identiï¬?ed conflicts. events on a regular basis. IFC’s Sustainability Framework articulates the Corporation’s stra- Communication activities related to reputational impact are man- tegic commitment to sustainable development, and is an integral part aged by the Corporate Relations Department, which provides advice of IFC’s approach to risk management. The Sustainability Framework on strategic and crisis communications to mitigate and manage comprises IFC’s Policy and Performance Standards on Environmental potential and actual reputational impacts both at the corporate and and Social Sustainability, and IFC’s Access to Information Policy. The the project level throughout the investment cycle. A team responsible Policy on Environmental and Social Sustainability describes IFC’s for external and internal communications, public affairs, and brand commitments, roles, and responsibilities related to environmental and IFC Financials and Projects 2012 15 social sustainability. IFC’s Access to Information Policy reflects IFC’s FINANCIAL RISK commitment to transparency and good governance on its operations, and outlines the Corporation’s institutional disclosure obligations IFC deï¬?nes ï¬?nancial risk as the risk of potential loss from credit regarding its investment and advisory services. The Performance or ï¬?nancial market related activities as well as the potential risk Standards are directed towards clients, providing guidance on how of jeopardizing IFC’s ï¬?nancial soundness. IFC assumes ï¬?nancial to identify risks and impacts, and are designed to help avoid, miti- risks in order to achieve its development and strategic objectives. gate, and manage risks and impacts as a way of doing business in a IFC’s ï¬?nancial risk framework is designed to allow the Corporation sustainable way, including stakeholder engagement and disclosure to take well-calculated risks within the boundaries of its overall risk obligations of the client in relation to project-level activities.IFC uses appetite, which is based on the maintenance of its AAA rating. A the Sustainability Framework along with other strategies, policies, key component of IFC’s risk management framework is the use of and initiatives to direct the business activities of the Corporation in economic capital as a common currency of risk and a measure of the order to achieve its overall development objectives. Corporation’s aggregate capital position and needs. For all IFC investments, project teams are required to specify Financial risk management is about taking well-calculated risks development results expectations with time-bound targets upfront, within the boundaries of the Corporation’s overall risk appetite. using standard indicators. These indicators are tracked and the As such, IFC’s ï¬?nancial risk management framework begins with a performance of the project is rated on an annual basis throughout deï¬?nition of its ï¬?nancial risk appetite, where risk appetite is deï¬?ned the project life. as the amount and type of risk the Corporation is willing to take to The key guiding principles and policies established as part of the achieve its development goals. Following from that deï¬?nition is a framework for managing strategic risk consist of: an ex-ante assess- risk framework that encompasses strategy, capital planning, target ment of strategic ï¬?t of each project; guiding principles for IFC’s setting, and risk monitoring and management. As a result, deï¬?ning operations (catalytic role, business partnership and additionality); the appetite for risk is central to adopting and embedding enterprise environment and social policies; and IFC sanctions procedures. risk management in IFC’s business decisions, reporting, and day-to- day business activity. Guiding Principles for IFC’s Operations An important consideration when setting IFC’s risk appetite is the Catalytic role: IFC will seek above all to be a catalyst in facilitating need to use capital efï¬?ciently, recognizing the trade-offs inherent in productive investments in the private sector of its developing member keeping capital in reserve. Excess capital that is not deployed has countries. It does so by mobilizing ï¬?nancing from both foreign and limited ï¬?nancial and no development impact. At the same time, keep- domestic investors from the private and public sectors. ing some capital in reserve allows IFC to maintain ï¬?nancial strength Business partnership: IFC functions like a business in partner- and to respond proactively in the event of a future crisis. ship with the private sector. Thus, IFC takes the same commercial IFC’s risk appetite as it pertains to ï¬?nancial risk has been deï¬?ned risks as do private institutions, investing its funds under the discipline by Senior Management and the Board of Directors as maintaining a of the marketplace. AAA rating with a three-year risk horizon. To align its risk tolerance Additionality: IFC participates in an investment only when it can with this deï¬?nition, IFC has used its economic capital framework to make a special contribution not offered or brought to the deal by measure the capital required to meet these requirements and has other investors. developed risk policies and processes to manage its ï¬?nancial risk so that it remains within acceptable levels of risk tolerance. IFC Sanctions Procedures translates its risk appetite into risk limits, policies, procedures, and In FY07, IFC established a set of procedures to sanction parties directives, and it monitors and evaluates its risk proï¬?le to ensure involved in IFC projects committing corrupt, fraudulent, collusive, that appropriate action is taken when its risk proï¬?le surpasses its coercive or obstructive practices. In April 2010, the World Bank risk appetite. Group concluded an agreement with other multilateral develop- ment banks (MDBs) whereby entities debarred by one MDB may Key Financial Policies and Guidelines be sanctioned for the same misconduct by the other participating IFC operates under a number of key ï¬?nancial policies and guide- development banks. The enhanced emphasis on combating fraud lines as detailed below, which have been approved by its Board and corruption does not change the high expectations IFC has of Directors: always held for its staff, clients and projects, including due diligence • Disbursed equity plus quasi-equity investments (net of impairment and commitment to good corporate governance. write-downs) may not exceed 100% of net worth. • Minimum liquidity (liquid assets plus undrawn borrowing com- FY12 Strategic Risk Highlights mitments from IBRD) must be sufï¬?cient at all times to cover at In FY11 IFC Development Goals (IDGs) were established to express least 45% of IFC’s estimated net cash requirements for the next development results as objectives and move from tracking to goal set- three years. ting in order to shape strategy and select new business. In FY12, the • Loans are funded with liabilities having the same characteristics in testing phase for IDG 2 (Health and Education) and IDG 3 (Financial terms of interest rate basis and currency and, for ï¬?xed rate loans, Services) was completed and starting in FY13, targets will be set, duration except for Board of Director-approved new products reported, and monitored. involving asset-liability mismatches. MANAGEMENT’S 16 DISCUSSION AND ANALYSIS • IFC maintains a minimum level of liquidity, consisting of proceeds Special Operations Department comprised of workout professionals from external funding, that covers at least 65% of the sum of: with extensive experience in handling such projects, work in close (i) 100% of committed but undisbursed straight senior loans; (ii) coordination with IFC’s Legal Department to provide rapid response. 30% of committed guarantees; and (iii) 30% of committed client The credit risk of loans is quantiï¬?ed in terms of the probability of risk management products. default, loss given default and exposure at risk. These risk param- • IFC is required to maintain a minimum level of total resources eters are used to determine risk based economic capital for capital (including paid-in capital, total loss reserves and retained earnings, adequacy, capital allocation and internal risk management purposes net of designations) equal to total potential losses for all on- and as well as for setting general loan loss reserves and limits. off-balance sheet exposures estimated at levels consistent with Treasury counterparty credit risk is managed to mitigate potential the maintenance of a AAA rating. losses from the failure of a trading counterparty to fulï¬?ll its contrac- In addition, under IFC’s Articles of Agreement, as long as IFC has tual obligations. outstanding borrowings from IBRD, IFC’s leverage, as measured General counterparty eligibility criteria are set by IFC’s Board by the ratio of IFC’s outstanding debt (borrowings plus outstanding of Director-approved Asset- Liability Management and Derivative guarantees) to IFC’s net worth (using subscribed capital), may not Products Authorization and Liquid Asset Management General exceed 4.0 to 1. Investment Authorization. IFC Counterparties are subject to con- servative eligibility criteria and are currently restricted to banks CREDIT RISK and ï¬?nancial institutions with high quality credit ratings by leading international credit rating agencies. IFC deï¬?nes credit risk as the risk that third parties that owe IFC The eligibility criteria and limits of Treasury counterparties are money, securities or other assets will not fulï¬?ll their obligations. These stipulated by the “Liquid Asset Investment Directives.â€? parties may default on their obligations to IFC due to bankruptcy, lack Speciï¬? cally, IFC has adopted the following key ï¬?nancial poli- of liquidity, operational failure or other reasons. Credit risk manage- cies and guidelines that have been approved by the Corporate ment consists of policies, procedures and tools for managing credit Risk Committee: risk, primarily in IFC’s loan portfolio, but also related to counterparty risk taken in the liquid asset and borrowing portfolios. Credit risk Investment Operations management spans investment origination to ï¬?nal repayment or • IFC does not normally ï¬?nance for its own account more than 25% sale; it includes portfolio management and risk modeling activi- of a project’s cost. ties that provide an integrated view of credit risks and their drivers • Total exposure to a country is based on the amount of economic across the Corporation. With respect to IFC’s credit risk exposure capital required to support its investment portfolio in that country. to clients in developing emerging markets, at key steps during the Exposure limits are set for each country based on the size of its investment approval process, information obtained from the invest- economy and its risk score. Sub-limits apply for certain sector ment departments is analyzed and an independent review of the exposures within a country. credit risk of the transaction undertaken, including the assignment • Lender of record exposure in a country may not exceed a speciï¬?ed of a credit risk rating. The credit risk rating, together with invest- percentage of a country’s total long- and medium-term external ment size and product type, is a key input into the risk tiering that debt. Lower trigger levels are set for certain countries. determines authority levels required for transaction approval. After • IFC’s total exposure to a single obligor and groups of obligors may commitment, the quality of IFC’s investment portfolio is monitored not exceed stipulated economic capital and nominal limits based according to principles and procedures deï¬?ned in the Operational on the riskiness of the obligor. Policies and Procedures. Responsibility for the day-to-day monitoring • IFC’s committed exposure in guarantees that are subrogated in and management of credit risk in the portfolio rests with the individual local currency is limited to $300 million for currencies for which investment departments. there are no adequate currency and interest rate risk hedging Credit risk also includes concentration risk: the risk of extreme instruments as determined by IFC’s Treasury Department at the credit losses due to concentration of credit exposure to a common time of commitment. There is a sublimit of $100 million for an risk factor. IFC manages concentration risk through a number of individual currency under this limit. operational and prudential limits, including limitations on single proj- ect/client exposure, single country exposure, and segment concen- Treasury Operations tration. Similarly, credit policies and guidelines have been formulated • Counterparties are subject to conservative eligibility criteria. For covering treasury operations; these are subject to annual review and derivative instruments, IFC’s counterparties are currently restricted approval by the Corporate Risk Committee. to banks and ï¬?nancial institutions with a high quality credit rating Credit risk across IFC’s investment portfolio is monitored and man- (with a mark-to-market agreement) by leading international credit aged through proactive identiï¬?cation of emerging risks and portfolio rating agencies. In addition to IFC’s traditional use of top-rated stress testing in focus sub-portfolios. international banks as swap counterparties, for the sole purpose For impaired loans and other investments at risk, rapid response is of funding local currency loans, IFC has recently extended the essential, as early involvement is the key to recovery when projects universe of eligible swap counterparties to include central banks get into difï¬?culty. IFC provides focused attention on portfolio proj- and selected local banks. ects that require more sophisticated workout and restructuring. To • Exposures to individual counterparties are subject to concen- help enable early involvement, seasoned professionals from IFC’s tration limits. For derivatives, exposure is measured in terms IFC Financials and Projects 2012 17 of replacement cost for measuring total potential exposure. The guarantee portfolio is exposed to the same idiosyncratic and Institution-speciï¬?c limits are updated at least quarterly based on systematic risks as IFC’s loan portfolio and the inherent probable changes in the total size of IFC derivatives portfolio or as needed losses in the guarantee portfolio need to be covered by a reserve according to changes in counterparty’s fundamental situation or for loss. The reserve at June 30, 2012, was $21 million, down from credit status. $24 million at June 30, 2011, based on the year-end portfolio, and • To limit exposure, IFC signs collateral agreements with counter- is included in payables and other liabilities on IFC’s consolidated parties that require the posting of collateral when net mark-to- balance sheet. There was a release of provision of $3 million on guar- market exposure exceeds certain predetermined thresholds, which antees in the consolidated income statement in FY12 ($0—FY11). decrease as a counterparty’s credit rating deteriorates. IFC also In accordance with IFC’s key ï¬?nancial policies and guidelines requires that low quality counterparties should not have more than noted above, IFC holds collateral in the amount of $3,570 million at 30% of total net-of-collateral exposures. June 30, 2012 ($3,613—June 30, 2011). • Because counterparties can be downgraded during the life of a Counterparty credit risk in IFC’s Treasury operations is managed transaction, the agreements provide an option for IFC to terminate on a daily basis through strict eligibility criteria and accompanying all swaps if the counterparty is downgraded below investment limits. Treasury operations counterparties also remain well diversiï¬?ed grade or if other early termination events occur that are standard by sector and geography. in the market. • For exchange-traded instruments, IFC limits credit risk by restrict- MARKET RISK ing transactions to a list of authorized exchanges, contracts and dealers, and by placing limits on the Corporation’s position in IFC’s exposure to market risk is mitigated by adopting the matched- each contract. funding policy noted above and by using derivative instruments to convert assets and liabilities into floating rate US dollar assets and FY12 Credit Risk Highlights liabilities with similar duration. The quality of IFC’s loan portfolio, as measured by aggregate risk ratings, deteriorated between June 30, 2011 and June 30, 2012, Investment Operations with a stabilization of such ratings during the fourth quarter of FY12, IFC takes equity risk in its listed and unlisted equity investments in reflecting recent developments in the Middle East and North Africa. emerging markets. The Corporate Equity Committee, a subcommit- IFC does not recognize income on loans where collectability is in tee of the Management Team, provides guidance on IFC’s overall doubt or payments of interest or principal are past due more than strategy in equity investments, equity portfolio management and 60 days unless collection of interest is expected in the near future. asset allocation. Numerous factors are taken into consideration The amount of non-performing loans as a percentage of the dis- when making asset allocation decisions, reflecting IFC’s roles as a bursed loan portfolio3, a key indicator of loan portfolio performance, development institution and long-term investor, as well as the fact that was 4.1% at June 30, 2012 (4.7% at June 30, 2011). The principal most of the Corporation’s equity investments are in private securi- amount outstanding on non-performing loans totaled $859 million at ties, at least at origination. The factors taken into consideration by June 30, 2012, a decrease of $84 million (8.9%) from the June 30, the Corporate Equity Committee include projected developmental 2011 level of $943 million. impact, IFC’s additionality and comparative advantages, country Total reserves against losses on loans at June 30, 2012, increased diversiï¬?cation, sector diversiï¬?cation, IFC’s country exposure con- to $1,381 million ($1,307 million at June 30, 2011). Total reserves siderations, macro-economic considerations, global trends in equity against losses on loans are equivalent to 6.6% of the disbursed loan markets, and valuations. portfolio, (6.6%—June 30, 2011). Interest rate and currency exchange risk associated with ï¬?xed rate The ï¬?ve-year trend of non-performing loans is presented below: and/or non-US dollar lending is largely economically hedged via cur- rency and interest rate swaps that convert cash flows into variable Non-performing Loans rate US dollar flows. $ millions 0 200 400 600 800 1,000 Market risk resulting from derivative transactions with clients, FY07 which are intended to facilitate clients’ risk management, is miti- FY08 gated by entering into offsetting positions with highly rated mar- FY09 ket counterparties. FY10 FY11 Liquid Asset Portfolios FY12 Percentage 0.0 1.0 2.0 3.0 4.0 5.0 6.0 The interest rate risk in the internally-managed liquid asset manage- ment portfolios is measured using a corporate value-at-risk model, $ millions Percentage of disbursed loans which calculates daily value-at-risk measurements, interest rate duration and credit spread duration. The P0, P1 and P3 portfolios are managed to variable rate US dol- lar benchmarks, on a portfolio basis. To this end, a variety of derivative instruments are used, including short-term, over-the-counter foreign exchange forwards (covered forwards), interest rate and currency swaps, and exchange-traded interest rate futures and options. IFC 3 Excluding “loan-likeâ€? debt securities. MANAGEMENT’S 18 DISCUSSION AND ANALYSIS also takes both long and short positions in securities in the manage- reduced its overall exposure to spread risk in the Liquid Asset port- ment of these portfolios to their respective benchmarks. folios. Net interest rate risk of IFC’s Liquid Asset portfolios is con- The primary source of market risk in the liquid asset portfolios is centrated in short-maturity obligations and the spread risk is well the P2 and P4 portfolios, which are managed to Barclay’s 1–3 year diversiï¬?ed by sector and geography. US Treasury Index benchmark. P2 represents the portion of IFC’s The overall level of market risk in IFC’s equity portfolio was quite capital not disbursed as equity investments, and the benchmark elevated in FY12, due to large fluctuations in global equity markets, reflects the chosen risk proï¬?le for this uninvested capital (paid-in foreign exchange rates and commodity prices. Equity valuations capital and retained earnings). P4 represents an outsourced portion deteriorated sharply during the ï¬?rst quarter of FY12, both in local of the P2 portfolio. In addition, the P1 and P3 portfolios contain a currency and, to a greater degree, in IFC’s reporting currency, US$, degree of market risk (e.g., spread risk). as most emerging market currencies depreciated against the US$ in The P6 portfolio consists of foreign currency proceeds raised FY12 Q1. This period was followed by 5 months of signiï¬?cant recov- locally through swaps and other funding instruments to provide more ery, but about half of such recovery was given up during the last flexible local currency loan products to clients. 4 months of FY12, as renewed concerns on global growth dominated The P7 portfolio is managed to six equal-weighted EURIBID world markets. deposits maturing at the next six monthly reset dates of outstanding In response to such heightened volatility, the Corporation remained liabilities, rebalanced at each calendar month-end. especially selective at entry and managed its equity investment port- folio pro-actively through close monitoring, quarterly portfolio reviews Borrowing Activities and continued oversight from the Corporate Equity Committee. IFC expands its access to funding and decreases its overall fund- Active portfolio management enabled the Corporation to revolve ing cost by issuing debt securities in various capital markets in a its funds signiï¬?cantly in FY12, and maintain an acceptable level variety of currencies, sometimes using complex structures. These of proï¬?tability. structures include borrowings payable in multiple currencies, or borrowings with principal and/or interest determined by reference LIQUIDITY RISK to a speciï¬?ed index such as a reference interest rate, or one or more foreign exchange rates. IFC’s investments are predominantly illiquid in nature due to the Market risk associated with ï¬?xed rate obligations and structured lack of capital flows, the infrequency of transactions, and the lack instruments entered into as part of IFC’s funding program is gener- of price transparency in many emerging markets. To offset this ally mitigated by using derivative instruments to convert them into liquidity risk, strict investment eligibility criteria for the Liquid Asset variable rate US dollar obligations, consistent with the matched- portfolios are deï¬?ned in the liquid asset management investment funding policy. guidelines to ensure predominant liquidity of these funds. Examples of these requirements are minimum bond issue sizes, single bond Asset-Liability Management issue concentration limits, and percentage of total bond issue limits. While IFC’s matched-funding policy provides a signiï¬?cant level of Consequently, a signiï¬?cant portion of the liquid assets is invested protection against currency and interest rate risk, IFC can be exposed in highly liquid securities such as: (a) high quality foreign sovereign, to residual market risk in its overall asset and liability management of sovereign-guaranteed and supranational ï¬?xed income instruments; the funded balance sheet. Residual currency risk arises from events (b) US Treasury or agency instruments; and (c) money market mutual such as changes in the level of non-US dollar loan loss reserves. funds. In the event of a liquidity crisis where market conditions are The aggregate position in each lending currency is monitored on a such that selling business investments is too costly or undesirable, daily basis and the risk is managed within a range of +/- $5 million or are such that market borrowings are too costly, these liquid assets equivalent in each currency. will be available to be liquidated to provide the funds needed to sup- Residual interest rate risk may arise from two main sources: port IFC’s cash requirements. • Assets that are fully match-funded at inception, which can become The primary instruments for maintaining sufï¬?cient liquidity are IFC’s mismatched over time due to write- downs, prepayments, or six liquid asset portfolios, together with the P6 portfolio: rescheduling; and • P0, which is generally invested in short-dated deposits, money • Differing interest rate reset dates on assets and liabilities. market funds, ï¬? xed certiï¬?cates of deposits, one-month floater The residual interest rate risk is managed by measuring the sen- securities and repos, refl ecting its use for short-term fund- sitivity of the present value of assets and liabilities in each currency ing requirements. to a one basis point change in interest rates and managed on a daily • P1 and P2, which are generally invested in: (a) high quality foreign basis within a range of +/- $50,000. sovereign, sovereign-guaranteed and supranational ï¬?xed income instruments; (b) US Treasury or agency instruments; (c) high FY12 Market Risk Highlights quality ABS rated by at least two rating agencies and/or other The overall level of market risk in IFC’s Treasury operations remained high quality notes issued by corporations; (d) MBS; (e) interest low in FY12. Interest rate, foreign exchange, and spread risk are all rate futures and swaps to manage currency risk in the portfolio, as carefully controlled on a daily basis using a system of limits that well as its duration relative to benchmark; and (f) cash deposits remained in compliance during FY12. and repos. In response to increasing volatility in Sovereign debt markets and • P3, which is an outsourced portion of the P1 portfolio (managed increasing risk to the global banking system in FY12, IFC pro-actively by external managers). IFC Financials and Projects 2012 19 • P4, which is an outsourced portion of the P2 portfolio (managed to identify the parameters of various risks but also to monitor and by external managers). control those areas of particular concern. • P6, which is invested in short-term local currency money market IFC utilizes risk transfer, including insurance, at both the project instruments and local government securities. and the institutional levels for mitigation of low frequency and high • P7, which consists of after-swap proceeds from variable-rate bor- severity operational risks. At both levels, IFC identiï¬?es and evalu- rowings denominated and invested in Euros. ates risks, determines available contractual transfer and insurance options, implements the optimal structure, and tracks its effective- FY12 Liquidity Risk Highlights ness over time. IFC also insures its corporate assets and operations On June 30, 2012, IFC’s liquid assets portfolio stood at $29.7 bil- against catastrophic losses where commercially viable. lion ($24.5 billion on June 30, 2011). Current levels of liquid assets Other key components of IFC’s operational risk management also represented 327% of the sum of (i) 100% of committed but approach include: undisbursed straight senior loans; (ii) 30% of committed guarantees; • Operational risk assessment and measurement based on market and (iii) 30% of committed client risk management products (266% practices and tools. on June 30, 2011). • Adoption of the COSO4 control framework as the basis for its evaluation of the effectiveness of its internal controls over ï¬?nan- FUNDING RISK cial reporting. • Ongoing independent review of the effectiveness of IFC’s internal IFC’s primary objective with respect to managing funding risk is to controls in selected key areas and functions performed by the maintain its triple-A credit ratings and, thereby, maintain access Internal Audit Vice Presidency of the World Bank Group. to market funding as needed at the lowest possible cost. • Promoting data integrity in the Corporation based on its data The risk of higher funding costs is also reduced by IFC’s annual management policy. funding targets, the US$billion-dollar benchmark bonds, and the • Ensuring that processes and controls are in place to manage the Discount Note Program. Accessing the capital markets for ï¬?nanc- risks in new products and initiatives before they are executed, ing establishes investor conï¬?dence, liquidity, price transparency, through a New Products/Initiatives Assessment Group with rep- and a diversiï¬?ed investor base, all of which help to reduce ï¬?nancing resentation from key business and support functions. cost. IFC’s Discount Note Program provides swift access to funded liquidity, to complement traditional funding sources, and to provide a FY12 Operational Risk Management Highlights natural funding source for short term ï¬?nancing programs. IFC is continuing a multiyear effort to analyze and develop enhanced methodologies for identifying, measuring, monitoring and manag- FY12 Funding Risk Highlights ing operational risk in its key activities. During FY12, IFC launched During FY12, IFC raised $11.9 billion, net of derivatives ($10.3 billion annual written assertions on operational risk management by Vice in FY11 and $8.8 billion in FY10). The outstanding balance under the Presidents and Directors. To support this, IFC also: Discount Note Program at June 30, 2012 was $1.4 billion ($1.5 bil- • Trained departmental Operational Risk Management Liaisons lion—June 30, 2011). Credit spreads on IFC’s market borrowings to apply operational risk management tools to their busi- were little changed throughout FY12. During FY12, credit spreads ness processes. for IFC’s new borrowings improved to around Libor minus 10 basis • Undertook Risk and Control Self Assessments in its key business points for a 5 year term issue, from Libor flat in FY11. processes, including in AMC. • Continued rolling out other operational risk management meth- OPERATIONAL RISK odologies and tools, including risk events tracking, root cause analysis and key risk indicators. Consistent with “Internal Convergence of Capital Measurement • Conducted events to promote and raise awareness of operational and Capital Standards, A Revised Frameworkâ€? issued by the Basel risk management, including presentations to staff on the introduc- Committee on Banking Supervision in June 2004, IFC deï¬?nes opera- tion of the written assertions. tional risk as the risk of loss resulting from inadequate or failed inter- IFC also continues to focus on its preparedness to react to an nal processes, people and systems or from external events. emergency situation that could disrupt its normal operations. IFC’s Operational Risk Management (ORM) program is based on During FY12: a directive approved by the Corporate Risk Committee during FY10. • IFC Senior Management conï¬?rmed the relative priority of IFC’s This directive establishes the approach and roles and responsibilities business processes for recovery in the event of a disruption, based for operational risk management in the Corporation. on the potential ï¬?nancial and reputational impact of disruption to IFC’s ORM approach is designed to ensure that operational risks each process. This was based on the Business Impact Analysis are identiï¬?ed, assessed, and managed so as to minimize potential completed in FY11. adverse impacts and to enable Senior Management to determine • Departments updated their business continuity plans, based on which risks IFC will: (i) manage internally, as part of its ongoing busi- the conï¬?rmed business process recovery priorities. ness; (ii) mitigate through contingency planning; or (iii) transfer to third parties, whether by subcontracting, outsourcing, or insurance. 4 COSO refers to the Internal Control—Integrated Framework formulated by the IFC seeks to mitigate the risks it manages internally by maintaining Committee of Sponsoring Organizations of the Treadway Commission, which was a comprehensive system of internal controls that is designed not only convened by the US Congress in response to the well-publicized irregularities that occurred in the ï¬?nancial sector in the United States during the late 1980s. MANAGEMENT’S 20 DISCUSSION AND ANALYSIS • All IFC’s Headquarters staff in Washington, D.C., participated losses on loans. Loans written off, as well as any subsequent recov- in a remote work test on a single day to conï¬?rm remote work- eries, are recorded through the reserve. ing capability. The assessment of the adequacy of reserves against losses for • A new information technology disaster recovery testing strat- loans is highly dependent on management’s judgment about fac- egy was established and component testing under the strategy tors such as its assessment of the ï¬?nancial capacity of borrowers, commenced. geographical concentration, industry, regional and macroeconomic • Emergency simulation exercises were conducted in Washington, conditions, and historical trends. Due to the inherent limitation of any in cooperation with IBRD; Emergency Management Teams were particular estimation technique, management utilizes a capital pricing maintained in all regions; and emergency management workshops and risk framework to estimate the probable losses on loans inherent and simulations were held in larger country ofï¬?ces in four regions, in the portfolio but not speciï¬?cally identiï¬?able. This Board of Director- including the Istanbul Operations Center. 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 VI. Critical Accounting Policies the consolidated balance sheet as a reduction of IFC’s total loans. Increases or decreases in the reserve level are reported in the income Note A to IFC’s FY12 Consolidated Financial Statements contain statement as provision for losses or release of provision for losses on a summary of IFC’s signiï¬?cant accounting policies, including a dis- loans, and guarantees. The reserve against losses on loans relates cussion of recently adopted accounting standards and accounting only to the Client Services segment of IFC (see Note T to the FY12 and ï¬?nancial reporting developments. Certain of these policies are Consolidated Financial Statements for further discussion of IFC’s considered to be “criticalâ€? to the portrayal of IFC’s ï¬?nancial condition business segments). and results of operations, since they require management to make difï¬?cult, complex or subjective judgments, some of which may relate OTHER-THAN-TEMPORARY IMPAIRMENT LOSSES ON to matters that are inherently uncertain. EQUITY INVESTMENTS AND DEBT SECURITIES These policies include: (i) Determining the level of reserves against losses in the IFC assesses all equity investments accounted for at fair value loan portfolio; through OCI and all equity investments accounted for at cost less (ii) Determining the level and nature of impairment for equity invest- impairment for impairment each quarter. When impairment is identi- ments and debt securities carried at fair value with changes ï¬?ed and is deemed to be other-than-temporary, the equity investment in fair value being reported in OCI and for equity investments is written down to its impaired value, which becomes the new cost accounted for at cost less impairment (where impairment is basis in the equity investment. IFC generally presumes that all equity determined with reference to fair value); impairments are deemed to be other-than-temporary. Impairment (iii) Determining the fair value of certain equity investments, debt losses on equity investments accounted for at cost less impair- securities, loans, liquid assets, borrowings and derivatives, ment are not reversed for subsequent recoveries in value of the which have no quoted market prices and are accounted for at equity investment until it is sold. Recoveries in value on equity fair value; and investments accounted for at fair value through OCI that have been (iv) Determining the future pension and postretirement beneï¬? t the subject of an other-than-temporary impairment write-down are costs and obligations using actuarial assumptions based on reported in OCI until sold. ï¬?nancial market interest rates, past experience, and manage- IFC assesses all debt security investments accounted for at fair ment’s best estimate of future beneï¬?t cost changes and eco- value through OCI for impairment each quarter. When impairment nomic conditions. is identiï¬?ed, the entire impairment is recognized in net income if Many of IFC’s ï¬?nancial instruments are classiï¬?ed in accordance certain conditions are met (as detailed in Note A to IFC’s FY12 with the fair value hierarchy established by accounting standards for Consolidated Financial Statements). However, if IFC does not intend fair value measurements and disclosures where the fair value and/ to sell the debt security and it is not more likely than not that IFC will or impairment is estimated based on internally developed models or be required to sell the security, but the security has suffered a credit methodologies utilizing signiï¬?cant inputs that are non-observable. loss, the credit-related impairment loss is recognized in net income and the non-credit related loss is recognized in OCI. RESERVE AGAINST LOSSES ON LOANS VALUATION OF FINANCIAL INSTRUMENTS WITH NO QUOTED IFC considers a loan as impaired when, based on current informa- MARKET PRICES tion and events, it is probable that IFC will be unable to collect all amounts due according to the loan’s contractual terms. The reserve IFC reports at fair value all of its derivative instruments, all of its against losses for impaired loans reflects management’s judgment liquid asset trading securities and certain borrowings, loans, equity of the present value of expected future cash flows discounted at the investments and debt securities. In addition, various investment loan’s effective interest rate. The reserve against losses for loans agreements contain embedded or stand-alone derivatives that, for also includes an estimate of probable losses on loans inherent in the accounting purposes, are separately accounted as either derivative portfolio but not speciï¬?cally identiï¬?able. The reserve is established assets or liabilities, including puts, caps, floors, and forwards. IFC through periodic charges to income in the form of a provision for classiï¬?es all ï¬?nancial instruments accounted for at fair value based IFC Financials and Projects 2012 21 on the fair value hierarchy established by accounting standards for value computations affect both the Client Services and Treasury fair value measurements and disclosures as described in more detail segments of IFC (see Note T to the FY12 Consolidated Financial in Notes A and R to IFC’s FY12 Consolidated Financial Statements. Statements for further discussion of IFC’s business segments). Many of IFC’s ï¬?nancial instruments accounted for at fair value are valued based on unadjusted quoted market prices or using models PENSION AND OTHER POSTRETIREMENT BENEFITS where the signiï¬?cant assumptions and inputs are market-observable. The fair values of ï¬?nancial instruments valued using models where IFC participates, along with IBRD and MIGA, in pension and postre- the signiï¬?cant assumptions and inputs are not market-observable are tirement beneï¬?t plans that cover substantially all of their staff mem- generally estimated using complex pricing models of the net present bers. All costs, assets and liabilities associated with the plans are value of estimated future cash flows. Management makes numerous allocated between IBRD, IFC and MIGA based upon their employ- assumptions in developing pricing models, including an assess- ees’ respective participation in the plans. The underlying actuarial ment about the counterparty’s ï¬?nancial position and prospects, the assumptions used to determine the projected beneï¬?t obligations, the appropriate discount rates, interest rates, and related volatility and fair value of plan assets and the funded status associated with these expected movement in foreign currency exchange rates. Changes in plans are based on ï¬?nancial market interest rates, past experience, assumptions could have a signiï¬?cant impact on the amounts reported and management’s best estimate of future beneï¬?t cost changes and as assets and liabilities and the related unrealized gains and losses economic conditions. For further details, please refer to Note W to reported in the income statement and statement of OCI. The fair the FY12 Consolidated Financial Statements. VII. Results of Operations OVERVIEW The overall market environment has a signiï¬?cant influence on IFC’s ï¬?nancial performance. The main elements of IFC’s net income and comprehensive income and influences on the level and variability of net income and compre- hensive income from year to year are: Elements Signiï¬?cant 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 Performance of the equity portfolio (principally realized capital gains, dividends, equity impairment write-downs, 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 beneï¬?ts plans, and the approved administrative and other budgets. Gains and losses on other non-trading ï¬?nancial Principally, differences between changes in fair values of borrowings, including IFC’s credit spread, and associated instruments accounted for at fair value derivative instruments and unrealized gains 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 Board of Governors-approved grants to IDA. Other comprehensive income: Unrealized gains and losses on listed equity Global climate for emerging markets equities and company-speciï¬?c performance. Such equity investments are investments and debt securities accounted for valued using unadjusted quoted market prices and debt securities are valued using internally developed models or as available-for-sale methodologies utilizing inputs that may be observable or non-observable. Unrecognized net actuarial gains and losses Returns on pension plan assets and the key assumptions that underlay projected beneï¬?t obligations, including and unrecognized prior service costs on ï¬?nancial market interest rates, past experience, and management’s best estimate of future beneï¬?t cost changes beneï¬?t plans and economic conditions. MANAGEMENT’S 22 DISCUSSION AND ANALYSIS The following paragraphs detail signiï¬?cant variances between sales trigger levels had been met and, where applicable, lock ups FY12 and FY11, and FY11 and FY10, covering the periods included have expired. in IFC’s FY12 Consolidated Financial Statements. Certain amounts in Total realized gains on equity investments are concentrated—in FY11 and FY10 have been reclassiï¬?ed to conform to the current FY12, 11 investments generated individual capital gains in excess year’s presentation. Where applicable, the following paragraphs of $20 million for a total of $1,821 million, or 91%, of the FY12 reflect reclassiï¬?ed prior year comparative information. Such reclas- gains, compared to 10 investments generating individual capital siï¬?cations had no effect on net income or total assets. gains in excess of $20 million for a total of $416 million, or 56%, of the FY11 gains. FY12 VERSUS FY11 Gains on non-monetary exchanges in FY12 totaled $3 million, as compared with $217 million in FY11. There were two large trans- Net Income actions that resulted in the recording of gains on non-monetary IFC has reported income before grants to IDA of $1,658 million, exchanges in FY11 that did not recur in FY12. $521 million lower than income before grants to IDA of $2,179 mil- Dividend income totaled $274 million, as compared with $280 mil- lion in FY11. lion in FY11. Consistent with FY11, a signiï¬?cant amount of IFC’s The decrease in income before grants to IDA in FY12 when com- dividend income in FY12 was due to returns on IFC’s joint ventures pared to FY11 was principally as a result of: (i) lower unrealized in the oil, gas and mining sectors accounted for under the cost income from non-trading investments and other non-trading ï¬?nan- recovery method, which totaled $43 million in FY12, as compared cial instruments accounted for at fair value; (ii) higher other-than- with $57 million in FY11. temporary impairment losses on equities and debt securities; (iii) Other-than-temporary impairment losses on equity investments lower income from liquid assets; (iv) higher provisions for losses totaled $692 million in FY12 ($420 million on equity invest- on loans and guarantees; and (v) higher administrative expenses, ments accounted for as available-for-sale; and $272 million on partially offset by: (i) higher realized gains on equity investments equity investments accounted for at cost less impairment), as com- and gains on non-monetary exchanges; (ii) lower advisory services pared with $218 million in FY11 ($131 million on equity invest- expenses, net of advisory services income; and (iii) higher foreign ments accounted for as available-for-sale; and $87 million on currency transaction gains and losses on non-trading activities. equity investments accounted for at cost less impairment). In FY12, Grants to IDA totaled $330 million in FY12, as compared to eight investments generated individual other-than-temporary impair- $600 million in FY11. Accordingly, net income totaled $1,328 million ment losses in excess of $20 million for a total of $298 million. In in FY12, as compared with a net income of $1,579 million in FY11. FY11, one investment generated an other-than-temporary impairment A more detailed analysis of the components of IFC’s net loss of $40 million. There were no other investments that generated income follows. an other-than-temporary impairment loss in excess of $20 million. Unrealized losses on equity investments that are accounted for Income from Loans and Guarantees at fair value through net income in FY12 totaled $128 million, as IFC’s primary interest earning asset is its loan portfolio. Income from compared with gains of $454 million in FY11. Seven investments in loans and guarantees for FY12 totaled $938 million, compared with equity funds accounted for $146 million of the unrealized losses $877 million in FY11, an increase of $61 million. in FY12. Six investments in equity funds accounted for $199 million The disbursed loan portfolio grew by $1,159 million, from of the unrealized gains in FY11. Individual investments in such Funds $19,884 million at June 30, 2011 to $21,043 million at June 30, provided a signiï¬?cant component of the unrealized gains and losses. 2012. The weighted average contractual interest rate on loans at June 30, 2012 was 4.7%, versus 4.6% at June 30, 2011. These Income from Debt Securities factors resulted in $90 million higher interest income than in FY11. Income from debt securities increased to $81 million in FY12 from Commitment and ï¬?nancial fees were $12 million higher than in FY11. $46 million in FY11, a increase of $35 million. The largest compo- Recoveries of interest on loans removed from non-accrual status, nents of the increase were higher interest income ($21 million) and net of reversals of income on loans placed in nonaccrual status higher unrealized gains on debt securities accounted for at fair value were $14 million higher than in FY11. Gain on sales of loan was ($23 million) in FY12 when compared with FY11. Realized gains on $2 million as compared to no such gains in FY11. Income from IFC’s debt securities were $14 million higher in FY12 as compared to FY11. participation notes over and above minimum contractual interest and other income were $10 million higher than in FY11. Unrealized Provision for Losses on Loans and Guarantees gains on loans accounted for at fair value and gains on non-monetary The quality of IFC’s loan portfolio, as measured by country risk exchanges were $67 million lower than in FY11. ratings and credit risk ratings was substantially unchanged during FY12. Non-performing loans decreased from $943 million (4.7%) of Income from Equity Investments the disbursed loan portfolio at June 30, 2011 to $859 million (4.1%) Income from the equity investment portfolio decreased by $7 million at June 30, 2012. IFC recorded provision for losses on loans and from an income of $1,464 million in FY11 to $1,457 million in FY12. guarantees of $112 million in FY12 ($76 million speciï¬?c provisions IFC generated record realized gains on sales of equity investments on loans, $39 million portfolio provisions on loans, and $3 million for FY12 of $2,000 million, as compared with $737 million for FY11, release of provision for losses on guarantees) as compared to release an increase of $1,263 million. IFC sells equity investments where of provision of $40 million in FY11 ($16 million release in speciï¬?c IFC’s developmental role was complete, and where pre-determined provisions, and $24 million release in portfolio provisions). IFC Financials and Projects 2012 23 On June 30, 2012, IFC’s total reserves against losses on loans Other Income were 6.6% of the disbursed loan portfolio (6.6% at June 30, 2011). Other income of $448 million for FY12 was $226 million higher than Speciï¬?c reserves against losses at June 30, 2012 of $447 million in FY11 ($222 million). Other income in FY12 includes income from ($382 million at June 30, 2011) are held against impaired loans the P6 local currency liquidity portfolio of $43 million ($44 million of $923 million ($918 million at June 30, 2011), a coverage ratio of in FY11), management fees and service fee reimbursements from 48% (42%). AMC of $28 million ($28 million in FY11) and income from advi- sory services of $269 million ($0 in FY11). In FY12, income from Income from Liquid Asset Trading Activities advisory services included $189 million contributed by donors and Income from liquid asset trading activities comprises interest from $25 million of fees from clients and administrative fees from donors. time deposits and securities, net gains and losses on trading activi- ties, and a small currency effect. The liquid assets portfolio, net of Other Expenses derivatives and securities lending activities, increased from $24.5 bil- Administrative expenses (the principal component of other expenses) lion at June 30, 2011, to $29.7 billion at June 30, 2012. increased by $98 million from $700 million in FY11 to $798 million in Income from liquid asset trading activities totaled $313 million FY12, driven largely by a 9% increase in stafï¬?ng and, to a lesser extent, in FY12 ($529 million in FY11). In FY12 and FY11, all liquid asset salary increases to existing staff. Administrative expenses include portfolios, except for the P7 portfolio (which has an NAV less than the grossing-up effect of certain revenues and expenses attributable $10 million), outperformed their respective benchmarks. to IFC’s reimbursable program and jeopardy projects ($22 million In addition to interest income and foreign currency transaction in FY12, as compared with $24 million in FY11). IFC recorded an gains of $648 million, the portfolio of ABS and MBS experienced fair expense from pension and other postretirement beneï¬?t plans in FY12 value losses totaling $8 million in FY12. Holdings in other products, of $96 million, as compared with $109 million in FY11, a decrease including US Treasuries, global government bonds, high quality driven by actuarial assumptions. corporate bonds and derivatives generated $327 million of losses Advisory services expenses totaled $290 million in FY12 ($153 mil- in FY12. lion in FY11). Advisory services expenses included $189 million of At June 30, 2012, trading securities with a fair value of $150 million funds contributed by donors that were utilized in the provision of are classiï¬?ed as Level 3 securities ($210 million on June 30, 2011). advisory services. The P1 portfolio generated a return of $218 million in FY12, or 0.95%. In FY11, the P1 portfolio generated a return of $330 million, Net Gains and Losses on Other Non-Trading Financial or 2.29%. The externally managed P3 portfolio, managed against Instruments the same variable rate benchmark as the P1 portfolio, returned As discussed in more detail in Note A to IFC’s FY12 Consolidated $13 million in FY12, or 1.64%, $7 million higher than the $6 million, Financial Statements, IFC accounts for certain ï¬?nancial instruments or 0.97% return in FY11. at fair value with unrealized gains and losses on such ï¬?nancial instru- The P2 and externally-managed P4 portfolios returned $60 million ments being reported in net income, namely: (i) all swapped market (1.15%) and $13 million (2.00%) in FY12, respectively, as compared borrowings; and (ii) all equity investments in which IFC has greater to $179 million (3.33%) and $9 million (1.87%) in FY11, respectively. than 20% holdings and/or equity and fund investments which, in the IFC’s P0 portfolio earned $9 million in FY12, a total return of absence of the Fair Value Option, would be required to be accounted 0.47%, as compared to $4 million (0.44%) in FY11. The P7 portfolio for under the equity method, and (iii) substantially all market borrow- earned less than $0.5 million (1.15%) in FY12 as compared to earn- ings. All other non-trading derivatives, including stand-alone and ing $1 million (1.32%) in FY11. embedded derivatives in the loan, equity and debt security portfolios continue to be accounted for at fair value. Charges on Borrowings The resulting effects of fair value accounting for these non-trading IFC’s charges on borrowings increased by $41 million, from ï¬?nancial instruments on net income in FY12 and FY11 are summa- $140 million in FY11 to $181 million in FY12, largely reflecting the rized as follows (US$ millions): higher US dollar interest rate environment and increased level of FY12 FY11 borrowings, when comparing FY12 and FY11. During FY12, IFC bought back $0.6 billion of its market borrowings ($0.3 billion in Realized gains and losses on derivatives associated FY11). Charges on borrowings of $181 million in FY12 ($140 mil- with investments $ 11 $ 63 lion in FY11) are reported net of gains on buybacks of $19 million Non-monetary gains on derivatives associated ($10 million in FY11). with investments 10 22 Unrealized gains and losses on derivatives associated The weighted average rate of IFC’s borrowings outstanding from with investments (34) (23) market sources, after the effects of borrowing-related derivatives, Unrealized gains and losses on market borrowings and and excluding short-term borrowings issued under the Discount Note associated derivatives, net (206) 93 Program, rose during the year from 0.3% at June 30, 2011 to 0.7% Net gains and losses on other non-trading ï¬?nancial at June 30, 2012. The size of the borrowings portfolio (excluding instruments accounted for at fair value $ (219) $ 155 the short-term Discount Note Program), net of borrowing-related derivatives and before fair value adjustments, increased by $6.8 bil- Changes in the fair value of IFC’s market borrowings and associ- lion during FY12 from $33.9 billion at June 30, 2011, to $40.7 billion ated derivatives, net includes the impact of changes in IFC’s own at June 30, 2012. credit spread when measured against US$LIBOR. As credit spreads MANAGEMENT’S 24 DISCUSSION AND ANALYSIS widen, unrealized gains are recorded and when credit spreads nar- The net change in unrealized gains and losses on equity invest- row, unrealized losses are recorded (notwithstanding the impact of ments and debt securities in OCI can be summarized as follows: other factors, such as changes in risk-free interest and foreign cur- FY12 FY11 rency exchange rates). The magnitude and direction (gain or loss) can be volatile from period to period but do not alter cash flow. IFC’s Net unrealized gains and losses on equity investments policy is to generally match currency, amount and timing of cash flows arising during the year: on market borrowings with cash flows on associated derivatives Unrealized gains $ 290 $ 697 entered into contemporaneously. Unrealized losses (813) (309) In FY11, the trend decline in global interest rate paused tempo- Reclassiï¬?cation adjustment for realized gains and impairment write-downs included in net income 277 (274) rarily in the second quarter of the year and interest rates remained Net unrealized gains and losses on equity investments $ (246) $ 114 stable at low levels subsequently. Credit spreads were little changed Net unrealized gains and losses on debt securities throughout FY11 and resulting pricing was at around LIBOR flat for arising during the year: IFC’s benchmark US$global bond offerings. In FY10, credit spreads Unrealized gains $ 85 $ 234 remained elevated relative to the levels that prevailed before FY09. Unrealized losses (358) (97) As a result, IFC reported unrealized gains for FY11 of $93 million, as Reclassiï¬?cation adjustment for realized gains, compared to unrealized losses of $226 million in FY10. non credit-related portion of impairment write- downs which were recognized in net income and In FY12, unsettled conditions in European sovereign debt markets impairment write-downs included in net income 14 4 and renewed signs of flagging economic activity were accompanied Net unrealized gains and losses on debt securities $ (259) $ 141 by further interest rate declines from already low levels. Risk appetites Total unrealized gains and losses on equity in the capital markets receded evidenced by some flight to quality investments and debt securities $ (505) $ 255 along the credit spectrum. This led to better pricing for AAA IFC issues which in FY11 sat at around LIBOR flat, but moved back to 5 Unrecognized Net Actuarial Gains and Losses and to 10 basis points below LIBOR by the end of FY12. This develop- Unrecognized Prior Service Costs on Beneï¬?t Plans ment, along with movements in foreign exchange basis swap rates, Changes in the funded status of pension and other postretirement resulted in adverse after swap revaluations on IFC’s ï¬?nancial state- beneï¬?t plans are recognized in OCI, to the extent they are not recog- ments and IFC reported unrealized losses for FY12 of $206 million, nized in net income under periodic beneï¬?t cost for the year. as compared to unrealized gains of $93 million in FY11. During FY12, IFC experienced a loss of $525 million primarily due IFC reported net losses on derivatives associated with investments to the following factors: (principally put options, stock options, conversion features, warrants Unrecognized net actuarial losses on beneï¬?ts plans: $501 million and swaps associated with loans) of $13 million in FY12 (net gains of of unrecognized net actuarial losses, primarily due to the decrease $62 million in FY11). Gains and losses are highly concentrated, with in the discount rates used to determine the projected beneï¬?t obliga- ï¬?ve derivatives accounting for $113 million of gains and ï¬?ve deriva- tions and lower return on pension assets. The discount rate assump- tives accounting for $73 million of losses in FY12 (ï¬?ve derivatives tion used to determine the projected beneï¬?t obligation for the largest accounting for $140 million of gains and ï¬?ve derivatives accounting beneï¬?t plan, the Staff Retirement Plan, decreased from 5.3% at for $58 million of losses in FY11). June 30, 2011 to 3.9% at June 30, 2012. Unrecognized net prior service cost on beneï¬?t plans: $24 million Grants to IDA of unrecognized prior service cost, primarily due to an amendment During FY12, IFC recorded a grant to IDA of $330 million, as com- made to the pension plan. See notes to FY12 Consolidated Financial pared with $600 million in FY11. Statements—Note W—Pension and Other Postretirement Beneï¬?ts for further details. Other Comprehensive Income Unrealized Gains and Losses on Equity Investments and FY11 VERSUS FY10 Debt Securities IFC’s investments in debt securities and equity investments that Net Income are listed in markets that provide readily determinable fair values at IFC reported income before grants to IDA of $2,179 million in FY11, fair value are classiï¬?ed as available-for-sale, with unrealized gains as compared to $1,946 million in FY10. and losses on such investments being reported in OCI until real- The change in income before net gains and losses on other non- ized. When realized, the gain or loss is transferred to net income. trading ï¬?nancial instruments and grants to IDA in FY11 when com- Changes in unrealized gains and losses on equity investments and pared to FY10 was principally as a result of: (i) lower income from debt securities reported in OCI are signiï¬?cantly impacted by (i) the on equity investments; (ii) lower income from liquid asset trad- global environment for emerging markets; and (ii) the realization of ing activities; (iii) higher expenditures for advisory services and gains on sales of such equity investments and debt securities. against other designated retained earnings; (iv) higher administrative and other expenses; lower income from debt securities; partially offset by: (i) higher service fees and other income; (ii) higher income from loans and guarantees; and a small release of provisions for losses on loans and guarantees as compared to a small charge. IFC Financials and Projects 2012 25 Grants to IDA totaled $600 million in FY11, as compared to Unrealized gains on equity investments that are accounted for $200 million in FY10. Accordingly, net income totaled $1,579 million at fair value through net income in FY11 totaled $454 million, as in FY11, as compared with a net income of $1,746 million in FY10. compared with income of $240 million in FY10. Six investments in A more detailed analysis of the components of IFC’s net equity funds accounted for $199 million of the unrealized gains income follows. in FY11. Individual investments in such Funds provided a signiï¬?cant component of the unrealized gains. Income from Loans and Guarantees IFC’s primary interest earning asset is its loan portfolio. Income from Income from Debt Securities loans and guarantees for FY11 totaled $877 million, compared with Income from debt securities decreased to $46 million in FY11 from $801 million in FY10, an increase of $76 million. $108 million in FY10, a decrease of $62 million. The largest compo- The disbursed loan portfolio grew by $1,687 million, from nents of the decrease were lower gains on non-monetary exchanges, $18,197 million at June 30, 2010 to $19,884 million at June 30, 2011. resulting from conversions to equity investments, ($28 million) and The overall interest rate environment was lower in FY11 than in FY10. lower unrealized gains on debt securities accounted for at fair value The weighted average contractual interest rate on loans at June 30, ($25 million), in FY11 when compared with FY10. Realized gains on 2011 was 4.6%, unchanged from June 30, 2010, reflecting the debt securities were $16 million lower in FY11 as compared to FY10. lower overall interest rate environment existing at June 30, 2011 as compared with June 30, 2010, combined with marginally higher Provision for Losses on Loans and Guarantees spreads to LIBOR on IFC’s loans. These factors combined resulted The quality of IFC’s loan portfolio, as measured by country risk in $28 million higher interest income than in FY10. Commitment ratings and credit risk ratings was substantially unchanged during and ï¬?nancial fees were $2 million higher than in FY10. Recoveries FY11. Non-performing loans increased from $877 million (4.8%) of of interest on loans being removed from non-accrual status, net of the disbursed loan portfolio at June 30, 2010 to $943 million (4.7%) reversals of income on loans being placed in nonaccrual status at June 30, 2011. IFC recorded a release of provision for losses on were unchanged from FY10. Income from IFC’s participation notes loans and guarantees of $40 million in FY11 ($16 million release over and above minimum contractual interest and other income was of speciï¬?c provisions on loans, and $24 million release in portfolio unchanged from FY10. Unrealized gains on loans accounted for at provisions on loans) as compared to a provision for losses on loans fair value and gains on non-monetary exchanges were $46 million and guarantees of $155 million in FY10 ($153 million in speciï¬?c higher than in FY10. provisions, $8 million release in portfolio provisions, and $10 million in speciï¬?c provisions on guarantees). On June 30, 2011, IFC’s total Income from Equity Investments reserves against losses on loans were 6.6% of the disbursed loan Income from the equity investment portfolio decreased by $174 mil- portfolio (7.4% at June 30, 2010). lion from an income of $1,638 million in FY10 to $1,464 million Speciï¬?c reserves against losses at June 30, 2011 of $382 million in FY11. ($432 million at June 30, 2010) are held against impaired loans of IFC generated realized gains on equity investments, including $918 million ($984 million at June 30, 2010), a coverage ratio of recoveries of previously written-off equity investments and net of 42% (44%). losses on sales of equity investments, for FY11 of $737 million, as compared with $1,290 million for FY10, a decrease of $553 million. Income from Liquid Asset Trading Activities IFC sells equity investments where IFC’s developmental role was Income from liquid asset trading activities comprises interest from complete, and where pre-determined sales trigger levels had been time deposits and securities, net gains and losses on trading activi- met and, where applicable, expiration of lock ups. ties, and a small currency translation effect. The liquid assets port- Gains on non-monetary exchanges totaled $217 million, as com- folio, net of derivatives and securities lending activities, increased pared with $28 million in FY10. Two investments generated gains from $21.0 billion at June 30, 2010, to $24.5 billion at June 30, 2011. in excess of $20 million for a total of $192 million, or 88% of FY11 Income from liquid asset trading activities totaled $529 million non-monetary gains. In FY10, no investments generated gains in in FY11 ($815 million in FY10). In FY11 and FY10, all liquid asset excess of $20 million. portfolios outperformed their respective benchmarks. Total realized gains on equity investments are concentrated—in In addition to interest income and foreign currency transaction FY11, 10 investments generated individual capital gains in excess losses of $440 million, the portfolio of ABS and MBS showed fair of $20 million for a total of $416 million, or 56%, of the FY11 gains, value gains totaling $159 million in FY11. Holdings in other products, compared to 9 investments that generated individual capital including US Treasuries, global government bonds, high quality cor- gains in excess of $20 million for a total of $867 million, or 67%, of porate bonds and derivatives generated $70 million of losses in FY11. the FY10 gains. At June 30, 2011, trading securities with a fair value of $210 million Dividend income totaled $280 million, as compared with $285 mil- are classiï¬?ed as Level 3 securities ($177 million on June 30, 2010). lion in FY10. Consistent with FY10, a signiï¬?cant amount of IFC’s The P1 portfolio generated a return of $330 million in FY11, or dividend income in FY11 was due to returns on IFC’s joint ventures 2.29%. In FY10, the P1 portfolio generated a return of $376 million, in the oil, gas and mining sectors accounted for under the cost or 3.44%. The externally managed P3 portfolio, managed against the recovery method, which totaled $57 million in FY11, as compared same variable rate benchmark as the P1 portfolio, returned $6 million with $60 million in FY10. in FY11, or 0.97%, $8 million lower than the $14 million, or 2.81% return in FY10. MANAGEMENT’S 26 DISCUSSION AND ANALYSIS The P2 and externally-managed P4 portfolios returned $179 million Net Gains and Losses on Other Non-Trading (3.33%) and $9 million (1.87%) in FY11, respectively, as compared Financial Instruments to $404 million (7.28%) and $18 million (3.68%) in FY10. The resulting effects of fair value accounting for these non-trading IFC’s P0 portfolio earned $4 million in FY11, a total return of ï¬?nancial instruments on net income in FY11 and FY10 can be sum- 0.44%, as compared to $3 million (0.36%) in FY10. The P7 portfo- marized as follows (US$ millions): lio earned $1 million (1.32%) in FY11 as compared to $0 in FY10. FY11 FY10 Charges on Borrowings Realized gains and losses on derivatives associated IFC’s charges on borrowings decreased by $23 million, from with investments $ 63 $ 5 $163 million in FY10 to $140 million in FY11, largely reflecting the Non-monetary gains on derivatives associated lower US dollar interest rate environment, when comparing FY11 with investments 22 6 Unrealized gains and losses on derivatives associated and FY10. During FY11, IFC bought back $0.3 billion of its mar- with investments (23) (124) ket borrowings ($0.9 billion in FY10). Charges on borrowings of Unrealized gains and losses on market borrowings $140 million in FY11 ($163 million in FY10) are reported net of gains and associated derivatives, net 93 (226) on buybacks of $10 million ($62 million in FY10). Net gains and losses on other non-trading ï¬?nancial The weighted average rate of IFC’s borrowings outstanding from instruments accounted for at fair value $155 $ (339) market sources, after the effects of borrowing-related derivatives, and excluding short-term borrowings issued under the Discount Note Changes in the fair value of IFC’s market borrowings and associ- Program, fell during the year from 0.5% at June 30, 2010 to 0.3% ated derivatives, net includes the impact of changes in IFC’s own at June 30, 2011. The size of the borrowings portfolio (excluding the credit spread when measured against US$LIBOR. As credit spreads short-term Discount Note Program), net of borrowing-related deriva- widen, unrealized gains are recorded and when credit spreads nar- tives and before fair value adjustments, increased by $5.1 billion row, unrealized losses are recorded (notwithstanding the impact during FY11 from $28.8 billion at June 30, 2010, to $33.9 billion at of other factors, such as changes in risk-free interest and foreign June 30, 2011. currency exchange rates). The magnitude and direction (gain or loss) can be volatile from period to period but do not alter the cash Other Income flows. IFC’s policy is to generally match currency, amount and timing Other income of $222 million for FY11 was $46 million higher than of cash flows on market borrowings with cash flows on associated in FY10 ($176 million). Other income in FY11 includes income from derivatives entered into contemporaneously. the P6 local currency liquidity portfolio of $44 million ($27 million in In FY10, interest rates continued to decline in an environment still FY10) and Management Fees and Service fee reimbursements from flush with liquidity after the shocks of the ï¬?nancial crisis the prior AMC of $28 million ($7 million in FY10). year, and appetite for risk in international capital markets slowly recovered. Risk premiums partially reverted although credit spreads Other Expenses remained elevated relative to pre-crisis norms. In FY11, the interest Administrative expenses (the principal component of other expenses) rate structure reached a bottom during the second quarter of the year increased by $36 million (5%) from $664 million in FY10 to $700 mil- and interest rates remained stable at low levels subsequently. Credit lion in FY11. The increase in administrative expenses was largely due spreads were little changed throughout FY11 at around LIBOR flat for to salary increases and new hires. Administrative expenses include IFC’s benchmark US$global bond offerings. In FY10, credit spreads the grossing-up effect of certain revenues and expenses attributable remained elevated relative to the levels that prevailed before FY09. to IFC’s reimbursable program and jeopardy projects ($24 million As a result, IFC reported unrealized gains for FY11 of $93 million, as in FY11, as compared with $36 million in FY10). IFC recorded an compared to unrealized losses of $226 million in FY10. expense from pension and other postretirement beneï¬?t plans in FY11 IFC reported net gains on derivatives associated with investments of $109 million, as compared with $69 million in FY10, an increase (principally put options, stock options, conversion features, war- driven by actuarial assumptions. rants and loan hedging swaps) of $62 million in FY11 (net losses of $113 million in FY10). Gains and losses are highly concentrated, with Expenditures for Advisory Services ï¬?ve derivatives accounting for $140 million of gains and ï¬?ve deriva- Expenditures for advisory services in FY11 totaled $106 million, tives accounting for $58 million of losses in FY11 (ï¬?ve derivatives $5 million higher than in FY10. accounting for $56 million of gains and ï¬?ve derivatives accounting for $84 million of losses in FY10). Performance-Based Grants and IFC SME Ventures for IDA Countries Grants to IDA Expenditures for PBGs and SME Ventures for IDA countries During FY11, IFC recorded a grant to IDA of $600 million, as com- totaled $50 million in FY11, $41 million higher than in FY10. The pared with $200 million in FY10. increase is largely attributable to the last draw down of $37 million of infrastructure-related PBGs. IFC Financials and Projects 2012 27 Other Comprehensive Income VIII. Governance and Control Unrealized Gains and Losses on Equity Investments and Debt Securities SENIOR MANAGEMENT CHANGES IFC’s investments in debt securities and equity investments that are listed in markets that provide readily determinable fair values at fair The following changes occurred in the Senior Management of IFC value are classiï¬?ed as available-for-sale, with unrealized gains and since June 30, 2011: losses on such investments being reported in OCI until realized. Mr. Robert B Zoellick retired as President, effective June 30, 2012. When realized, the gain or loss is transferred to net income. Changes Dr. Jim Yong Kim became President, effective July 1, 2012. in unrealized gains and losses on equity investments and debt securi- Mr. Jyrki Koskelo retired as Vice President, Global Industries, ties being reported in OCI are signiï¬?cantly impacted by (i) the global effective July 1, 2011. environment for emerging markets; and (ii) the realization of gains on Ms. Karin Finkelston was appointed Vice President, Asia Paciï¬?c, sales of such equity investments and debt securities. effective July 1, 2011. The net change in unrealized gains and losses on equity invest- Mr. Rashad Kaldany’s title became Vice President, Global ments and debt securities in OCI can be summarized as follows: Industries, effective July 1, 2011. Mr. Dimitris Tsitsiragos was appointed Vice President, Eastern FY11 FY10 and Southern Europe, Central Asia, Middle East and North Africa, Net unrealized gains and losses on equity investments effective July 1, 2011. arising during the year: Ms. Rachel Kyte stepped down from her duties as Vice President, Unrealized gains $ 697 $1,117 Business Advisory Services, effective September 19, 2011. Unrealized losses (309) (198) Ms. Nena Stoiljovic was appointed Vice President, Business Reclassiï¬?cation adjustment for realized gains and impairment write-downs included in net income (274) (313) Advisory Services, effective September 19, 2011. Net unrealized gains and losses on equity investments $ 114 $ 606 Effective June 30, 2012, Mr. Lars Thunell stepped down as Net unrealized gains and losses on debt securities Executive Vice President and CEO. Mr. Rashad Kaldany, Vice arising during the year: President, Global Industries, was appointed Acting Executive Unrealized gains $ 234 $ 181 Vice President and Mr, James Scriven, Director, Global Financial Unrealized losses (97) (61) Markets, was appointed Acting Vice President, Global Industries, Reclassiï¬?cation adjustment for realized gains, each effective July 1, 2012. non credit-related portion of impairment write- downs which were recognized in net income and Following the retirement of Mr. Thierry Tanoh as Vice President, impairment write-downs included in net income 4 (43) Sub-Saharan Africa, Latin America and the Caribbean, and Western Net unrealized gains and losses on debt securities $ 141 $ 77 Europe, effective July 16, 2012, Mr. Bernard Sheahan, Director, Total unrealized gains and losses on equity Global Infrastructure and Natural Resources, was appointed investments and debt securities $ 255 $ 683 Acting Vice President, Sub-Saharan Africa, Latin America and the Caribbean, and Western Europe, effective July 16, 2012. The search process to ï¬?ll the position of Executive Vice President Unrecognized Net Actuarial Gains and Losses and and CEO has been completed and the position is expected to be Unrecognized Prior Service Costs on Beneï¬?t Plans announced shortly. The search process to ï¬?ll the position of Vice Changes in the funded status of pension and other postretirement President, Sub-Saharan Africa, Latin America and the Caribbean, beneï¬?t plans are recognized in OCI, to the extent they are not recog- and Western Europe is underway. nized in net income under periodic beneï¬?t cost for the year. During FY11, IFC experienced a decrease in the current value adjustment GENERAL GOVERNANCE for unrecognized net periodic pension cost of $86 million, primarily reflecting a higher increase in the fair value of plan assets as com- IFC’s decision- making structure is comprised of the Board of pared to the increase in the projected beneï¬?t obligation. Governors, the Board of Directors, the President, the Executive Vice President and CEO, other ofï¬?cers and staff. The Board of Governors is the highest decision- making authority. The Board of Governors has delegated to the Board of Directors authority to exercise all of the powers of IFC except those reserved to the Governors under the Articles of Agreement. BOARD MEMBERSHIP In accordance with its Articles of Agreement, members of the Board of Directors are appointed or elected every two years by their mem- ber governments. Currently, the Board of Directors is composed of 25 Directors. These Directors are neither ofï¬?cers nor staff of IFC. The President is the only member of the Board of Directors from MANAGEMENT’S 28 DISCUSSION AND ANALYSIS management, serving as a non-voting member and as Chairman of Access to Resources and to Management the Board of Directors. Throughout the year, the Audit Committee receives a large volume The Board of Directors has established several Committees of information, which supports the execution of its duties. The Audit including: Committee meets both formally and informally throughout the year to • Committee on Development Effectiveness discuss relevant matters. The Audit Committee has complete access • Audit Committee to management and reviews and discusses with management topics • Budget Committee contemplated in their Terms of Reference. • Human Resources Committee The Audit Committee has the capacity, under exceptional cir- • Ethics Committee cumstances, to obtain advice and assistance from outside legal, • Committee on Governance and Executive Directors’ accounting or other advisors as deemed appropriate. Administrative Matters The Board of Directors and their Committees function in continu- BUSINESS CONDUCT ous session at the principal ofï¬?ces of the World Bank Group, as business requires. Each Committee’s terms of reference establishes Staff members’ ethical obligations to the institution are embodied in its respective roles and responsibilities. As Committees do not vote its core values and principles of staff employment. In support of this on issues, their role is primarily to serve the Board of Directors in commitment, the institution has in place a code of conduct, entitled discharging its responsibilities. Living our Values (the Code). The Code applies to all staff worldwide The Board of Directors is responsible for the conduct of the and is available on IBRD’s Web site, www.worldbank.org. general operations of IFC. The Directors are also responsible for In addition to the Code, Staff and Administrative Manuals, guid- presenting to the Board of Governors, at the Annual meetings, ance for staff is also provided through programs, training materials, audited accounts, an administrative budget, and an annual report and other resources. Managers are responsible for ensuring that on operations and policies as well as other matters. internal systems, policies, and procedures are consistently aligned with the World Bank Group’s business conduct framework. AUDIT COMMITTEE The World Bank Group has both an Ethics HelpLine and a Fraud and Corruption hotline. A third-party service offers numerous meth- Membership ods of worldwide communication. Reporting channels include: The Audit Committee consists of eight members of the Board of phone, mail, email, anonymously, or through conï¬?dential submis- Directors. Membership on the Audit Committee is determined by the sion through a website. Board of Directors, based upon nominations by the Chairman of the IFC has in place procedures for the receipt, retention and handling Board of Directors, following informal consultation with the Directors. of recommendations and concerns relating to business conduct identiï¬?ed during accounting, internal control and auditing processes. Key Responsibilities The World Bank Group’s Staff Rules clarify and codify the obli- The Audit Committee is appointed by the Directors to assist it gations of staff in reporting suspected fraud, corruption or other in the oversight and assessment of IFC’s ï¬?nances and account- misconduct that may threaten operations or governance of the World ing, including the effectiveness of ï¬?nancial policies, the integrity Bank Group. Additionally, these rules offer protection from retaliation. of ï¬?nancial statements, the system of internal controls regarding ï¬?nance, accounting and ethics (including fraud and corruption), AUDITOR INDEPENDENCE and ï¬?nancial and operational risks. The Audit Committee also has the responsibility for reviewing the performance and recommend- The appointment of the external auditor of IFC is governed by a ing to the Directors the appointment of the external auditor, as well set of Board of Director-approved principles. Key features of those as monitoring the independence of the external auditor. The Audit principles include: Committee participates in oversight of the internal audit function and • Prohibition of the external auditor from the provision of all non reviews the annual internal audit plan. In the execution of its role, the audit-related services. Audit Committee discusses with management, the external audi- • All audit- related services must be pre-approved on a case- tors, and the internal auditors, ï¬?nancial issues and policies which by-case basis by the Directors, upon recommendation of the have a bearing on IFC’s ï¬?nancial position and risk-bearing capacity. Audit Committee. The Committee also reviews with the external auditor the ï¬?nancial • Mandatory rebidding of the external audit contract every ï¬?ve years, statements prior to their publication and recommends the annual with a limitation of two consecutive terms and mandatory rota- audited ï¬?nancial statements for approval to the Directors. The Audit tion thereafter. Committee updated its terms of reference in July 2009. External auditors are appointed to a ï¬?ve-year term of service. This is subject to annual reappointment based on the recommendation of Executive Sessions the Audit Committee and approval of a resolution by the Directors. Under the Audit Committee’s terms of reference, members of the Communication between the external auditor and the Audit Audit Committee may convene in executive session at any time, Committee is ongoing, as frequently as is deemed necessary by without management present. It meets separately in executive ses- either party. The Audit Committee meets periodically with the exter- sion with the external and internal auditors. nal auditor, and individual members of the Audit Committee have IFC Financials and Projects 2012 29 independent access to the external auditor. IFC’s external auditors For each ï¬?scal year, management performs an evaluation of internal also follow the communication requirements with audit committees control over external ï¬?nancial reporting for the purpose of determin- set out under generally accepted auditing standards in the United ing if there are any changes made in internal controls during the States of America. ï¬?scal year covered by the report that materially affect, or would be reasonably likely to materially affect IFC’s internal control over INTERNAL CONTROL external ï¬?nancial reporting. As of June 30, 2012, no such changes had occurred. Internal Over Financial Reporting Management makes an annual assertion whether, as of June 30 of Disclosure Controls and Procedures each ï¬?scal year, its system of internal control over ï¬?nancial report- Disclosure controls and procedures are those processes which ing has met the criteria for effective internal control over external are designed to ensure that information required to be disclosed ï¬?nancial reporting as described in the Internal Control- Integrated is accumulated and communicated to management as appropri- Framework issued by the Committee of Sponsoring Organizations ate, to allow timely decisions regarding required disclosure by IFC. of the Treadway Commission (COSO). Concurrently, IFC’s external Management has undertaken an evaluation of the effectiveness of auditor provides an attestation report on whether Management’s such controls and procedures. Based on that evaluation, manage- assertion regarding the effectiveness of internal control over external ment has concluded that these controls and procedures were effec- ï¬?nancial reporting is fairly stated in all material respects. tive as of June 30, 2012. 30 Page 36 INTERNATIONAL FINANCE CORPORATION 31 Page 37 INTERNATIONAL FINANCE CORPORATION 32 Page 38 INTERNATIONAL FINANCE CORPORATION 33 Page 39 INTERNATIONAL FINANCE CORPORATION 34 Page 40 INTERNATIONAL FINANCE CORPORATION CONSOLIDATED BALANCE SHEETS as of June 30, 2012 and June 30, 2011 (US$ millions) 2012 2011 Assets Cash and due from banks ......................................................................................................... $ 1,328 $ 642 Time deposits ............................................................................................................................ 5,719 4,825 Trading securities - Notes C and R ........................................................................................... 28,868 24,761 Securities purchased under resale agreements ....................................................................... 964 1,549 Investments - Notes B, D, E, F, R and U Loans ($591 - June 30, 2012 and $637 - June 30, 2011 at fair value; $60 - June 30, 2012 and $87 - June 30, 2011 at lower of cost or fair value) (net of reserve against losses of $1,381 - June 30, 2012 and $1,307 - June 30, 2011) - Notes D, E and R ....................................................... 19,496 18,455 Equity investments ($6,708 - June 30, 2012 and $6,565 - June 30, 2011 at fair value) - Notes B, D and R ....................................................................................... 9,774 9,313 Debt securities - Notes D, F and R ........................................................................................ 2,168 2,166 Total investments .......................................................................................................... 31,438 29,934 Derivative assets - Notes Q and R............................................................................................. 4,615 4,177 Receivables and other assets - Note J ...................................................................................... 2,829 2,602 Total assets ..................................................................................................................... $ 75,761 $ 68,490 Liabilities and capital Liabilities Securities sold under repurchase agreements ...................................................................... $ 6,397 $ 5,787 Borrowings outstanding - Notes K and R .............................................................................. From market sources at amortized cost ........................................................................... 1,777 1,880 From market sources at fair value ..................................................................................... 42,846 36,281 From International Bank for Reconstruction and Development at amortized cost ............ 42 50 Total borrowings ........................................................................................................... 44,665 38,211 Derivative liabilities - Notes Q and R ..................................................................................... 1,261 1,757 Payables and other liabilities - Note L ................................................................................... 2,858 2,456 Total liabilities ................................................................................................................... 55,181 48,211 Capital Capital stock, authorized (2,580,000 - June 30, 2012; 2,450,000 - June 30, 2011) shares of $1,000 par value each - Note M Subscribed and paid-in ................................................................................................ 2,372 2,369 Accumulated other comprehensive income - Note O ............................................................ 513 1,543 Retained earnings - Note O ................................................................................................... 17,695 16,367 Total capital ...................................................................................................................... 20,580 20,279 Total liabilities and capital ............................................................................................. $ 75,761 $ 68,490 The notes to the Consolidated Financial Statements are an integral part of these statements 35 Page 41 INTERNATIONAL FINANCE CORPORATION CONSOLIDATED INCOME STATEMENTS for each of the three years ended June 30, 2012 (US$ millions) 2012 2011 2010 Income from investments Income from loans and guarantees - Note E ............................................................ $ 938 $ 877 $ 801 (Provision) release of provision for losses on loans and guarantees - Note E ......... (117) 40 (155) Income from equity investments - Note G ................................................................ 1,457 1,464 1,638 Income from debt securities - Note F ........................................................................ 81 46 108 Total income from investments ..................................................................... 2,359 2,427 2,392 Income from liquid asset trading activities - Note C ..................................................... 313 529 815 Charges on borrowings - Note K .................................................................................. (181) (140) (163) Income from investments and liquid asset trading activities, after charges on borrowings .............................................................................. 2,491 2,816 3,044 Other income Service fees ............................................................................................................. 60 88 70 Advisory services income ......................................................................................... 269 - - Other - Notes B and N ............................................................................................. 119 134 106 Total other income ............................................................................................. 448 222 176 Other expenses Administrative expenses - Note X ............................................................................ (798) (700) (664) Advisory services expenses ..................................................................................... (290) (153) (108) Expense from pension and other postretirement benefit plans - Note W ................ (96) (109) (69) Other - Note B ........................................................................................................... (23) (19) (12) Total other expenses ......................................................................................... (1,207) (981) (853) Foreign currency transaction gains and losses on non-trading activities ...................... 145 (33) (82) Income before net gains and losses on other non-trading financial instruments accounted for at fair value and grants to IDA............................ 1,877 2,024 2,285 Net gains and losses on other non-trading financial instruments accounted for at fair value - Note P Realized gains .......................................................................................................... 11 63 5 Gains on non-monetary exchanges ......................................................................... 10 22 6 Unrealized (losses) gains ......................................................................................... (240) 70 (350) Total net (losses) gains on other non-trading financial instruments accounted for at fair value ............................................................................. (219) 155 (339) Income before grants to IDA ................................................................................... 1,658 2,179 1,946 Grants to IDA - Note O .................................................................................................. (330) (600) (200) Net income ...................................................................................................................$ 1,328 $ 1,579 $ 1,746 The notes to the Consolidated Financial Statements are an integral part of these statements 36 Page 42 INTERNATIONAL FINANCE CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME for each of the three years ended June 30, 2012 (US$ millions) 2012 2011 2010 Net income ...................................................................................................................$ 1,328 $ 1,579 $ 1,746 Other comprehensive (loss) income Net unrealized (losses) gains on available-for-sale debt securities arising during the period ................................................................................................... (273) 137 120 Add (less): reclassification adjustment for realized losses (gains) included in net income .............................................................................. (12) 2 (14) Less: reclassification adjustment for gains on non-monetary exchanges included in net income .............................................................................. (1) - (32) Add: reclassification adjustment for impairment write-downs included in net income ................................................................................................ 27 2 3 Net unrealized (losses) gains on debt securities ......................................... (259) 141 77 Net unrealized (losses) gains on available-for-sale equity investments arising during the year ...................................................................................................... (523) 388 919 Less: reclassification adjustment for realized gains included in net income ......... (143) (405) (390) Add: reclassification adjustment for impairment write-downs included in net income ................................................................................................ 420 131 77 Net unrealized (losses) gains on equity investments ................................. (246) 114 606 Net unrecognized actuarial (losses) gains and unrecognized prior service (costs) credits on benefit plans......................................................................... (525) 86 (192) Total other comprehensive (loss) income ............................................................ (1,030) 341 491 Total comprehensive income ..................................................................... $ 298 $ 1,920 $ 2,237 The notes to the Consolidated Financial Statements are an integral part of these statements 37 Page 43 INTERNATIONAL FINANCE CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL for each of the three years ended June 30, 2012 (US$ millions) Retained earnings Accumulated other comprehensive Capital Undesignated Designated Total income - Note O stock Total capital At June 30, 2009 …………………… $ 12,251 $ 791 $ 13,042 $ 711 $ 2,369 $ 16,122 Year ended June 30, 2010 Net income…………………………… 1,746 1,746 1,746 Other comprehensive income……… 491 491 Expenditures against designated retained earnings - Note O ……... 310 (310) - - At June 30, 2010………………………... $ 14,307 $ 481 $ 14,788 $ 1,202 $ 2,369 $ 18,359 Year ended June 30, 2011 Net income……………………………. 1,579 1,579 1,579 Other comprehensive income………. 341 341 Designations of retained earnings - Note O……… (610) 610 - - Expenditures against designated retained earnings - Note O………... 756 (756) - - At June 30, 2011………………………... $ 16,032 $ 335 $ 16,367 $ 1,543 $ 2,369 $ 20,279 Year ended June 30, 2012 Net income……………………………. 1,328 1,328 1,328 Other comprehensive loss ………….. (1,030) (1,030) Designations of retained earnings - Note O………... (399) 399 - - Payments received for capital stock subscribed .............................. 3 3 Expenditures against designated retained earnings - Note O………... 412 (412) - - At June 30, 2012………………………... $ 17,373 $ 322 $ 17,695 $ 513 $ 2,372 $ 20,580 The notes to the Consolidated Financial Statements are an integral part of these statements 38 Page 44 INTERNATIONAL FINANCE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS for each of the three years ended June 30, 2012 (US$ millions) 2012 2011 2010 Cash flows from investing activities Loan disbursements ................................................................................................. $ (5,651) $ (4,519) $ (4,907) Investments in equity securities ................................................................................ (1,810) (1,884) (1,617) Investments in debt securities .................................................................................. (520) (312) (269) Loan repayments ..................................................................................................... 3,733 3,297 3,016 Equity redemptions .................................................................................................. - 1 1 Debt securities repayments ..................................................................................... 231 72 92 Proceeds from sales of loans .................................................................................... 10 26 11 Proceeds from sales of equity investments .............................................................. 2,452 1,432 1,633 Proceeds from sales of debt securities .................................................................... 56 12 13 Net cash used in investing activities ............................................................ (1,499) (1,875) (2,027) Cash flows from financing activities Medium and long-term borrowings New issues ........................................................................................................... 11,636 9,882 8,566 Retirement ............................................................................................................ (5,182) (5,139) (5,819) Medium and long-term borrowings related derivatives, net .................................. 329 410 261 Short-term borrowings, net........................................................................................ (49) 43 1,404 Capital subscriptions ................................................................................................. 3 - - Net cash provided by financing activities ................................................... 6,737 5,196 4,412 Cash flows from operating activities Net income ................................................................................................................ 1,328 1,579 1,746 Adjustments to reconcile net income to net cash used in operating activities: Gains on non-monetary exchanges of loans ........................................................ (78) (9) - Realized gains on debt securities and gains on non-monetary exchanges.......... (13) (2) (46) Realized gains on equity investments and gains on non-monetary exchanges ... (2,003) (954) (1,318) Unrealized losses (gains) on loans accounted for at fair value under the Fair Value Option ........................................................................ .... 57 (79) (42) Unrealized (gains) losses on debt securities accounted for at fair value under the Fair Value Option… ..................................................................... .... (21) 2 (23) Unrealized losses (gains) on equity investments accounted for at fair value under the Fair Value Option .............................................................................. 128 (454) (240) Provision (release of provision) for losses on loans and guarantees ................... 117 (40) 155 Impairment losses on debt securities ................................................................... 27 2 3 Other-than-temporary impairment losses on equity investments ......................... 692 218 203 Net discounts paid on retirement of borrowings………………………………….. .. (1) (3) (7) Net realized gains on extinguishment of borrowings ....................................... .... (19) (10) (62) Foreign currency transaction (gains) losses on non-trading activities .................. (145) 33 82 Net losses (gains) on other non-trading financial instruments accounted for at fair value ................................................................................ 219 (155) 339 Change in accrued income on loans, time deposits and securities ..................... (48) 51 (37) Change in payables and other liabilities .............................................................. 1,171 354 634 Change in receivables and other assets .............................................................. (331) 138 (162) Change in trading securities and securities purchased and sold under resale and repurchase agreements .................................................................. (4,302) (4,722) (2,085) Net cash used in operating activities .......................................................... (3,222) (4,051) (860) Change in cash and cash equivalents ......................................................................... 2,016 (730) 1,525 Effect of exchange rate changes on cash and cash equivalents ................................. (436) 234 181 Net change in cash and cash equivalents ................................................................... 1,580 (496) 1,706 Beginning cash and cash equivalents .......................................................................... 5,467 5,963 4,257 Ending cash and cash equivalents .......................................................................... $ 7,047 $ 5,467 $ 5,963 Composition of cash and cash equivalents Cash and due from banks ......................................................................................... $ 1,328 $ 642 $ 528 Time deposits ........................................................................................................... 5,719 4,825 5,435 Total cash and cash equivalents .......................................................................... $ 7,047 $ 5,467 $ 5,963 The notes to the Consolidated Financial Statements are an integral part of these statements 39 Page 45 INTERNATIONAL FINANCE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS for each of the three years ended June 30, 2012 (US$ millions) 2012 2011 2010 Supplemental disclosure Change in ending balances resulting from currency exchange rate fluctuations: Loans outstanding ............................................................................................... $ (675) $ 601 $ (267) Debt securities ..................................................................................................... (221) 142 59 Loan and debt security-related currency swaps .................................................. 915 (699) 128 Borrowings ............................................................................................................ 1,282 (2,358) (411) Borrowing-related currency swaps ...................................................................... (1,275) 2,327 410 Client risk management-related currency swaps .................................................. - (6) (1) Charges on borrowings paid, net .............................................................................. $ 139 $ 159 $ 209 Non-cash item: Loan and debt securities conversion to equity, net ............................................... $ 90 $ 75 $ 172 The notes to the Consolidated Financial Statements are an integral part of these statements 40 Page 46 INTERNATIONAL FINANCE CORPORATION CONSOLIDATED STATEMENT OF CAPITAL STOCK AND VOTING POWER as of June 30, 2012 (US$ thousands) Capital Stock Voting Power Capital Stock Voting Power Amount Percent Number of Percent Amount Percent Number of Percent Members paid of total votes of total Members paid of total votes of total Afghanistan ............................. $ 111 * 868 0.03 Lesotho ………………………... $ 71 * 828 0.03 Albania .................................... 1,302 0.05 2,059 0.08 Liberia …………………………. 83 * 840 0.03 Algeria ..................................... 5,621 0.24 6,378 0.25 Libya …………………………… 55 * 812 0.03 Angola ..................................... 1,481 0.06 2,238 0.09 Lithuania ………………………. 2,341 0.10 3,098 0.12 Antigua and Barbuda .............. 13 * 770 0.03 Luxembourg…………………… 2,139 0.09 2,896 0.12 Argentina ................................. 38,129 1.61 38,886 1.55 Macedonia, FYR of …………... 536 0.02 1,293 0.05 Armenia ................................... 992 0.04 1,749 0.07 Madagascar …………………... 432 0.02 1,189 0.05 Australia .................................. 47,329 2.00 48,086 1.91 Malawi …………………………. 1,822 0.08 2,579 0.10 Austria ..................................... 19,741 0.83 20,498 0.82 Malaysia ………………………. 15,222 0.64 15,979 0.64 Azerbaijan ............................... 2,367 0.10 3,124 0.12 Maldives ………………………. 16 * 773 0.03 Bahamas, The ………………... 335 0.01 1,092 0.04 Mali …………………………….. 451 0.02 1,208 0.05 Bahrain ………………………… 1,746 0.07 2,503 0.10 Malta …………………………… 1,615 0.07 2,372 0.09 Bangladesh …………………… 9,037 0.38 9,794 0.39 Marshall Islands ……………… 663 0.03 1,420 0.06 Barbados ……………………… 361 0.02 1,118 0.04 Mauritania …………………….. 214 0.01 971 0.04 Belarus .................................... 5,162 0.22 5,919 0.24 Mauritius ………………………. 1,665 0.07 2,422 0.10 Belgium ................................... 50,610 2.13 51,367 2.05 Mexico …………………………. 27,589 1.16 28,346 1.13 Belize ...................................... 101 * 858 0.03 Micronesia, Fed. States of…… 744 0.03 1,501 0.06 Benin …………………………... 119 0.01 876 0.03 Moldova ……………………….. 1,192 0.05 1,949 0.08 Bhutan …………………………. 720 0.03 1,477 0.06 Mongolia ………………………. 144 0.01 901 0.04 Bolivia …………………………. 1,902 0.08 2,659 0.11 Montenegro …………………… 1,035 0.04 1,792 0.07 Bosnia and Herzegovina ……. 620 0.03 1,377 0.05 Morocco ……………………….. 9,037 0.38 9,794 0.39 Botswana ……………………… 113 * 870 0.03 Mozambique ………………….. 322 0.01 1,079 0.04 Brazil …………………………... 39,479 1.66 40,236 1.60 Myanmar ………………………. 666 0.03 1,423 0.06 Bulgaria ……………………….. 4,867 0.21 5,624 0.22 Namibia ……………………….. 404 0.02 1,161 0.05 Burkina Faso ........................... 836 0.04 1,593 0.06 Nepal …………………………... 822 0.03 1,579 0.06 Burundi .................................... 100 * 857 0.03 Netherlands …………………… 56,131 2.37 56,888 2.27 Cambodia ................................ 339 0.01 1,096 0.04 New Zealand ………………….. 3,583 0.15 4,340 0.17 Cameroon ............................... 885 0.04 1,642 0.07 Nicaragua ……………………... 715 0.03 1,472 0.06 Canada ………………………... 81,342 3.43 82,099 3.27 Niger …………………………… 147 0.01 904 0.04 Cape Verde …………………… 15 * 772 0.03 Nigeria …………………………. 21,643 0.91 22,400 0.89 Central African Republic ……. 119 0.01 876 0.03 Norway ………………………… 17,599 0.74 18,356 0.73 Chad …………………………… 1,364 0.06 2,121 0.08 Oman ………………………….. 1,187 0.05 1,944 0.08 Chile …………………………… 11,710 0.49 12,467 0.50 Pakistan ……………………….. 19,380 0.82 20,137 0.80 China ………………………….. 24,500 1.03 25,257 1.01 Palau …………………………... 25 * 782 0.03 Colombia ……………………… 12,606 0.53 13,363 0.53 Panama ……………………….. 1,007 0.04 1,764 0.07 Comoros ………………………. 14 * 771 0.03 Papua New Guinea ………….. 1,147 0.05 1,904 0.08 Congo, Dem. Rep. of ……….. 2,159 0.09 2,916 0.12 Paraguay ……………………… 436 0.02 1,193 0.05 Congo, Republic of …………... 131 0.01 888 0.04 Peru ……………………………. 6,898 0.29 7,655 0.30 Costa Rica .............................. 952 0.04 1,709 0.07 Philippines …………………….. 12,606 0.53 13,363 0.53 Côte d'Ivoire ............................ 3,544 0.15 4,301 0.17 Poland …………………………. 7,236 0.31 7,993 0.32 Croatia .................................... 2,882 0.12 3,639 0.14 Portugal ……………………….. 8,324 0.35 9,081 0.36 Cyprus …………………………. 2,139 0.09 2,896 0.12 Qatar …………………………... 1,650 0.07 2,407 0.10 Czech Republic ………………. 8,913 0.38 9,670 0.39 Romania ………………………. 2,661 0.11 3,418 0.14 Denmark ………………………. 18,554 0.78 19,311 0.77 Russian Federation ………….. 81,342 3.43 82,099 3.27 Djibouti ………………………… 21 * 778 0.03 Rwanda ……………………….. 306 0.01 1,063 0.04 Dominica ................................. 42 * 799 0.03 Samoa …………………………. 35 * 792 0.03 Dominican Republic ................ 1,187 0.05 1,944 0.08 Sao Tome and Principe ……… 439 0.02 1,196 0.05 Ecuador ................................... 2,161 0.09 2,918 0.12 Saudi Arabia ………………….. 30,062 1.27 30,819 1.23 Egypt, Arab Republic of .......... 12,360 0.52 13,117 0.52 Senegal ……………………….. 2,299 0.10 3,056 0.12 El Salvador .............................. 29 * 786 0.03 Serbia ………………………….. 1,803 0.08 2,560 0.10 Equatorial Guinea ................... 43 * 800 0.03 Seychelles …………………….. 27 * 784 0.03 Eritrea ..................................... 935 0.04 1,692 0.07 Sierra Leone ………………….. 223 0.01 980 0.04 Estonia .................................... 1,434 0.06 2,191 0.09 Singapore ……………………... 177 0.01 934 0.04 Ethiopia ………………………... 127 0.01 884 0.04 Slovak Republic ………………. 4,457 0.19 5,214 0.21 Fiji ……………………………… 287 0.01 1,044 0.04 Slovenia ……………………….. 1,585 0.07 2,342 0.09 Finland ………………………… 15,697 0.66 16,454 0.66 Solomon Islands ……………… 37 * 794 0.03 France …………………………. 121,015 5.10 121,772 4.85 Somalia ………………………... 83 * 840 0.03 Gabon …………………………. 1,268 0.05 2,025 0.08 South Africa …………………… 15,948 0.67 16,705 0.67 Gambia, The ………………….. 94 * 851 0.03 South Sudan ………………….. 1,880 0.08 2,637 0.11 Georgia ………………………... 1,380 0.06 2,137 0.09 Spain …………………………... 37,026 1.56 37,783 1.50 Germany ………………………. 128,908 5.43 129,665 5.16 Sri Lanka ……………………… 7,135 0.30 7,892 0.31 Ghana …………………………. 5,071 0.21 5,828 0.23 St. Kitts and Nevis …………… 638 0.03 1,395 0.06 Greece .................................... 6,898 0.29 7,655 0.30 St. Lucia ……………………….. 74 * 831 0.03 Grenada .................................. 74 * 831 0.03 Sudan ………………………….. 111 * 868 0.03 Guatemala .............................. 1,084 0.05 1,841 0.07 Suriname ……………………… 620 0.03 1,377 0.05 Guinea .................................... 339 0.01 1,096 0.04 Swaziland ……………………... 684 0.03 1,441 0.06 Guinea-Bissau ........................ 18 * 775 0.03 Sweden ………………………... 26,876 1.13 27,633 1.10 Guyana ………………………... 1,392 0.06 2,149 0.09 Switzerland ……………………. 41,580 1.75 42,337 1.69 Haiti ……………………………. 822 0.03 1,579 0.06 Syrian Arab Republic ………… 194 0.01 951 0.04 Honduras ……………………… 495 0.02 1,252 0.05 Tajikistan ……………………… 1,212 0.05 1,969 0.08 Hungary ………………………. 10,932 0.46 11,689 0.47 Tanzania ………………………. 1,003 0.04 1,760 0.07 Iceland ………………………… 42 * 799 0.03 Thailand ……………………….. 10,941 0.46 11,698 0.47 India ……………………………. 81,342 3.43 82,099 3.27 Timor-Leste …………………… 777 0.03 1,534 0.06 Indonesia ……………………… 28,539 1.20 29,296 1.17 Togo …………………………… 808 0.03 1,565 0.06 Iran, Islamic Republic of …….. 1,444 0.06 2,201 0.09 Tonga ………………………….. 34 * 791 0.03 Iraq …………………………….. 147 0.01 904 0.04 Trinidad and Tobago ………… 4,112 0.17 4,869 0.19 Ireland …………………………. 1,290 0.05 2,047 0.08 Tunisia ………………………… 3,566 0.15 4,323 0.17 Israel …………………………… 2,135 0.09 2,892 0.12 Turkey …………………………. 14,545 0.61 15,302 0.61 Italy ……………………………. 81,342 3.43 82,099 3.27 Turkmenistan …………………. 810 0.03 1,567 0.06 Jamaica ……………………….. 4,282 0.18 5,039 0.20 Uganda ………………………... 735 0.03 1,492 0.06 Japan ………………………….. 141,174 5.95 141,931 5.65 Ukraine ………………………… 9,505 0.40 10,262 0.41 Jordan …………………………. 941 0.04 1,698 0.07 United Arab Emirates ………... 4,033 0.17 4,790 0.19 Kazakhstan …………………… 4,637 0.20 5,394 0.21 United Kingdom ………………. 121,015 5.10 121,772 4.85 Kenya …………………………. 4,041 0.17 4,798 0.19 United States …………………. 569,379 24.01 570,136 22.70 Kiribati ………………………… 12 * 769 0.03 Uruguay ……………………….. 3,569 0.15 4,326 0.17 Korea, Republic of …………… 15,946 0.67 16,703 0.67 Uzbekistan ……………………. 3,873 0.16 4,630 0.18 Kosovo ………………………… 1,454 0.06 2,211 0.09 Vanuatu ……………………….. 55 * 812 0.03 Kuwait …………………………. 9,947 0.42 10,704 0.43 Venezuela, Rep. Boliv. de ….. 27,588 1.16 28,345 1.13 Kyrgyz Republic ……………… 1,720 0.07 2,477 0.10 Vietnam ……………………….. 446 0.02 1,203 0.05 Lao People's Dem. Rep. …….. 278 0.01 1,035 0.04 Yemen, Republic of ………….. 715 0.03 1,472 0.06 Latvia ………………………….. 2,150 0.09 2,907 0.12 Zambia ………………………… 1,286 0.05 2,043 0.08 Lebanon ……………………….. 135 0.01 892 0.04 Zimbabwe …………………….. 2,120 0.09 2,877 0.11 * Less than .005 percent + May differ from the sum of the individual percentages shown because of rounding Total June 30, 2012 2,371,896 100.00+ 2,511,184 100.00+ Total June 30, 2011 2,369,396 100.00+ 2,414,896 100.00+ The notes to the Consolidated Financial Statements are an integral part of these statements 41 Page 47 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, 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 the prior years have been reclassified to conform to the current year’s presentation. Advisory services – Beginning July 1, 2011, IFC adopted a new reporting basis for funds received from donors for IFC’s advisory services business and reported advisory services business as a separate segment. See Notes T and V. 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. 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 respecification 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. Fair Value Option and Fair Value Measurements – IFC has adopted the Financial Accounting Standards Board’s (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. 42 Page 48 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Fair Value Option IFC has elected the Fair Value Option for the following financial assets and financial liabilities existing at the time of adoption of ASC 820 and subsequently entered into: i) investees in which IFC has significant influence: a) direct investments in securities and other financial interests (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) certain hybrid instruments in the investment portfolio; and iv) all market borrowings, except for such borrowings having no associated derivative instruments. Beginning July 1, 2010, IFC has elected the Fair Value Option for all new equity interests in funds. All borrowings for which the Fair Value Option has been elected are associated with existing derivative instruments used to create an economic hedge. Measuring at fair value those borrowings for which the Fair Value Option has been elected mitigates the earnings volatility caused by measuring the borrowings and related derivative differently (in the absence of a designated accounting hedge) without having to apply ASC Topic 815’s, Derivatives and Hedging (ASC 815) complex hedge accounting requirements. The Fair Value Option was not elected for all borrowings from IBRD and all other market borrowings because such borrowings fund assets with similar characteristics. 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 superior 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. 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. 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. The fair value hierarchy established by ASC 820 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 primarily consists of financial instruments whose values are based on unadjusted quoted market prices. It includes IFC’s 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 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 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 investments that are not listed in markets that provide readily determinable fair values, all loans for which IFC has elected the Fair Value Option, all of IFC’s debt securities in the investment portfolio, 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 Topic 946, Financial Services - Investment Companies. 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. 43 Page 49 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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, 2012 and June 30, 2011. 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 income from loans and guarantees 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 in freely convertible currencies. 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 and political environment in which it operates, considered in determining that a loan is impaired include, but 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. 44 Page 50 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 being reported in other comprehensive income in accordance with ASC 320. As noted above under “Fair Value Option and Fair Value Measurementsâ€?, direct equity investments and investments in LLPs and LLCs that maintain 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, beginning July 1, 2010, 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. IFC’s investments in certain private equity funds in which IFC is deemed to have a controlling financial interest, as 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 of freely convertible currencies are first applied to recovery of invested capital and then to income from equity investments. The cost recovery method is principally 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 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 when received. Capital losses are recognized when incurred. Profit participations received on equity investments are recorded when received in freely convertible currencies. Dividends received on equity investments through June 30, 2011 were recorded as income when received in freely convertible currencies. Beginning July 1, 2011, dividends on listed equity investments are recorded on the ex dividend date - dividends on unlisted equity investments are recorded upon receipt of notice of declaration. Realized gains on the sale or redemption of equity investments are measured against the average cost of the investments sold and, through June 30, 2011, were recorded as income in income from equity investments when received in freely convertible currencies. Beginning July 1, 2011, realized gains on listed equity investments are recorded upon trade date - 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 nonmonetary exchanges – Nonmonetary transactions typically arise through: (1) the exchange of nonmonetary assets by exercising a conversion option that results in the exchange of one financial instrument (i.e., loan, equity, or debt security) for another financial instrument (i.e., debt securities or equity shares); or (2) a nonreciprocal transfer where IFC receives a nonmonetary asset for which no assets are relinquished in exchange. Generally, accounting for exchanges of nonmonetary assets should be based on the fair values of the assets involved. Thus, the amount initially recorded for a nonmonetary asset received in exchange for another nonmonetary asset is the fair value of the asset received. The difference between the fair value of the asset received and the recorded amount of the asset surrendered (immediately prior to the exchange transaction) is recorded as a gain or loss on non-monetary exchanges 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 - 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 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 income from debt securities 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. 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. 45 Page 51 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 suffered 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 increases and decreases - if not an additional other-than-temporary impairment - in the fair value of debt securities 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. 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 “inceptionâ€? 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: (1) the stand-ready obligation to perform and (2) 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. 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. 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. 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 gains and losses on other 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, also having the effect of reducing 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 – 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 loans-backed securities, commercial real estate collateralized debt obligations and collateralized loan obligations. The liquid asset portfolio, as defined by IFC, consists of: time deposits and securities; related derivative instruments; securities purchased under resale agreements, securities sold under repurchase agreements; receivables from sales of securities and payables for purchases of securities; and related accrued income and charges. 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. 46 Page 52 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Repurchase and resale 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. 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 and resale 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. Generally, IFC simultaneously converts such borrowings into variable rate US dollar borrowings through the use of currency and interest rate swap transactions. 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 gains and losses on other 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 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 and liabilities. 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 are recorded in net gains and losses on other 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. IFC has elected not to designate any hedging relationships for any of its lending-related derivatives. 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 gains and losses on other non-trading financial instruments accounted for at fair value. Fees and spreads charged on these transactions are recorded in other income in the consolidated income statement on an accrual basis. 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 uses derivative instruments with matching terms, primarily currency and interest rate swaps, to convert such borrowings into variable rate US dollar obligations, consistent with IFC’s matched funding policy. IFC elected to carry at fair value, under the Fair Value Option, all market borrowings for which a derivative instrument is used to create an economic hedge. Changes in the fair value of such borrowings and the associated derivatives are reported in net gains and losses on other 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, consistent with IFC’s matched funding policy. 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 a trading portfolio, all securities (including derivatives) are carried at fair value with changes in fair value reported in income from liquid asset trading activities. No derivatives in the liquid asset portfolio have been designated as hedging instruments under ASC 815. 47 Page 53 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 governing derivative transactions that contain close-out and netting provisions and collateral arrangements. Under these agreements, if IFC’s credit exposure to a counterparty, on a mark-to- market basis, exceeds a specified level, the counterparty 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 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. Variable Interest Entities – The Variable Interest Entities (VIEs) Subsections of ASC Topic 810, Consolidation (the ASC 810 VIE Subsections), defines certain VIEs and require parties to such entities to assess and measure variable interests in the VIEs for the purposes of determining possible consolidation of the VIEs. Variable interests can arise from financial instruments, service contracts, guarantees, leases or other arrangements with a VIE. An entity is subject to the ASC 810 VIE Subsections and is a variable interest entity if it lacks: (1) equity that is sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties; or (2) equity investors who have decision-making rights about the entity’s operations or if it has equity investors who do not absorb the expected losses or receive the expected returns of the entity proportionally to their voting rights. Except as noted in the following paragraph, IFC consolidates 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. IFC consolidates certain VIEs if it will absorb a majority of a VIE’s expected losses or expected residual returns. Such VIEs are entities that (1) have all the attributes of an investment company as specified in the ASC or for which it is industry practice to account for their assets at fair value through earnings, (2) IFC does not have an explicit or implicit obligation to fund losses of the entity that could be potentially significant to that entity, and (3) are not a securitization entity, an asset-backed financing entity, or an entity that was formerly considered a qualifying special purpose entity, as well as entities that are 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. IFC has a number of investments in VIEs that it manages and supervises in a manner consistent with other portfolio investments. 48 Page 54 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Recently adopted accounting standards – In June 2009, the FASB issued SFAS No. 166, Accounting for Transfers of Financial Assets - an amendment of FASB Statement No. 140 (SFAS No. 166). SFAS No. 166 removes the concept of a qualifying special-purpose entity (QSPE) from Statement 140 and removes the exception from applying FIN 46 to QSPEs. It clarifies Statement 140’s objective of determining whether a transferor has surrendered control over transferred financial assets, and limits the circumstances in which a financial asset, or portion of a financial asset, should be derecognized when the entire financial asset has not been transferred and/or when the transferor has continuing involvement with the transferred financial asset. SFAS No. 166 defines the term participating interest to establish specific conditions for reporting a transfer of a portion of a financial asset as a sale. If the transfer does not meet those conditions, a transferor may account for the transfer as a sale only if it transfers an entire financial asset and surrenders control over the entire transferred assets in accordance with the conditions in Statement 140, as amended. SFAS No. 166 requires that a transferor recognize and initially measure at fair value all assets obtained and liabilities incurred as a result of a transfer of a financial asset. SFAS No. 166 also requires enhanced financial statement disclosures about transfers of financial assets and a transferor’s continuing involvement in transferred financial assets. SFAS No. 166 is effective as of the beginning of the reporting entity’s first annual reporting period that begins after November 15, 2009 (which was the year ended June 30, 2011 for IFC) and for interim periods within that first annual reporting period. IFC adopted the provisions of SFAS No. 166 for the three months ended September 30, 2010 without a material impact on IFC’s financial position, results of operations or cash flows. SFAS No. 166 is now ASC Topic 860, Transfers and Servicing. In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R) (SFAS No. 167). SFAS No. 167 amends FIN 46(R) to require the analysis of whether the reporting entity’s variable interests give it a controlling financial interest in a VIE. If so, the reporting entity is considered to be the primary beneficiary and must consolidate the VIE. SFAS No. 167 defines a controlling interest as an interest having both the power to direct the activities that most significantly impact the VIE’s 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. SFAS No. 167 requires on-going assessments of whether the reporting entity is the primary beneficiary of a VIE and eliminates the quantitative approach previously required for determining the primary beneficiary of a VIE. SFAS No. 167 also amends FIN 46(R) to require a troubled debt restructuring to be considered an event that requires reconsideration of whether an entity is a VIE and whether a reporting entity is the primary beneficiary of a VIE. SFAS No. 167 requires enhanced disclosures aimed at providing more transparent information about an enterprise’s involvement in VIE’s and nullifies FASB FSP 140-4 and FIN 46(R)-8. However, the content of the enhanced disclosures is generally consistent with that previously required by FSP FAS 140-4 and FIN 46(R)-8. SFAS No. 167 is effective as of the beginning of the reporting entity’s first annual reporting period that begins after November 15, 2009 (which was the year ended June 30, 2011 for IFC) and for interim periods within that first annual reporting period. IFC adopted the provisions of SFAS No. 167 for the three months ended September 30, 2010 without a material impact on IFC’s financial position, results of operations or cash flows. The provisions of SFAS No. 167 are included in the VIE Subsections of ASC 810. In December 2009, the FASB issued ASU No. 2009-16, Transfers and Servicing (Topic 860): Accounting for Transfers of Financial Assets (ASU 2009-16) and ASU No. 2009-17, Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities (ASU 2009-17). ASU 2009-16 and ASU 2009-17 formally update the ASC for the provisions of SFAS No. 166 and SFAS No. 167, respectively. In January 2010, the FASB issued ASU No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements (ASU 2010-06). ASU 2010-06 amends ASC 820 to require new disclosures for transfers in and out of Level 1 and 2 measurements and separate disclosures about gross purchases, sales, issuances, and settlements relating to Level 3 measurements. It also clarifies existing fair value disclosure requirements about the level of disaggregation and about inputs and valuation techniques used to measure fair value. ASU 2010-06 is effective for the first interim or annual period beginning after December15, 2009 (which was the three months ended March 31, 2010 for IFC) except for the requirement to provide the Level 3 activity of gross purchases, sales, issuances and settlements, which was effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. IFC adopted the requirements of ASC 2010-06 for the three months ended March 31, 2010 (including the requirement to provide Level 3 activity) without a material impact on IFC’s financial position, results of operations or cash flows. In February 2010, the FASB issued ASU No. 2010-10, Consolidation (Topic 810): Amendments for Certain Investment Funds (ASU 2010-10) and in March 2010 issued ASU 2010-11, Derivatives and Hedging (Topic 815): Scope Exception Related to Embedded Credit Derivatives (ASU 2010- 11). ASU 2010-10 defers application of SFAS No. 167 for a reporting enterprise’s interest in certain entities if (1) the entity either has all the attributes of an investment company as specified in the ASC or is an entity for which it is industry practice to account for its assets at fair value through earnings, (2) the reporting enterprise does not have an explicit or implicit obligation to fund losses of the entity that could be potentially significant to that entity, and (3) the entity is not a securitization entity, an asset-backed financing entity, or an entity that was formerly considered a qualifying special purpose entity, as well as interests in entities that are 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. ASU 2010-10 is effective beginning as of the first annual reporting period that begins after November 15, 2009 (which was the year ended June 30, 2011 for IFC). IFC adopted the provisions of ASU 2010-10 for the three months ended September 30, 2010 without a material impact on IFC’s financial position, results of operations or cash flows. ASU 2010-11 addresses application of the scope exception for certain embedded credit derivatives contained in ASC 815-15-15-8 and 15-9 and is effective on the first day of the first fiscal quarter beginning after June 15, 2010 (which was the three months ended September 30, 2010, for IFC). IFC adopted the provisions of ASU 2010-11 for the three months ended September 30, 2010 without a material impact on IFC’s financial position, results of operations or cash flows. In July 2010, the FASB issued ASU 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses (ASU 2010-20). ASU 2010-20 amends ASC Topic 310 by requiring additional disaggregated disclosures about the credit quality of an entity’s financing receivables (loans) and its allowance for credit losses. The objective of the new disclosures is to improve the financial statement user’s understanding of (1) the nature of an entity’s credit risks associated with its financing receivables and (2) the entity’s assessment of that risk in estimating its allowance for credit losses as well as the changes in the allowance and the reasons for those changes. The new disclosures that 49 Page 55 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS relate to information as of the end of a reporting period are effective for the first interim or annual reporting period ending on or after December 15, 2010 (which was the three months ended December 31, 2010 for IFC). The new disclosures that include information for activity that occurs during a reporting period were effective for the first interim or annual periods beginning after December 15, 2010 (which was the three months ended March 31, 2011 for IFC). IFC has provided those disclosures in the Notes to these Consolidated Financial Statements. In January 2011, the FASB issued ASU 2011-01, Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No.2010-20 (ASU 2011-01). ASU 2011-01 amends ASC Topic 310 and ASU 2010-20 to defer indefinitely the effective date of the disclosures required by ASU 2010-20 pertaining to troubled debt restructurings. The original effective date for those disclosures was for the first interim or annual period beginning after December 15, 2010 (which was the three months ended March 31, 2011 for IFC). In April 2011, the FASB issued ASU 2011-02, A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring (ASU 2011-02). ASU 2011-02 provides additional guidance clarifying when the restructuring of a loan should be considered a troubled debt restructuring, including determining whether the lender has granted a concession and whether the borrower is experiencing financial difficulty. The ASU also reestablishes an effective date for ASU 2010-20’s previously deferred disclosure requirements for troubled debt restructurings. ASU 2011-02 is effective for interim and annual periods ending after June 15, 2011 (which was the three months ended September 30, 2011 for IFC) and applies retroactively to restructurings occurring on or after the beginning of the annual period of adoption (which was July 1, 2011 for IFC), IFC adopted the provisions of ASU 2011-02 for the three months ended September 30, 2011 without a material impact on IFC’s financial position, operations or cash flows. ASU 2010-20’s previously deferred disclosure requirements for troubled debt restructurings are effective for the first interim or annual period beginning after June 15, 2011 (which was the three months ended September 30, 2011 for IFC). IFC has provided those disclosures in the Notes to these Consolidated Financial Statements. In April 2011, the FASB also issued ASU 2011-03, Reconsideration of Effective Control for Repurchase Agreements (ASU 2011-03). ASU 2011- 03 amends ASC Topic 860, Transfers and Servicing, to remove from the assessment of whether a transferor of a financial asset has given up effective control of that asset (1) the criterion requiring the transferor to have the ability to repurchase or redeem transferred financial assets on substantially the agreed terms, even in the event of a default by the transferee, and (2) the collateral maintenance implementation guidance related to that criterion. ASU 2011-03 is effective prospectively for transactions, or modifications of existing transactions, that occur in or after the first interim or annual period beginning after December 15, 2011 (which was the three months ended March 31, 2012 for IFC). IFC adopted the provisions of ASU 2011-03 for the three months ended March 31, 2011 without a material impact on IFC’s financial position, results of operations or cash flows. In May 2011, the FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (ASU 2011-04). ASU 2011-04 is largely consistent with current fair value measurements principles in U.S. GAAP, expands ASC 820’s existing disclosure requirements with respect to Level 3 fair value measurements and makes other amendments, many of which are made to eliminate unnecessary wording differences between U.S. GAAP and IFRS. ASU 2011-04 is effective for interim and annual periods beginning after December 15, 2011 (which was the three months ended March 31, 2012 for IFC). IFC adopted the provisions of ASU 2011-04 for the three months ended March 31, 2012 without a material impact on IFC’s financial position, results of operations or cash flows, and has provided the expanded disclosures in the Notes to these Consolidated Financial Statements. Accounting and financial reporting developments – In March 2010, the Patient Protection and Affordable Care Act (the PPACA) and the Health Care Education Reconciliation Act of 2010 (HCERA), became law (collectively, the “Actâ€?). The Act seeks to reform the U.S. health care system and its various provisions will become effective over the next eight years. IFC is currently evaluating the impact of the Act. In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income (ASU 2011-05). ASU 2011-05 revises the manner in which entities must present comprehensive income in their financial statements by requiring either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements of income and comprehensive income, respectively. ASU 2011-05 does not change the items that must be reported in other comprehensive income, does not require any additional disclosures and is effective for fiscal years ending after December 15, 2011 (which is the year ending June 30, 2012 for IFC) and interim and annual periods thereafter. IFC currently presents two separate but consecutive consolidated statements of income and comprehensive income, respectively. In addition, ASU 2011-05 requires the presentation of reclassification adjustments out of accumulated other comprehensive income by component in both the statement in which net income and the statement in which other comprehensive income are presented. ASU 2011-05 is effective for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2011 (which is the year ending June 30, 2013 for IFC). However, ASU 2011-12 defers indefinitely those portions of ASU 2011-05 which require the presentation of reclassification adjustments out of accumulated other comprehensive income by component in both the statement if which net income and the statement in which other comprehensive income are presented. In December 2011, the FASB issued ASU 2011-11, Disclosures about Offsetting Assets and Liabilities (ASU 2011-11), and ASU 2011-12, Deferral of the Effective date for Amendments to the Presentation of reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05 (ASU 2011-12). ASU 2011-11 contains new disclosure requirements regarding the reporting entity’s rights of setoff and related arrangements associated with its financial instruments and derivatives. The new disclosures will also provide information about both gross and net exposures. ASU 2011-11 is effective for annual reporting periods, and interim periods within those annual periods, beginning on or after January 1, 2013 (which is the year ending June 30, 2014 for IFC), and must be applied retroactively. In addition, during the year ended June 30, 2012, 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. 50 Page 56 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE B – SCOPE OF CONSOLIDATION IFC Asset Management Company, LLC (AMC) IFC has established a wholly owned subsidiary, AMC, to mobilize capital from outside IFC’s traditional investor pool and to manage third-party capital. AMC is consolidated into IFC’s financial statements. At June 30, 2012, IFC has provided $2 million of capital to AMC ($2 million - June 30, 2011). At June 30, 2012, AMC managed five funds (collectively referred to as the AMC Funds). IFC’s ownership interests in these AMC Funds are shown in the following table: AMC Fund 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, L.P. 20% Africa Capitalization Fund, Ltd. - IFC Russian Bank Capitalization Fund, LP 100%* (*) 55% of IFC’s ownership interest represents funding provided by third party investors who are entitled to the proceeds returned by the IFC Russian Bank Capitalization Fund LP in connection with the investment of any of the funding received from these third party investors. Except for the IFC Russian Bank Capitalization Fund, LP, the AMC funds are not controlled by either IFC or AMC. The IFC Russian Bank Capitalization Fund LP is consolidated into IFC’s financial statements because of the presumption of control by IFC as the general partner. As a result of the consolidation of AMC, IFC’s consolidated balance sheet at June 30, 2012 includes $12 million in cash, receivables and other assets ($18 million - June 30, 2011), less than $0.5 million in equity investments (less than $0.5 million - June 30, 2011) and $2 million in payables and other liabilities (less than $0.5 million - June 30, 2011). Other income in IFC’s consolidated income statement includes $28 million during year ended June 30, 2012 ($28 million - year ended June 30, 2011 and $7 million - year ended June 30, 2010) and other expenses includes $10 million during the year ended June 30, 2012 ($5 million - year ended June 30, 2011 and $2 million - year ended June 30, 2010). The IFC Russian Bank Capitalization Fund LP was created in June 2012 and the impact of consolidating this AMC Fund into IFC’s consolidated financial statements was not material for the year ended June 30, 2012. Consolidated VIEs IFC has consolidated four VIEs into these Consolidated Financial Statements. In October 2009, IFC created a special purpose vehicle, Hilal Sukuk Company, to facilitate a $100 million Sukuk under IFC’s borrowings program. Hilal Sukuk Company is a variable interest entity and has been consolidated into these Consolidated Financial Statements. The consolidation of Hilal Sukuk Company had no material impact on these Consolidated Financial Statements. Collectively, the impact of the other three VIEs consolidated into these Consolidated Financial Statements is insignificant. Other consolidated entities Collectively, the impact of the three consolidated entities into these Consolidated Financial Statements under the voting interest model is insignificant. 51 Page 57 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE C – LIQUID ASSET PORTFOLIO Income from liquid asset trading activities Income from the liquid asset trading activities for the years ended June 30, 2012, June 30, 2011 and June 30, 2010 comprises (US$ millions): 2012 2011 2010 Interest income $ 670 $ 473 $ 358 Net gains and losses on trading activities: Realized (losses) gains (105) (12) 127 Unrealized (losses) gains (230) 101 328 Net (losses) gains on trading activities (335) 89 455 Foreign currency transaction (losses) gains (22) (33) 2 Total income from liquid asset trading activities $ 313 $ 529 $ 815 Net gains and losses on trading activities comprises net losses on asset-backed and mortgage-backed securities of $8 million in the year ended June 30, 2012 ($159 million gains - year ended June 30, 2011; $419 million gains - year ended June 30, 2010) and net losses on other trading securities of $327 million in the year ended June 30, 2012 ($70 million losses - year ended June 30, 2011; $36 million gains - year ended June 30, 2010). The annualized rate of return on the trading liquid asset portfolio, calculated as total income from the liquid asset trading activities divided by fair value average daily balance of total trading securities, during the year ended June 30, 2012, was 1.2% (2.1% - year ended June 30, 2011; 3.5% - year ended June 30, 2010). After the effect of associated derivative instruments, the liquid asset portfolio generally reprices within one year. Composition of liquid asset portfolio The composition of IFC’s liquid asset portfolio included in the consolidated balance sheet captions is as follows (US$ millions): June 30, 2012 June 30, 2011 Assets Cash and due from banks $ 883 $ 73 Time deposits 5,038 4,275 Trading securities 28,868 24,761 Securities purchased under resale agreements 964 1,549 Derivative assets 264 65 Receivables and other assets: Receivables from unsettled security trades 691 1,004 Accrued interest income on time deposits and securities 123 94 Accrued income on derivative instruments 20 23 Total assets 36,851 31,844 Liabilities Securities sold under repurchase agreements 6,397 5,787 Derivative liabilities 223 513 Payables and other liabilities: Payables for unsettled security trades 477 970 Accrued charges on derivative instruments 33 57 Total liabilities 7,130 7,327 Total net liquid asset portfolio $ 29,721 $ 24,517 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 2.7% of the portfolio at June 30, 2012 (1.7% - June 30, 2011). Collateral The estimated fair value of securities held by IFC at June 30, 2012 as collateral in connection with derivatives transactions and purchase and resale agreements that may be sold or repledged was $3,387 million ($3,568 million - June 30, 2011). Collateral given by IFC to counterparties in connection with repurchase agreements that may be sold or repledged by the counterparty approximates the amounts classified as Securities sold under repurchase agreements. At June 30, 2012, trading securities with a carrying amount (fair value) of $210 million ($0 - June 30, 2011) were pledged in connection with borrowings under a short-term discount note program, the carrying amount of which was $1,400 million ($1,499 million - June 30, 2011). 52 Page 58 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Trading securities Trading securities comprises: Year ended June 30, 2012 At June 30, 2012 Fair value Weighted average average daily balance Fair value contractual (US$ millions) (US$ millions) maturity (years) Government, agency and government-sponsored agency obligations $ 11,367 $ 13,684 1.6 Asset-backed securities 7,419 8,252 18.6 Corporate securities 6,634 6,823 2.2 Money market funds 463 109 n/a Total trading securities $ 25,883 $ 28,868 Year ended June 30, 2011 At June 30, 2011 Fair value Weighted average average daily balance Fair value contractual (US$ millions) (US$ millions) maturity (years) Government, agency and government-sponsored agency obligations $ 8,419 $ 7,288 3.2 Asset-backed securities 7,287 8,329 25.0 Corporate securities 8,611 7,772 2.4 Money market funds 524 1,372 n/a Total trading securities $ 24,841 $ 24,761 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, 2012 and June 30, 2011 comprises (US$ millions): June 30, 2012 June 30, 2011 Loans Loans at amortized cost $ 20,226 $ 19,038 Less: Reserve against losses on loans (1,381) (1,307) Net loans 18,845 17,731 Loans held for sale at lower of amortized cost or fair value 60 87 Loans accounted for at fair value under the Fair Value Option (outstanding principal balance $607 - June 30, 2012, $596 - June 30, 2011) 591 637 Total loans 19,496 18,455 Equity investments Equity investments at cost less impairment* 3,066 2,748 Equity investments accounted for at fair value as available-for-sale (cost $1,783 - June 30, 2012, $1,824 - June 30, 2011) 3,231 3,484 Equity investments accounted for at fair value under the Fair Value Option (cost $ 2,636 - June 30, 2012, $2,112 - June 30, 2011) 3,477 3,081 Total equity investments 9,774 9,313 Debt securities Debt securities accounted for at fair value as available-for-sale (amortized cost $1,916 - June 30, 2012, $1,702 - June 30, 2011) 1,916 1,961 Debt securities accounted for at fair value under the Fair Value Option (amortized cost $210 - June 30, 2012, $184 - June 30, 2011) 252 205 Total debt securities 2,168 2,166 Total carrying amount of investments $ 31,438 $ 29,934 * Equity investments at cost less impairment at June 30, 2012 includes unrealized gains of $2 million ($36 million at June 30, 2011) related to equity investments accounted for as available-for- sale in previous periods and for which readily determinable fair vales are no longer available. 53 Page 59 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The distribution of the investment portfolio by industry sector and by geographical region and a reconciliation of total disbursed portfolio to carrying amount of investments is as follows (US$ millions): June 30, 2012 June 30, 2011 Sector Equity Debt Equity Debt Loans investments securities Total Loans investments securities Total Manufacturing, agribusiness and services Asia $ 1,946 $ 385 $ 201 $ 2,532 $ 2,001 $ 391 $ 192 $ 2,584 Europe, Middle East and North Africa 3,131 599 36 3,766 2,882 460 36 3,378 Sub-Saharan Africa, Latin America and Caribbean 1,947 390 37 2,374 1,929 345 39 2,313 Other 615 - - 615 34 - - 34 Total manufacturing, agribusiness and services 7,639 1,374 274 9,287 6,846 1,196 267 8,309 Financial markets Asia 1,218 1,098 274 2,590 1,104 1,074 235 2,413 Europe, Middle East and North Africa 2,660 1,564 552 4,776 3,051 1,542 378 4,971 Sub-Saharan Africa, Latin America and Caribbean 1,796 1,526 682 4,004 1,465 1,291 944 3,700 Other 382 546 128 1,056 363 426 66 855 Total financial markets 6,056 4,734 1,636 12,426 5,983 4,333 1,623 11,939 Infrastructure and natural resources Asia 1,742 401 55 2,198 1,812 236 57 2,105 Europe, Middle East and North Africa 2,273 356 10 2,639 2,099 460 6 2,565 Sub-Saharan Africa, Latin America and Caribbean 3,078 448 130 3,656 2,966 394 156 3,516 Other 255 234 5 494 178 113 6 297 Total infrastructure and natural resources 7,348 1,439 200 8,987 7,055 1,203 225 8,483 Total disbursed investment portfolio $ 21,043 $ 7,547 $ 2,110 $ 30,700 $ 19,884 $ 6,732 $ 2,115 $ 28,731 Reserve against losses on loans (1,381) (1,381) (1,307) (1,307) Unamortized deferred loan origination fees, net and other (120) (120) (123) (123) Disbursed amount allocated to a related financial instrument reported separately in other assets or derivative assets (38) (64) (3) (105) (40) (55) (8) (103) Adjustments to disbursed investment portfolio 8 3 (12) (1) Unrealized gains (losses) on equity investments held by consolidated VIEs (1) (1) 7 7 Unrealized gains on investments accounted for at fair value as available-for-sale 1,448 31 1,479 1,660 38 1,698 Unrealized gains (losses) on investments accounted for at fair value under the Fair Value Option (16) 841 42 867 41 969 21 1,031 Carrying amount of investments $ 19,496 $ 9,774 $ 2,168 $ 31,438 $ 18,455 $ 9,313 $ 2,166 $ 29,934 54 Page 60 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE E – LOANS AND GUARANTEES Loans Income from loans and guarantees for the years ended June 30, 2012, June 30, 2011 and June 30, 2010, comprise the following (US$ millions): 2012 2011 2010 Interest income $ 818 $ 704 $ 676 Commitment fees 29 33 33 Other financial fees 68 52 50 Gains on sale of loans 2 - - Gains on non-monetary exchanges 78 9 - Unrealized (losses) gains on loans accounted for at fair value under the Fair Value Option (57) 79 42 Income from loans and guarantees $ 938 $ 877 $ 801 The currency composition and average contractual rate of the disbursed loan portfolio are summarized below: June 30, 2012 June 30, 2011 Average Average Amount contractual Amount contractual (US$ millions) rate (%) (US$ millions) rate (%) US dollar $ 15,635 4.2 $ 14,167 3.9 Euro 2,831 4.4 3,009 4.7 Indian rupee 390 9.8 455 9.5 Mexican peso 367 2.9 8 6.0 Chinese renminbi 337 5.1 331 5.2 Philippine pesos 308 7.9 246 8.2 Russian ruble 224 11.3 411 9.7 South African rand 165 9.2 171 9.4 Brazilian real 157 8.9 118 11.2 Indonesian rupiah 145 9.5 228 10.2 Colombian pesos 117 10.1 189 10.4 Turkish lira 52 13.1 49 13.1 Vietnamese dong 52 14.3 - - Other currencies: OECD currencies 53 3.4 243 4.4 Non-OECD currencies 210 7.0 259 7.5 Total disbursed loan portfolio $ 21,043 4.7 $ 19,884 4.6 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, 2013 through June 30, 2017 and thereafter, as follows (US$ millions): 2013 2014 2015 2016 2017 Thereafter Total Fixed rate loans $ 730 $ 816 $ 534 $ 646 $ 365 $ 1,379 $ 4,470 Variable rate loans 3,488 2,861 2,454 2,115 1,573 4,082 16,573 Total disbursed loan portfolio $ 4,218 $ 3,677 $ 2,988 $ 2,761 $ 1,938 $ 5,461 $ 21,043 At June 30, 2012, 21% of the disbursed loan portfolio consisted of fixed rate loans (22% - June 30, 2011), while the remainder was at variable rates. At June 30, 2012, the disbursed loan portfolio included $100 million of loans serving as collateral under secured borrowing arrangements ($199 million - June 30, 2011). IFC’s disbursed variable rate loans generally reprice within one year. During the year ended June 30, 2012, IFC received mortgage loans with an initial carrying amount of $6 million ($86 million - year ended June 30, 2011) in conjunction with the settlement of borrowers obligation to IFC. These loans are classified as held-for-sale. 55 Page 61 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Reserve against losses on loans Changes in the reserve against losses on loans for the years ended June 30, 2012, June 30, 2011 and June 30, 2010, as well as the related recorded investment in loans, evaluated for impairment individually (specific reserves) and on a pool basis (portfolio reserves) respectively, are summarized below (US$ millions): Year ended June 30, 2012 Specific Portfolio Total reserves reserves reserve Beginning balance $ 382 $ 925 $ 1,307 Provision for losses on loans, net 76 39 115 Write offs (13) - (13) Recoveries of previously written off loans 2 - 2 Foreign currency transaction adjustments (5) (30) (35) Other adjustments* 5 - 5 Ending balance $ 447 $ 934 $ 1,381 Related recorded investment in loans at June 30, 2012 evaluated for impairment** $ 20,226 $ 19,303 $ 20,226 Year ended June 30, 2011 Specific Portfolio Total reserves reserves reserve Beginning balance $ 432 $ 917 $ 1,349 Release of provision for losses on loans, net (16) (24) (40) Write offs (56) - (56) Recoveries of previously written off loans 4 - 4 Foreign currency transaction adjustments 10 32 42 Other adjustments* 8 - 8 Ending balance $ 382 $ 925 $ 1,307 Related recorded investment in loans at June 30, 2011 evaluated for impairment** $ 19,038 $ 18,120 $ 19,038 Year ended June 30, 2010 Specific Portfolio Total reserves reserves reserve Beginning balance $ 300 $ 938 $ 1,238 Provision for (release of provision for) losses on loans, net 153 (8) 145 Write offs (18) - (18) Recoveries of previously written off loans 5 - 5 Foreign currency transaction adjustments (9) (13) (22) Other adjustments* 1 - 1 Ending balance $ 432 $ 917 $ 1,349 *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. 56 Page 62 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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, 2012, June 30, 2011 and June 30, 2010, are summarized below (US$ millions): 2012 2011 2010 Beginning balance $ 24 $ 24 $ 14 (Release of) provision for losses on guarantees (3) - 10 Ending Balance $ 21 $ 24 $ 24 Changes in the reserve against losses on other receivables for the years ended June 30, 2012, June 30, 2011 and June 30, 2010, are summarized below (US$ millions): 2012 2011 2010 Beginning balance $ - $ - $ - Provision for losses on other receivables 5 - - Ending Balance $ 5 $ - $ - Impaired loans The average recorded investment during the year ended June 30, 2012, in loans at amortized cost that are impaired was $908 million ($940 million - year ended June 30, 2011). The recorded investment in loans at amortized cost that are impaired at June 30, 2012 was $923 million ($918 million - June 30, 2011). Loans at amortized cost that are impaired with specific reserves are summarized by industry sector and geographic region as follows (US$ millions): June 30, 2012 Unpaid Related Average Interest Recorded principal specific recorded income investment balance reserve investment recognized Manufacturing, agribusiness and services Asia $ 100 $ 106 $ 72 $ 101 $ - Europe, Middle East and North Africa 436 444 235 440 12 Sub-Saharan Africa, Latin America and Caribbean 181 244 46 163 5 Total manufacturing, agribusiness and services 717 794 353 704 17 Financial markets Asia 22 24 5 19 2 Europe, Middle East and North Africa 40 46 18 48 3 Sub-Saharan Africa, Latin America and Caribbean 7 32 7 7 1 Total financial markets 69 102 30 74 6 Infrastructure and natural resources Asia 73 73 25 70 3 Europe, Middle East and North Africa 14 14 6 14 - Sub-Saharan Africa, Latin America and Caribbean 50 51 33 46 3 Total infrastructure and natural resources 137 138 64 130 6 Total $ 923 $ 1,034 $ 447 $ 908 $ 29 IFC had no impaired loans at June 30, 2012 with no specific reserves. 57 Page 63 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2011 Unpaid Related Average Interest Recorded principal specific recorded income investment balance reserve investment recognized Manufacturing, agribusiness and services Asia $ 132 $ 139 $ 57 $ 142 $ 3 Europe, Middle East and North Africa 466 475 189 466 13 Sub-Saharan Africa, Latin America and Caribbean 187 264 62 200 6 Total manufacturing, agribusiness and services 785 878 308 808 22 Financial markets Asia 28 30 6 30 3 Europe, Middle East and North Africa 21 27 13 21 1 Sub-Saharan Africa, Latin America and Caribbean 8 32 8 4 - Total financial markets 57 89 27 55 4 Infrastructure and natural resources Asia 7 7 3 6 - Europe, Middle East and North Africa 15 15 5 16 1 Sub-Saharan Africa, Latin America and Caribbean 54 54 39 55 1 Total infrastructure and natural resources 76 76 47 77 2 Total $ 918 $ 1,043 $ 382 $ 940 $ 28 IFC had no impaired loans at June 30, 2011 with no specific reserves. Nonaccruing loans Loans on which the accrual of interest has been discontinued amounted to $859 million at June 30, 2012 ($943 million - June 30, 2011). 2012 2011 2010 Interest income not recognized on nonaccruing loans $ 47 $ 61 $ 59 Interest income recognized on loans in nonaccrual status, related to current and prior years, on a cash basis 21 22 22 The recorded investment in nonaccruing loans at amortized cost is summarized by industry sector and geographic region as follows (US$ millions): June 30, 2012 Manufacturing, Total recorded agribusiness and Infrastructure and investment in services Financial markets natural resources nonaccruing loans Asia $ 82 $ - $ 8 $ 90 Europe, Middle East and North Africa 467 9 14 490 Sub-Saharan Africa, Latin America and Caribbean 142 - 32 174 Total disbursed loans at amortized cost $ 691 $ 9 $ 54 $ 754 June 30, 2011 Manufacturing, Total recorded agribusiness and Infrastructure and investment in services Financial markets natural resources nonaccruing loans Asia $ 100 $ 28 $ - $ 128 Europe, Middle East and North Africa 462 6 13 481 Sub-Saharan Africa, Latin America and Caribbean 123 1 53 177 Total disbursed loans at amortized cost $ 685 $ 35 $ 66 $ 786 58 Page 64 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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, 2012 90 days or 30-59 days 60-89 days greater Total Total past due past due past due past due Current Loans Manufacturing, agribusiness and services Asia $ 18 $ - $ 73 $ 91 $ 1,821 $ 1,912 Europe, Middle East and North Africa - 26 397 423 2,600 3,023 Sub-Saharan Africa, Latin America and Caribbean - 40 63 103 1,824 1,927 Other - - - - 615 615 Total manufacturing, agribusiness and services 18 66 533 617 6,860 7,477 Financial markets Asia - - - - 1,198 1,198 Europe, Middle East and North Africa - - 4 4 2,576 2,580 Sub-Saharan Africa, Latin America and Caribbean - - - - 1,712 1,712 Other - - - - 330 330 Total financial markets - - 4 4 5,816 5,820 Infrastructure and natural resources Asia - - - - 1,548 1,548 Europe, Middle East and North Africa - - 14 14 2,250 2,264 Sub-Saharan Africa, Latin America and Caribbean - - 32 32 2,988 3,020 Other - - - - 255 255 Total Infrastructure and natural resources - - 46 46 7,041 7,087 Total disbursed loans at amortized cost $ 18 $ 66 $ 583 $ 667 $ 19,717 $ 20,384 Unamortized deferred loan origination fees, net and other (120) Disbursed amount allocated to a related financial instrument reported separately in other assets or derivative assets (38) Recorded investment in loans at amortized cost $ 20,226 At June 30, 2012, there are no loans 90 days or greater past due still accruing. 59 Page 65 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2011 90 days or 30-59 days 60-89 days greater Total Total past due past due past due past due Current loans Manufacturing, agribusiness and services Asia $ - $ - $ 90 $ 90 $ 1,870 $ 1,960 Europe, Middle East and North Africa 1 - 420 421 2,333 2,754 Sub-Saharan Africa, Latin America and Caribbean - 33 83 116 1,801 1,917 Other - - - - 34 34 Total manufacturing, agribusiness and services 1 33 593 627 6,038 6,665 Financial markets Asia - - 28 28 1,041 1,069 Europe, Middle East and North Africa - - 6 6 2,993 2,999 Sub-Saharan Africa, Latin America and Caribbean - - 1 1 1,330 1,331 Other - - - - 339 339 Total financial markets - - 35 35 5,703 5,738 Infrastructure and natural resources Asia - - - - 1,596 1,596 Europe, Middle East and North Africa - - 14 14 2,085 2,099 Sub-Saharan Africa, Latin America and Caribbean - - 52 52 2,874 2,926 Other - - - - 177 177 Total Infrastructure and natural resources - - 66 66 6,732 6,798 Total disbursed loans at amortized cost $ 1 $ 33 $ 694 $ 728 $ 18,473 $ 19,201 Unamortized deferred loan origination fees, net and other (123) Disbursed amount allocated to a related financial instrument reported separately in other assets or derivative assets (40) Recorded investment in loans at amortized cost $ 19,038 At June 30, 2011, there are no loans 90 days or greater past due still accruing. 60 Page 66 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 guaranteed 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; week 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. 61 Page 67 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A summary of IFC’s loans at amortized cost by credit quality indicator, as updated during the three months ended June 30, 2012, as well as by industry sector and geographic region follows (US$ millions): At June 30, 2012 Very good Good Average Watch Substandard Doubtful Loss Total Manufacturing, agribusiness and services Asia $ - $ 381 $ 793 $ 461 $ 187 $ 81 $ 9 $ 1,912 Europe, Middle East and North Africa - 312 1,092 904 302 231 182 3,023 Sub-Saharan Africa, Latin America and Caribbean Europe - 218 933 531 110 114 21 1,927 Other - 336 279 - - - - 615 Total manufacturing, agribusiness and services - 1,247 3,097 1,896 599 426 212 7,477 Financial markets Asia - 649 283 244 - 22 - 1,198 Europe, Middle East and North Africa - 425 1,440 387 267 57 4 2,580 Sub-Saharan Africa, Latin America and Caribbean - 338 1,181 176 10 7 - 1,712 Other - - - 330 - - - 330 Total financial markets - 1,412 2,904 1,137 277 86 4 5,820 Infrastructure and natural resources Asia - 257 553 630 35 41 32 1,548 Europe, Middle East and North Africa - 243 779 1,066 31 143 2 2,264 Sub-Saharan Africa, Latin America and Caribbean - 301 1,015 1,383 226 54 41 3,020 Other - 44 102 109 - - - 255 Total infrastructure and natural resources - 845 2,449 3,188 292 238 75 7,087 Total disbursed loans at amortized cost $ - $3,504 $ 8,450 $ 6,221 $ 1,168 $ 750 $ 291 $ 20,384 Unamortized deferred loan origination fees, net and (120) other Disbursed amount allocated to a related financial instrument reported separately in other assets or derivative assets (38) Recorded investment in loans at amortized cost $ 20,226 62 Page 68 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS At June 30, 2011 Very good Good Average Watch Substandard Doubtful Loss Total Manufacturing, agribusiness and services Asia $ - $ 490 $ 851 $ 438 $ 130 $ 43 $ 8 $ 1,960 Europe, Middle East and North Africa - 305 664 1,208 143 280 154 2,754 Sub-Saharan Africa, Latin America and Caribbean Europe - 311 814 512 177 68 35 1,917 Other - - 34 - - - - 34 Total manufacturing, agribusiness and services - 1,106 2,363 2,158 450 391 197 6,665 Financial markets Asia - 682 287 72 - 28 - 1,069 Europe, Middle East and North Africa - 520 1,570 617 287 - 5 2,999 Sub-Saharan Africa, Latin America and Caribbean - 384 731 186 22 7 1 1,331 Other - 9 - 330 - - - 339 Total financial markets - 1,595 2,588 1,205 309 35 6 5,738 Infrastructure and natural resources Asia - 309 959 315 6 7 - 1,596 Europe, Middle East and North Africa - 111 968 831 174 12 3 2,099 Sub-Saharan Africa, Latin America and Caribbean - 269 981 1,472 142 36 26 2,926 Other - 53 74 50 - - - 177 Total infrastructure and natural resources - 742 2,982 2,668 322 55 29 6,798 Total disbursed loans at amortized cost $ - $ 3,443 $ 7,933 $ 6,031 $ 1,081 $ 481 $ 232 $19,201 Unamortized deferred loan origination fees, net and (123) other Disbursed amount allocated to a related financial instrument reported separately in other assets or derivative assets (40) Recorded investment in loans at amortized cost $19,038 Loan modifications during the year ended June 30, 2012 considered troubled debt restructurings were not significant. There were no loans that defaulted during the year ended June 30, 2012 that had been modified in a troubled debt restructuring within 12 months prior to the date of default. 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, 2012 totaled $4,507 million ($4,081 million - June 30, 2011). Guarantees of $3,420 million that were outstanding (i.e., not called) at June 30, 2012 ($2,932 million - June 30, 2011), were not included in loans on IFC’s consolidated balance sheet. The outstanding amount represents the maximum amount of undiscounted future payments that IFC could be required to make under these guarantees. 63 Page 69 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE F – DEBT SECURITIES Income from debt securities for the years ended June 30, 2012, June 30, 2011 and June 30, 2010, comprise the following (US$ millions): 2012 2011 2010 Interest income $ 60 $ 39 $ 35 Realized gains (losses) on debt securities 12 (2) 14 Gains on non-monetary exchanges 1 4 32 Unrealized gains (losses) on debt securities accounted for at fair value under the Fair Value Option 21 (2) 23 Other-than-temporary impairment losses (27) (2) (3) Dividends 14 9 7 Total income from debt securities $ 81 $ 46 $ 108 Debt securities accounted for as available-for-sale at June 30, 2012 and June 30, 2011 comprise (US$ millions): June 30, 2012 June 30, 2011 Amortized Unrealized Fair Amortized Unrealized Fair Cost Gains Losses Value Cost Gains Losses Value Corporate debt securities $ 1,425 $ - $ (26) $ 1,399 $ 1,306 $ 243 $ (47) $ 1,502 Preferred shares 483 41 (15) 509 371 64 (1) 434 Asset-backed securities 6 - - 6 22 - - 22 Other debt securities 2 - - 2 3 - - 3 Total $ 1,916 $ 41 $ (41) $ 1,916 $ 1,702 $ 307 $ (48) $ 1,961 Unrealized losses on debt securities accounted for as available-for-sale at June 30, 2012 are summarized below (US$ millions): Less than 12 months 12 months or greater Total Fair Unrealized Fair Unrealized Fair Unrealized value losses value losses value losses Corporate debt securities $ 127 $ (3) $ 339 $ (23) $ 466 $ (26) Preferred shares 179 (15) - - 179 (15) Total $ 306 $ (18) $ 339 $ (23) $ 645 $ (41) Unrealized losses on debt securities accounted for as available-for-sale at June 30, 2011 are summarized below (US$ millions): Less than 12 months 12 months or greater Total Fair Unrealized Fair Unrealized Fair Unrealized value losses value losses value losses Corporate debt securities $ 67 $ (2) $ 830 $ (45) $ 897 $ (47) Preferred shares 3 (1) - - 3 (1) Total $ 70 $ (3) $ 830 $ (45) $ 900 $ (48) 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. 64 Page 70 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Debt securities with contractual maturities that are accounted for as available-for-sale have contractual maturities during the years ending June 30, 2013 through June 30, 2017 and thereafter, as follows (US$ millions): 2013 2014 2015 2016 2017 Thereafter Total Corporate debt securities* $ 140 $ 298 $ 290 $ 102 $ 63 $ 504 $ 1,397 Asset-backed securities - 11 - - - 6 17 Preferred shares - - - - - 22 22 Total disbursed portfolio of debt securities with contractual maturities $ 140 $ 309 $ 290 $ 102 $ 63 $ 532 $ 1,436 * excluding $7 million disbursed amount allocated to a related financial instrument reported separately in other assets or derivative assets and $10 million of other-than-temporary impairment losses. The expected maturity of asset-backed securities may differ from the contractual maturity, as reported above, due to prepayment features. In addition, IFC has $489 million of redeemable preferred shares and other debt securities with undefined maturities ($437 million - June 30, 2011). The currency composition and average contractual rate of debt securities with contractual maturities that are accounted for as available-for-sale are summarized below: June 30, 2012 June 30, 2011 Average Average Amount contractual Amount contractual (US$ millions) rate (%) (US$ millions) rate (%) US dollar $ 541 3.5 $ 293 3.3 Brazilian real 511 10.2 861 10.7 Euro 69 2.6 79 3.4 Other non-OECD currencies 315 6.5 322 6.3 Total disbursed portfolio of debt securities with contractual maturities $ 1,436 6.5 $ 1,555 8.0 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. NOTE G – EQUITY INVESTMENTS Income from equity investments for the years ended June 30, 2012, June 30, 2011 and June 30, 2010 comprises the following (US$ millions): 2012 2011 2010 Realized gains on equity investments $ 2,000 $ 737 $ 1,290 Gains on non-monetary exchanges 3 217 28 Unrealized (losses) gains on equity investments accounted for at fair value under the Fair Value Option (128) 454 240 Dividends and profit participations 274 280 285 Other-than-temporary impairment losses: Equity investments at cost less impairment (272) (87) (126) Equity investments available-for-sale (420) (131) (77) Total other- than-temporary impairment losses on equity investments (692) (218) (203) Fees and other - (6) (2) Total income from equity investments $ 1,457 $ 1,464 $ 1,638 Dividends and profit participations include $43 million at June 30, 2012 ($57 million - year ended June 30, 2011; $60 million - year ended June 30, 2010) of receipts received in freely convertible currency, net of cash disbursements, in respect of 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 all these funds have been determined using the net asset value of IFC’s ownership interest in partners’ capital and totaled $2,181 million as of June 30, 2012 ($2,107 million as of June 30, 2011). The unfunded commitment obligations related to these funds totaled $1,296 million as of June 30, 2012 ($1,369 million as of June 30, 2011). 65 Page 71 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE H – INVESTMENT TRANSACTIONS COMMITTED BUT NOT DISBURSED OR UTILIZED Loan, equity and debt security commitments signed but not yet disbursed, and guarantee and client risk management facilities signed but not yet utilized are summarized below (US$ millions): June 30, 2012 June 30, 2011 Investment transactions committed but not disbursed: Loans, equity investments and debt securities $ 9,641 $ 9,698 Investment transactions committed but not utilized: Guarantees 1,087 1,149 Client risk management facilities 250 174 Total investment transactions committed but not disbursed or utilized $ 10,978 $ 11,021 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, 2012 June 30, 2011 Loan participations signed as commitments but not disbursed $ 1,880 $ 2,460 Loan participations disbursed and outstanding which are serviced by IFC $ 6,463 $ 5,865 NOTE J – RECEIVABLES AND OTHER ASSETS Receivables and other assets are summarized below (US$ millions): June 30, 2012 June 30, 2011 Receivables from unsettled security trades $ 691 $ 1,004 Accrued interest income on time deposits and securities 126 107 Accrued income on derivative instruments 507 484 Accrued interest income on loans 229 238 Prepaid pension and other postretirement benefit costs - 142 Headquarters building: Land 89 89 Building 225 221 Less: Accumulated building depreciation (106) (89) Headquarters building, net 208 221 Deferred charges and other assets 1,068 406 Total receivables and other assets $ 2,829 $ 2,602 66 Page 72 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, 2012 Interest rate swaps Currency swaps notional principal Market borrowings payable (receivable) payable (receivable) Net currency obligation Weighted Weighted Notional Weighted Weighted Amount (US average Amount (US average amount (US average Amount (US average $ millions) rate (%) $ millions) rate (%) $ millions) rate (%) $ millions) rate (%) US dollar $ 22,573 2.3 $ 17,946 (0.5) $ 35,208 0.7 $ 40,273 0.6 (35,454) (1.7) Australian dollar 9,048 5.4 (9,048) (5.4) - - - - Japanese yen 3,831 2.1 (3,831) (2.1) - - - - Turkish lira 1,801 8.9 (1,801) (8.9) - - - - New Zealand dollar 1,264 5.9 (1,264) (5.9) - - - - Brazilian real 913 8.4 (913) (8.4) - - - - Canadian dollar 780 4.6 (780) (4.6) - - - - South African rand 629 6.9 (629) (6.9) - - - - Pound sterling 490 3.1 (490) (3.1) - - - - Chinese renminbi 339 3.2 - - - - 339 3.2 Norwegian kroner 277 3.4 (277) (3.4) - - - - Euro 267 6.6 (259) (6.8) 8 1.0 8 1.0 (8) (0.8) Singapore dollar 158 1.1 (158) (1.1) Hong Kong dollar 128 5.1 (128) (5.1) - - - - Mexican peso 124 6.0 (124) (6.0) - - - - Swiss franc 111 4.6 (111) (4.6) - - - - Costa Rican colones 60 7.9 (60) (7.9) - - - - South Korean won 39 1.8 (39) (1.8) - - - - C.F.A. franc 38 4.3 - - - - 38 4.3 Russian ruble 30 5.8 (30) (5.8) - - - - 30 6.5 30 6.5 Principal at face value 42,900 $ (1,966) $ (246) $ 40,688 0.7 Borrowings under the short-term Discount Note Program 1,400 44,300 Unamortized discounts, net (640) Total market borrowings 43,660 Fair value adjustments 963 Carrying amount of market borrowings $ 44,623 67 Page 73 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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, 2011 Interest rate swaps Currency swaps notional principal Market borrowings payable (receivable) payable (receivable) Net currency obligation Weighted Weighted Notional Weighted Weighted Amount (US average Amount (US average amount (US average Amount (US average $ millions) rate (%) $ millions) rate (%) $ millions) rate (%) $ millions) rate (%) US dollar $ 18,055 2.9 $ 15,664 (0.2) $ 30,739 0.4 $ 33,443 0.3 (31,015) (1.9) Australian dollar 7,518 5.6 (7,518) (5.6) - - - - Japanese yen 4,083 2.1 (4,083) (2.1) - - - - Turkish lira 1,688 10.0 (1,688) (10.0) - - - - Brazilian real 1,498 8.6 (1,498) (8.6) - - - - New Zealand dollar 1,022 6.2 (1,022) (6.2) - - - - South African rand 956 6.8 (956) (6.8) - - - - Canadian dollar 826 4.6 (826) (4.6) - - - - Pound sterling 528 3.2 (528) (3.2) - - - - Chinese renminbi 332 3.2 - - - - 332 3.2 Euro 329 6.6 (320) (6.7) 9 1.8 9 1.8 (9) (1.6) Singapore dollar 163 1.1 (163) (1.1) Mexican peso 141 6.0 (141) (6.0) - - - - Moroccan dirham 128 4.5 (128) (4.5) - - - - Hong Kong dollar 127 5.1 (127) (5.1) - - - - C.F.A. franc 92 4.5 (44) (4.8) - - 48 4.3 Russian ruble 36 5.8 (36) (5.8) - - - - 36 3.6 36 3.6 South Korean won 33 1.8 (33) (1.8) - - - - Principal at face value 37,555 $ (3,411) $ (276) $ 33,868 0.3 Borrowings under the short-term Discount Note Program 1,499 39,054 Unamortized discounts, net (650) Total market borrowings 38,404 Fair value adjustments (243) Carrying amount of market borrowings $ 38,161 The net currency obligations in Chinese renminbi and C.F.A. franc at June 30, 2012 have funded on-balance sheet loans with similar characteristics in such currencies. The weighted average remaining maturity of IFC’s borrowings from market sources was 5.5 years at June 30, 2012 (5.9 years - June 30, 2011). Charges on borrowings for the year ended June 30, 2012 include $5 million of interest expense on secured borrowings ($4 million - year ended June 30, 2011; $4 million - year ended June 30, 2010) and is net of $19 million of gains on buybacks of market borrowings ($10 million - June 30, 2011; $62 million - year ended June 30, 2010). The net nominal amount receivable from currency swaps of $1,966 million and the net notional amount receivable from interest rate swaps of $246 million at June 30, 2012 ($3,411 million and $276 million - June 30, 2011), shown in the above table, are represented by currency and interest rate swap assets at fair value of $3,369 million and currency and interest rate swap liabilities at fair value of $627 million ($3,562 million and $357 million - June 30, 2011), included in derivative assets and derivative liabilities, respectively, on the consolidated balance sheet. 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, 2012 is $1,400 million ($1,499 million at June 30, 2011). Charges on borrowings for the year ended June 30, 2012, includes $1 million in respect of this program ($3 million - June 30, 2011; $2 million - June 30, 2010). 68 Page 74 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Borrowings from IBRD Borrowings outstanding from IBRD are summarized below: June 30, 2012 June 30, 2011 Principal Weighted Principal Weighted amount average amount average (US$ millions) cost (%) (US$ millions) cost (%) Saudi Arabian riyal $ 42 4.0 $ 50 4.0 Total borrowings outstanding from IBRD $ 42 $ 50 The weighted average remaining maturity of borrowings from IBRD was 2.7 years at June 30, 2012 (3.2 years - June 30, 2011). Charges on borrowings for the year ended June 30, 2012, includes $2 million ($2 million - year ended June 30, 2011; $2 million - year ended June 30, 2010) in respect of borrowings from IBRD. Maturity of borrowings The principal amounts repayable on borrowings outstanding in all currencies, gross of any premiums or discounts, during the years ending June 30, 2013, through June 30, 2017, and thereafter are summarized below (US$ millions): 2013 2014 2015 2016 2017 Thereafter Total Borrowings from market sources $ 6,109 $ 9,777 $ 5,698 $ 4,582 $ 6,964 $ 9,770 $ 42,900 Borrowings under the short-term Discount Note Program 1,400 - - - - - 1,400 Borrowings from IBRD 8 8 8 9 9 - 42 Total borrowings, gross $ 7,517 $ 9,785 $ 5,706 $ 4,591 $ 6,973 $ 9,770 44,342 Unamortized discounts, net (640) Fair value adjustments 963 Carrying amount of borrowings $ 44,665 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, 2012 June 30, 2011 Accrued charges on borrowings $ 491 $ 465 Accrued charges on derivative instruments 180 193 Payables for unsettled security trades 477 970 Secured borrowings 100 199 Liabilities under retirement benefit plans 338 - Accounts payable, accrued expenses and other liabilities 1,162 545 Deferred income 110 84 Total payables and other liabilities $ 2,858 $ 2,456 NOTE M – CAPITAL TRANSACTIONS On July 20, 2010, the IFC Board of Directors recommended that the IFC Board of Governors approve an increase in the authorized share capital of IFC of $130 million, to $2,580 million, and the issuance of $200 million of shares (including $70 million of unallocated shares). The resolution recommended by the Board of Directors was adopted by the Board of Governors on March 9, 2012. The amendment to the Articles of Agreement and the increase in the authorized share capital have become effective on June 27, 2012. During the year ended June 30, 2012, 2,500 shares, at a par value of $1,000 each, were subscribed and paid by member countries (0 shares at a par value of $1,000 each - year ended June 30, 2011; 0 shares at a par value of $1,000 each - year ended June 30, 2010). 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. 69 Page 75 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE N – OTHER INCOME Other income for the year ended June 30, 2012, predominantly comprises $20 million of fees collected from clients ($24 million - year ended June 30, 2011; $26 million - year ended June 30, 2010), $28 million of income from consolidated entities ($29 million - year ended June 30, 2011; $17 million - year ended June 30, 2010) and income under other reimbursable arrangements of $10 million ($6 million - year ended June 30, 2011; $7 million - year ended June 30, 2010). NOTE O – RETAINED EARNINGS DESIGNATIONS AND RELATED EXPENDITURES AND ACCUMULATED OTHER COMPREHENSIVE INCOME Designated retained earnings The components of designated retained earnings and related expenditures are summarized below (US$ millions): Global SME Infrastructure Total Ventures for Project designated Grants to Advisory Performance- IDA Development retained IDA services based grants countries Fund earnings At June 30, 2009 $ - $ 409 $ 183 $ 99 $ 100 $ 791 Year ended June 30, 2010 Designations/Reallocations of retained earnings 200 (70) (60) (70) - Transfers 5 (5) - Expenditures against designated retained earnings (200) (101) (7) (2) - (310) At June 30, 2010 $ - $ 313 $ 101 $ 37 $ 30 $ 481 Year ended June 30, 2011 Designations of retained earnings 600 10 610 Expenditures against designated retained earnings (600) (106) (47) (3) - (756) At June 30, 2011 $ - $ 217 $ 54 $ 34 $ 30 $ 335 Year ended June 30, 2012 Designations of retained earnings 330 69 399 Expenditures against designated retained earnings (330) (67) (13) (2) - (412) At June 30, 2012 $ - $ 219 $ 41 $ 32 $ 30 $ 322 On August 4, 2011, IFC’s Board of Directors approved a designation of $330 million ($600 million - year ended June 30, 2011) of IFC’s retained earnings for grants to IDA and $69 million ($10 million - year ended June 30, 2011) of IFC’s retained earnings for advisory services. On September 23, 2011, IFC’s Board of Governors noted with approval the designations approved by IFC’s Board of Directors on August 4, 2011. IFC disbursed $330 million during the year ended June 30, 2012 ($600 million - year ended June 30, 2011) to IDA pursuant to the signing of the grant agreement. Accumulated other comprehensive income The components of accumulated other comprehensive income at June 30, 2012 and June 30, 2011 are summarized as follows (US$ millions): June 30, 2012 June 30, 2011 Net unrealized gains on available-for-sale debt securities $ - $ 259 Net unrealized gains on available-for-sale equity investments 1,450 1,696 Unrecognized net actuarial losses and unrecognized prior service costs on benefit plans (937) (412) Total accumulated other comprehensive income $ 513 $ 1,543 70 Page 76 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE P – NET GAINS AND LOSSES ON OTHER NON-TRADING FINANCIAL INSTRUMENTS ACCOUNTED FOR AT FAIR VALUE Net gains and losses on other non-trading financial instruments accounted for at fair value for the years ended June 30, 2012, June 30, 2011 and June 30, 2010, comprises (US$ millions): 2012 2011 2010 Net realized gains and losses on derivatives associated with investments: Realized (losses) gains on derivatives associated with loans $ (1) $ 4 $ - Realized gains on derivatives associated with debt securities - 11 - Realized gains on derivatives associated with equity investments 12 48 5 Total net realized gains on derivatives associated with investments 11 63 5 Net gains and losses on non-monetary exchanges of derivatives associated with investments: Losses on non-monetary exchanges of derivatives associated with loans (1) - - Gains on non-monetary exchanges of derivatives associated with debt securities 11 8 4 Gains on non-monetary exchanges of derivatives associated with equity investments - 14 2 Total net non monetary gains on derivatives associated with investments 10 22 6 Net unrealized gains and losses on other non-trading financial instruments: Unrealized gains and losses on derivative associated with investments: Unrealized losses on derivatives associated with loans (99) (68) (102) Unrealized (losses) gains on derivatives associated with debt securities (14) (30) 28 Unrealized gains (losses) on derivatives associated with equity investments 79 75 (50) Total unrealized losses on derivatives associated with investments (34) (23) (124) Unrealized gains and losses on market borrowings accounted for at fair value: Credit spread component (59) (44) (324) Interest rate, foreign exchange and other components (1,148) 187 (451) Total unrealized (losses) gains on market borrowings (1,207) 143 (775) Unrealized gains (losses) on derivatives associated with market borrowings 1,001 (50) 549 Net unrealized (losses) gains on market borrowings and associated derivatives (206) 93 (226) Total unrealized (losses) gains on other non-trading financial instruments (240) 70 (350) Net (losses) gains on other non-trading financial instruments accounted for at fair value $ (219) $ 155 $ (339) As discussed in Note A, “Summary of significant accounting and related policiesâ€?, market borrowings with associated derivatives 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 “Net unrealized (losses) gains on market borrowings and associated derivativesâ€? 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 do not alter the cash flows on the market borrowings. 71 Page 77 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE Q – DERIVATIVE AND OTHER FINANCIAL INSTRUMENTS As discussed in Note A, “Summary of significant accounting and related policiesâ€?, 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 how and why IFC uses derivative instruments. The fair value of derivative instrument assets and liabilities by risk type at June 30, 2012 and June 30, 2011 is summarized as follows (US$ millions): June 30, 2012 June 30, 2011 Consolidated balance sheet location Fair value Fair value Derivative assets Interest rate $ 905 $ 649 Foreign exchange 174 5 Interest rate and currency 3,116 3,126 Equity 418 390 Other 2 7 Total derivative assets $ 4,615 $ 4,177 Derivative liabilities Interest rate $ 410 $ 428 Foreign exchange 68 73 Interest rate and currency 782 1,256 Equity and other 1 - Total derivative liabilities $ 1,261 $ 1,757 The effect of derivative instruments contracts on the consolidated income statement for the years ended June 30, 2012 and June 30, 2011 is summarized as follows (US$ millions): Derivative instrument category Consolidated income statement location June 30, 2012 June 30, 2011 Interest rate Income from loans and guarantees $ (39) $ (50) Income from liquid asset trading activities (282) (238) Charges on borrowings 440 464 Other income 2 11 Net gains and losses on other non-trading financial instruments accounted for at fair value 267 (38) Foreign exchange Foreign currency transaction gains and losses on non-trading activities 75 46 Income from liquid asset trading activities (22) (33) Net gains and losses on other non-trading financial instruments accounted for at fair value 26 (11) Interest rate and currency Income from loans and guarantees (187) (198) Income from debt securities (61) (79) Income from liquid asset trading activities (74) (32) Charges on borrowings 940 943 Foreign currency transaction gains and losses on non-trading activities 512 993 Net gains and losses on other non-trading financial instruments accounted for at fair value 660 (81) Other income - (5) Equity Net gains and losses on other non-trading financial instruments accounted for at fair value 40 135 Other Net gains and losses on other non-trading financial instruments accounted for at fair value (5) 7 Total $ 2,292 $ 1,834 The income related to each derivative instrument category includes realized and unrealized gains and losses. At June 30, 2012, the outstanding volume, measured by US$ equivalent notional, of interest rate contracts was $51,147 million ($48,534 million at June 30, 2011), foreign exchange contracts was $11,605 million ($4,376 million at June 30, 2011) and interest rate and currency contracts was $28,730 million ($27,337 million at June 30, 2011). At June 30, 2012, there were 221 equity risk and other contracts related to IFC’s loan and equity investment portfolio recognized as derivatives assets or liabilities under ASC Topic 815 (173 equity risk and other contracts at June 30, 2011). 72 Page 78 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS IFC enters into interest rate and currency derivative instruments under standard industry contracts that contain credit risk-linked contingent features with respect to collateral requirements. Should IFC’s credit rating be downgraded from the current AAA, the credit support annexes of these standard swap agreements detail, by swap counterparty, the collateral requirements IFC must satisfy in this event. The aggregate fair value of derivatives containing a credit risk-linked contingent feature in a net liability position was $105 million at June 30, 2012 ($658 million at June 30, 2011). At June 30, 2012, IFC had no collateral posted under these agreements. If IFC was downgraded from the current AAA to AA+ or less, then collateral in the amount of $6 million would be required to be posted against net liability positions with counterparties at June 30, 2012 ($208 million at June 30, 2011). As of June 30, 2012, IFC had $183 million ($45 million at June 30, 2011) of outstanding obligations to return cash collateral under master netting agreements. 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 reflect the interest rate environments as of June 30, 2012 and June 30, 2011. In different interest rate environments, the fair value of IFC’s financial assets and liabilities could differ significantly, especially the fair value of certain fixed rate financial instruments. 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. For some investments there is a lack of observable pricing data, and this 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. IFC’s financial instruments measured at fair value have been classified as Level 1, Level 2 or Level 3 based on the fair value hierarchy in ASC 820 described in Note A. i) Level 1 primarily consists of financial instruments whose values are based on unadjusted quoted market prices. ii) Level 2 financial instruments are valued using models and other valuation methodologies and substantially all of the 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. iii) Level 3 consists of financial instruments whose fair value is estimated based on internally developed models or methodologies utilizing inputs that are non-observable. Significant increases (decreases) in any of those inputs in isolation would result in a significantly lower (higher) fair value measurement. All of IFC’s financial instruments in its liquid assets portfolio are managed according to an investment authority approved by IFC’s 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 Integrated Risk 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 and Loss Provisioning Unit in the Accounting and Financial Operations department, provide oversight over the fair valuation process by monitoring and reviewing the fair values of IFC’s investment portfolio. IFC’s Valuation Oversight Subcommittee (“VOSâ€?) which is a subcommittee of CRC reviews significant valuation principles and the reasonableness of high exposure valuations quarterly. IFC's borrowings are fair valued by the Quantitative Analysis Group in IFC’s Treasury department under the oversight of the Integrated Risk department. The methodologies used and key assumptions made to estimate fair values as of June 30, 2012, and June 30, 2011, 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. 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. 73 Page 79 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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, 2012 are presented below: Fair value Weighted (US $ Range average Valuation technique millions) Significant inputs (%) (%) Debt securities - preferred Discounted cash flows $ 159 Discount rate 8.0 - 22.2 13.3 shares Relative valuations 91 Valuation multiples* Net asset value 123 Third party pricing Recent transactions 275 n/a n/a Other techniques 9 Total preferred shares 657 Loans and other debt Discounted cash flows 2,037 Credit default swap spreads 0.7 - 80.0 3.9 securities Expected recovery rates 0.0 - 85.0 44.8 Recent transactions 57 n/a n/a Other techniques 8 Total loans and other debt securities 2,102 Total $ 2,759 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. 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, 2012 are presented below: Level 2 derivatives Significant inputs Interest rate contracts 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 rates Foreign exchange rate, inter-bank yield curves, foreign exchange basis curve and yield curves specified to index floating rates. * In case of valuation techniques with multiple significant inputs, the range and weighted average are not provided. Fair value Weighted (US $ Range average Level 3 derivatives Type millions) Significant inputs (%) (%) Equity related derivatives Fixed strike price options $ 76 Volatilities 14.4 - 115.1 34.9 Variable strike price options 332 Contractual strike price* Other techniques 7 Other derivatives 4 Total $ 419 74 Page 80 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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, 2012 are presented below: Fair Value Weighted (US $ Range average Sector Valuation technique millions) Significant inputs (%) (%) Banking and other financial Discounted cash flows $ 514 Cost of equity 9.8 - 22.7 16.8 institutions Asset growth rate (34.0) - 113.0 20.1 Return on assets (8.6) - 7.4 2.1 Perpetual growth rate 3.0 - 11.0 5.2 Relative valuations 203 Price/book value 1.5 - 2.4 1.5 Listed price (adjusted) 207 Discount for lock-up 9.4 - 27.8 12.5 Recent transactions 70 n/a n/a Other techniques 14 Total banking and other financial institutions 1,008 Funds Net Asset Value 2,181 Third party pricing Recent transactions 103 n/a n/a Total funds 2,284 Others Discounted cash flows 177 Weighted average cost of capital 6.8 - 16.1 10.4 Cost of equity 10.2 - 16.4 13.9 Relative valuations 135 Valuation multiples* Listed price (adjusted) 37 Discount for lock-up 5.0 - 18.7 6.5 Recent transactions 151 n/a n/a Other techniques 161 Total others 661 Total $ 3,953 * In case of valuation techniques with multiple significant inputs, the range and weighted average are not provided 75 Page 81 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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, 2012 and June 30, 2011 are summarized below (US$ millions). IFC’s credit exposure is represented by the estimated fair values of its financial assets. June 30, 2012 June 30, 2011 Carrying Carrying amount Fair value amount Fair value Financial assets Cash and due from banks, time deposits, trading securities and securities purchased under resale agreements $ 36,879 $ 36,879 $ 31,777 $ 31,777 Investments: Loans at amortized cost, net of reserves against losses 18,845 19,452 17,731 18,769 Loans held for sale at lower of amortized cost or fair value 60 84 87 90 Loans accounted for at fair value under the Fair Value Option 591 591 637 637 Total loans 19,496 20,127 18,455 19,496 Equity investments at cost less impairment 3,066 5,269 2,748 6,561 Equity investments accounted for at fair value as available-for-sale 3,231 3,231 3,484 3,484 Equity investments accounted for at fair value under the Fair Value Option 3,477 3,477 3,081 3,081 Total equity investments 9,774 11,977 9,313 13,126 Debt securities accounted for at fair value as available-for-sale 1,916 1,916 1,961 1,961 Debt securities accounted for at fair value under the Fair Value Option 252 252 205 205 Total debt securities 2,168 2,168 2,166 2,166 Total investments 31,438 34,272 29,934 34,788 Derivative assets: Borrowings-related 3,369 3,369 3,562 3,562 Liquid asset portfolio-related and other 264 264 65 65 Investment-related 852 852 462 462 Client risk management-related 130 130 88 88 Total derivative assets 4,615 4,615 4,177 4,177 Other investment-related financial assets 37 158 33 174 Financial liabilities Securities sold under repurchase agreements 6,397 6,397 5,787 5,787 Market and IBRD borrowings outstanding 44,665 44,669 38,211 38,211 Derivative liabilities: Borrowings-related 627 627 357 357 Liquid asset portfolio-related and other 223 223 513 513 Investment-related 281 281 799 799 Client risk management-related 130 130 88 88 Total derivative liabilities 1,261 1,261 1,757 1,757 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 $20 million at June 30, 2012 ($21 million - June 30, 2011). Fair values of loan commitments are based on present value of loan commitment fees. 76 Page 82 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fair value hierarchy The following tables provide information as of June 30, 2012 and June 30, 2011, about IFC’s financial assets and financial liabilities measured at fair value on a recurring basis. As required by ASC 820, financial assets and financial liabilities are classified in their entirety based on the lowest level input that is significant to the fair value measurement (US$ millions): At June 30, 2012 Level 1 Level 2 Level 3 Total Trading securities: Money market funds $ 109 $ - $ - $ 109 Treasury securities 6,362 - - 6,362 Foreign government obligations 6,251 14 - 6,265 Government guaranteed bonds 696 1,436 - 2,132 Supranational bonds 63 38 - 101 Municipal bonds 480 301 - 781 Agency bonds (95) 4 - (91) Foreign agency bonds 1,020 171 - 1,191 Agency residential mortgage-backed securities 213 62 - 275 Asset-backed securities - 3,780 10 3,790 Foreign asset-backed securities 1 1,026 - 1,027 Corporate bonds 3,503 73 - 3,576 Commercial mortgage-backed securities - 874 - 874 Foreign residential mortgage-backed securities 24 1,946 - 1,970 Non-agency residential mortgage-backed securities - 348 46 394 Collateralized debt and collateralized loan obligations - 18 94 112 Total trading securities 18,627* 10,091 150 28,868 Loans (outstanding principal balance $607) - - 591 591 Equity investments: Banking and non-banking financial institutions 1,353 69 930 2,352 Insurance companies 114 13 78 205 Funds - - 2,284 2,284 Others 1,145 61 661 1,867 Total equity investments 2,612 143 3,953 6,708 Debt securities: Corporate debt securities - - 1,495 1,495 Preferred shares - - 657 657 Asset-backed securities - - 7 7 Other debt securities - - 9 9 Total debt securities - - 2,168 2,168 Derivative assets: Interest rate contracts - 905 - 905 Foreign exchange - 174 - 174 Interest rate and currency rates - 3,116 - 3,116 Equity - - 418 418 Other - - 2 2 Total derivative assets - 4,195 420 4,615 Total assets at fair value $ 21,239 $ 14,429 $ 7,282 $ 42,950 Borrowings: Structured bonds $ - $ 6,219 $ - $ 6,219 Unstructured bonds 23,444 13,183 - 36,627 Total borrowings (outstanding principal balance $42,523**) 23,444 19,402 - 42,846 Derivative liabilities: Interest rate contracts - 410 - 410 Foreign exchange - 68 - 68 Interest rate and currency rates - 782 - 782 Equity price risk contracts - - 1 1 Total derivative liabilities - 1,260 1 1,261 Total liabilities at fair value $ 23,444 $ 20,662 $ 1 $ 44,107 * includes securities priced at par plus accrued interest, which approximates fair value, with a fair value of $109 million at June 30, 2012. ** includes discount notes (not under the short-term Discount Note Program), with original maturities greater than one year, with principal due at maturity of $3,229 million, with a fair value of $2,640 million as of June 30, 2012. Note: For the year ended June 30, 2012: trading securities with a fair value of $214 million were transferred from level 2 to level 1 due to indications of improved market activity; and, trading securities with a fair value of $749 million were transferred from level 1 to level 2 due to decrease in market activity. Equity investments with fair value of $116 million were transferred from level 1 to level 2 due to decrease in market activity; and bonds issued by IFC with a fair value of $514 million were transferred from level 2 to level 1, while bonds issued with a fair value of $1,952 million were transferred from level 1 to level 2. 77 Page 83 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS At June 30, 2011 Level 1 Level 2 Level 3 Total Trading securities: Money market funds $ 1,372 $ - $ - $ 1,372 Treasury securities 5,313 - - 5,313 Foreign government obligations 1,363 5 - 1,368 Government guaranteed bonds 3,991 930 - 4,921 Supranational bonds 187 25 - 212 Foreign municipal bonds 242 - - 242 Agency bonds 24 5 - 29 Foreign agency bonds 726 173 - 899 Agency residential mortgage-backed securities 138 107 9 254 Asset-backed securities - 3,065 43 3,108 Foreign asset-backed securities 2 664 - 666 Corporate bonds 1,695 175 - 1,870 Commercial mortgage-backed securities - 1,473 - 1,473 Foreign residential mortgage-backed securities 46 2,251 - 2,297 Non-agency residential mortgage-backed securities - 558 55 613 Collateralized debt and collateralized loan obligations - 21 103 124 Total trading securities 15,099* 9,452 210 24,761 Loans (outstanding principal balance $596) - - 637 637 Equity investments: Banking and non-banking financial institutions 1,885 - 566 2,451 Insurance companies 79 - 14 93 Funds - - 2,104 2,104 Others 1,369 - 548 1,917 Total equity investments 3,333 - 3,232 6,565 Debt securities: Corporate debt securities - - 1,620 1,620 Preferred shares - - 516 516 Asset-backed securities - - 22 22 Other debt securities - - 8 8 Total debt securities - - 2,166 2,166 Derivative assets: Interest rate contracts - 649 - 649 Foreign exchange - 5 - 5 Interest rate and currency rates - 3,126 - 3,126 Equity - - 390 390 Other - - 7 7 Total derivative assets - 3,780 397 4,177 Total assets at fair value $ 18,432 $ 13,232 $ 6,642 $ 38,306 Borrowings: Structured bonds $ - $ 4,878 $ - $ 4,878 Unstructured bonds 18,562 12,841 - 31,403 Total borrowings (outstanding principal balance $37,174**) 18,562 17,719 - 36,281 Derivative liabilities: Interest rate contracts - 428 - 428 Foreign exchange - 73 - 73 Interest rate and currency rates - 1,256 - 1,256 Total derivative liabilities - 1,757 - 1,757 Total liabilities at fair value $ 18,562 $ 19,476 $ - $ 38,038 * includes securities priced at par plus accrued interest, which approximates fair value, with a fair value of $1,372 million at June 30, 2011. ** includes discount notes (not under the short-term Discount Note Program), with original maturities greater than one year, with principal due at maturity of $2,907 million, with a fair value of $2,295 million as of June 30, 2011. Note: For the year ended June 30, 2011 securities with a fair value of $3,463 million were transferred from level 2 to level 1 due to indications of improved market activity and changing classification approach for some sectors from vendor-based methodology to sector based methodology corroborated with observation of market activities. 78 Page 84 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following tables present the changes in the carrying amount of IFC’s Level 3 financial assets and financial liabilities for the year ended June 30, 2012 and year ended June 30, 2011 (US$ millions): Level 3 trading securities for the year ended June 30, 2012 Asset Mortgage Supranational Collateralized Total backed backed bonds loan and debt securities securities obligations Balance as of July 1, 2011 $ 43 $ 64 $ - $ 103 $ 210 Transfers into Level 3 (***) 5 - - - 5 Transfers out of Level 3 (****) (43) (13) - - (56) Net gains (realized and unrealized) for the year ended June 30, 2012 in net income - (5) - 13 8 Purchases, issuances, sales and settlements: Purchases 5 - - - 5 Settlements and others - - - (22) (22) Balance as of June 30, 2012 $ 10 $ 46 $ - $ 94 $ 150 For the year ended June 30, 2012: Net unrealized gains included in net income $ - $ 10 $ - $ 12 $ 22 Level 3 loans and debt securities for year ended June 30, 2012 Loans Debt securities Corporate Preferred Asset Others Total securities shares backed securities Balance as of July 1, 2011 $ 637 $ 1,620 $ 516 $ 22 $ 8 $ 2,166 Net gains (realized and unrealized) for the year ended June 30, 2012 in: Net income (13) 10 27 - 1 38 Other comprehensive income - (221) (38) - - (259) Purchases, issuances, sales and settlements: Purchases - 307 214 - - 521 Issuances 129 - - - - - Proceeds from sales - - (56) - - (56) Settlements and others (162) (221) (6) (15) - (242) Balance as of June 30, 2012 $ 591 $ 1,495 $ 657 $ 7 $ 9 $ 2,168 For the year ended June 30, 2012: Net unrealized gains (losses) included in net income $ (14) $ (7) $ 13 $ - $ 1 $ 7 Net unrealized losses included in other comprehensive income $ - $ (171) $ (38) $ - $ - $ (209) Level 3 equity investments for the year ended June 30, 2012 Banking and Insurance Funds Others Total non-banking companies institutions Balance as of July 1, 2011 $ 566 $ 14 $ 2,104 $ 548 $ 3,232 Transfers into Level 3 (***) 393 - - 21 414 Transfers out of Level 3 (****) (110) - - (59) (169) Net gains (losses) (realized and unrealized) for the year ended June 30, 2012 in: Net income (4) (2) (19) (8) (33) Other comprehensive income (3) 41 - 19 57 Purchases, issuances, sales and settlements: Purchases 58 13 436 138 645 Proceeds from sales (28) - (237) (1) (266) Settlements and others 58 12 - 3 73 Balance as of June 30, 2012 $ 930 $ 78 $ 2,284 $ 661 $ 3,953 For the year ended June 30, 2012: Net unrealized gains (losses) included in net income $ 29 $ (2) $ (157) $ (6) $ (136) Net unrealized gains (losses) included in other comprehensive income $ (3) $ 41 $ - $ 19 $ 57 (***) 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, 2012. (****)Transfers out of Level 3 are due to availability of observable market data resulting from an increase in market activity for these securities or sales of some securities that were part of June 2011 beginning balance as of June 30, 2012. Note: IFC’s policy is to recognize transfers in and transfers out as of the beginning of the reporting period in which the transfer occurred. 79 Page 85 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Level 3 derivative assets for year ended June 30, 2012 Derivative assets Equity Others Total Balance as of July 1, 2011 $ 390 $ 7 $ 397 Net gains (realized and unrealized) for the year ended June 30, 2012 in net income 40 (5) 35 Purchases, issuances, sales and settlements: Purchases 8 - 8 Settlements and others (20) - (20) Balance as of June 30, 2012 $ 418 $ 2 $ 420 For the year ended June 30, 2012: Net unrealized gains (losses) included in net income $ 70 $ (5) $ 64 Level 3 trading securities for the year ended June 30, 2011 Asset Mortgage Supranational Collateralized Total backed backed bonds loan and debt securities securities obligations Balance as of July 1, 2010 $ 55 $ - $ 14 $ 108 $ 177 Transfers into Level 3 (***) 2 53 - - 55 Transfers out of Level 3 (****) (15) - (14) (5) (34) Net gains (realized and unrealized) for the year ended June 30, 2011 in net income - 4 - 1 5 Purchases, issuances, sales and settlements: Purchases 10 9 - - 19 Proceeds from sales (9) - - - (9) Settlements and others - (2) - (1) (3) Balance as of June 30, 2011 $ 43 $ 64 $ - $ 103 $ 210 For the year ended June 30, 2011: Net unrealized gains included in net income $ - $ 16 $ - $ 1 $ 17 (***) 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, 2011. (****)Transfers out of Level 3 are due to availability of observable market data resulting from an increase in market activity for these securities or sales of some securities that were part of June 2010 beginning balance as of June 30, 2011. Note: IFC’s policy is to recognize transfers in and transfers out as of the beginning of the reporting period in which the transfer occurred. Level 3 loans and debt securities for the year ended June 30, 2011 Loans Debt securities Corporate Preferred Asset Others Total securities shares backed securities Balance as of July 1, 2010 $ 450 $ 1,316 $ 464 $ 29 $ 6 $ 1,815 Net gains (realized and unrealized) for the year ended June 30, 2011 in: Net income 96 11 (6) - 1 6 Other comprehensive income - 152 (12) - 1 141 Purchases, issuances, sales and settlements: Purchases - 214 98 - - 312 Issuances 163 - - - - - Proceeds from sales - - (12) - - (12) Settlements and others (72) (73) (16) (7) - (96) Balance as of June 30, 2011 $ 637 $ 1,620 $ 516 $ 22 $ 8 $ 2,166 For the year ended June 30, 2011: Net unrealized gains (losses) included in net income $ 94 $ (1) $ (4) $ - $ 1 $ (4) Net unrealized gains (losses) included in other comprehensive income $ - $ 164 $ (17) $ - $ 1 $ 148 80 Page 86 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Level 3 equity investments for the year ended June 30, 2011 Banking and Insurance Funds Others Total non-banking companies institutions Balance as of July 1, 2010 $ 835 $ 33 $ 1,177 $ 444 $ 2,489 Transfers out of Level 3 (****) (442) (30) - (114) (586) Net gains (losses) (realized and unrealized) for the year ended June 30, 2011 in: Net income 15 (1) 407 88 509 Other comprehensive income (7) - - (3) (10) Purchases, issuances, sales and settlements: Purchases 91 12 637 92 832 Proceeds from sales (5) - (215) (3) (223) Settlements and others 79 - 98 44 221 Balance as of June 30, 2011 $ 566 $ 14 $ 2,104 $ 548 $ 3,232 For the year ended June 30, 2011: Net unrealized gains (losses) included in net income $ 28 $ (1) $ 348 $ 75 $ 450 Net unrealized gains (losses) included in other comprehensive income $ (7) $ - $ - $ (3) $ (10) Level 3 derivative assets for year ended June 30, 2011 Derivative assets Equity Others Total Balance as of July 1, 2010 $ 337 $ 1 $ 338 Net gains (realized and unrealized) for the year ended June 30, 2011 in net income 134 7 141 Purchases, issuances, sales and settlements: Purchases 7 - 7 Settlements and others (88) (1) (89) Balance as of June 30, 2011 $ 390 $ 7 $ 397 For the year ended June 30, 2011: Net unrealized gains included in net income $ 104 $ 6 $ 109 (****)Transfers out of Level 3 are due to availability of observable market data resulting from an increase in market activity for these securities or sales of some securities that were part of June 2010 beginning balance as of June 30, 2011. Note: IFC’s policy is to recognize transfers in and transfers out as of the beginning of the reporting period in which the transfer occurred. 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, income from equity investments and income from debt securities, respectively. As of June 30, 2012, equity investments, accounted for at cost less impairment, with a carrying amount of $1,519 million were written down to their fair value of $1,247 million ($490 million and $405 million - June 30, 2011), resulting in a loss of $272 million, which was included in income from equity investments in the consolidated income statement during the year ended June 30, 2012 (loss of $85 million - year ended June 30, 2011). The amount of the write down was based on a Level 3 measure of fair value. 81 Page 87 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE S – CURRENCY POSITION IFC conducts its operations for loans, debt securities, equity investments, time deposits, trading securities, and borrowings in multiple currencies. IFC’s policy is to minimize the level of currency risk by closely matching the currency of its assets (other than equity investments and quasi-equity investments) and liabilities by using hedging instruments. IFC’s equity investments in enterprises located in its developing member countries are typically made in the local currency of the country. As a matter of policy, IFC carries the currency risk of equity investments and funds these investments from its capital and retained earnings. The following table summarizes IFC’s exposure in major currencies at June 30, 2012 and June 30, 2011 (US$ millions): June 30, 2012 Fair value Japanese Other and other US dollar Euro yen currencies adjustments Total Assets Cash and cash equivalents $ 2,397 $ 1,480 $ 208 $ 2,962 $ - $ 7,047 Trading securities 18,763 997 1,359 7,749 - 28,868 Securities purchased under resale agreements 931 - - 33 - 964 Investments: Loans 15,496 2,807 30 2,544 - 20,877 Less: Reserve against losses on loans (1,120) (164) (1) (96) - (1,381) Net loans 14,376 2,643 29 2,448 - 19,496 Equity investments - - - 9,774 - 9,774 Debt securities 1,287 69 - 812 - 2,168 Total investments 15,663 2,712 29 13,034 - 31,438 Derivative assets 6,454 393 3,832 16,034 (22,098) 4,615 Receivables and other assets 1,986 80 36 727 - 2,829 Total assets $ 46,194 $ 5,662 $ 5,464 $ 40,539 $ (22,098) $ 75,761 Liabilities Securities sold under repurchase agreements $ 6,397 $ - $ - $ - $ - $ 6,397 Borrowings 24,672 267 3,833 15,893 - 44,665 Derivative liabilities 6,811 4,871 1,383 10,492 (22,296) 1,261 Payables and other liabilities 2,099 89 36 634 - 2,858 Total liabilities $ 39,979 $ 5,227 $ 5,252 $ 27,019 $ (22,296) $ 55,181 June 30, 2011 Fair value Japanese Other and other US dollar Euro yen currencies adjustments Total Assets Cash and cash equivalents $ 2,818 $ 1,217 $ 7 $ 1,425 $ - $ 5,467 Trading securities 19,264 2,101 305 3,091 - 24,761 Securities purchased under resale agreements 1,549 - - - - 1,549 Investments: Loans 14,056 2,978 35 2,693 - 19,762 Less: Reserve against losses on loans (1,014) (187) (2) (104) - (1,307) Net loans 13,042 2,791 33 2,589 - 18,455 Equity investments - - - 9,313 - 9,313 Debt securities 911 79 - 1,176 - 2,166 Total investments 13,953 2,870 33 13,078 - 29,934 Derivative assets 5,434 446 4,083 15,108 (20,894) 4,177 Receivables and other assets 1,944 233 50 375 - 2,602 Total assets $ 44,962 $ 6,867 $ 4,478 $ 33,077 $ (20,894) $ 68,490 Liabilities Securities sold under repurchase agreements $ 5,605 $ 128 $ - $ 54 $ - $ 5,787 Borrowings 19,024 328 4,085 14,774 - 38,211 Derivative liabilities 12,862 4,508 35 5,345 (20,993) 1,757 Payables and other liabilities 1,500 85 50 821 - 2,456 Total liabilities $ 38,991 $ 5,049 $ 4,170 $ 20,994 $ (20,993) $ 48,211 82 Page 88 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE T – 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 sheet 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. In addition, Advisory services is also assessed on the basis of the level and adequacy of its funding sources (See Note V). 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. An analysis of IFC’s major components of income and expense by business segment for the years ended June 30, 2012, June 30, 2011 and June 30, 2010, is given below (US$ millions): Year ended June 30, 2012 Investment Treasury Advisory Total services services services Income from loans and guarantees $ 938 $ - $ - $ 938 (Provision) release of provision for losses on loans, guarantees and (117) - - (117) other receivables Income from equity investments 1,457 - - 1,457 Income from debt securities 81 - - 81 Income from liquid asset trading activities - 313 - 313 Charges on borrowings (92) (89) - (181) Advisory services income - - 269 269 Other income 179 - - 179 Administrative expenses (728) (23) (47) (798) Advisory services expenses - - (290) (290) Other expenses (119) - - (119) Foreign currency transaction gains and losses on non-trading 145 - - 145 activities Net gains and losses on other non-trading financial instruments accounted for at fair value Realized gains 11 - - 11 Gains on non-monetary exchanges 10 - - 10 Unrealized (losses) gains (34) (206) - (240) Grants to IDA (330) - - (330) Net income (loss) $ 1,401 $ (5) $ (68) $ 1,328 83 Page 89 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Year ended June 30, 2011 Investment Treasury Advisory Total services services services Income from loans and guarantees $ 869 $ 8 $ - $ 877 (Provision) release of provision for losses on loans, guarantees and 40 - - 40 other receivables Income from equity investments 1,464 - - 1,464 Income from debt securities 46 - - 46 Income from liquid asset trading activities - 529 - 529 Charges on borrowings (109) (31) - (140) Other income 222 - - 222 Administrative expenses (665) (9) (26) (700) Advisory services expenses - - (153) (153) Other expenses (128) - - (128) Foreign currency transaction gains and losses on non-trading (33) - - (33) activities Net gains and losses on other non-trading financial instruments accounted for at fair value Realized gains 63 - - 63 Gains on non-monetary exchanges 22 - - 22 Unrealized (losses) gains (23) 93 - 70 Grants to IDA (600) - - (600) Net income (loss) $ 1,168 $ 590 $ (179) $ 1,579 Year ended June 30, 2010 Investment Treasury Advisory Total services services services Income from loans and guarantees $ 786 $ 15 $ - $ 801 (Provision) release of provision for losses on loans, guarantees and (155) - - (155) other receivables Income from equity investments 1,638 - - 1,638 Income from debt securities 108 - - 108 Income from liquid asset trading activities - 815 - 815 Charges on borrowings (117) (46) - (163) Other income 176 - - 176 Administrative expenses (635) (13) (16) (664) Advisory services expenses - - (108) (108) Other expenses (81) - - (81) Foreign currency transaction gains and losses on non-trading (82) - - (82) activities Net gains and losses on other non-trading financial instruments accounted for at fair value Realized gains 5 - - 5 Gains on non-monetary exchanges 6 - - 6 Unrealized (losses) gains (124) (226) - (350) Grants to IDA (200) - - (200) Net income (loss) $ 1,325 $ 545 $ (124) $ 1,746 Geographical segment data in respect of client services is disclosed in Note D, and the composition of Liquid Assets is provided in Note C. 84 Page 90 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE U – VARIABLE INTEREST ENTITIES Significant variable interests IFC has identified 106 investments in VIEs which are not consolidated by IFC but in which it is deemed to hold significant variable interests at June 30, 2012 (93 investments - June 30, 2011). 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 $18,143 million at June 30, 2012 ($16,009 million - June 30, 2011). IFC’s maximum exposure to loss as a result of its investments in these VIEs, comprising both carrying amount of investments and amounts committed but not yet disbursed, was $3,213 million at June 30, 2012 ($3,197 million - June 30, 2011). The industry sector and geographical regional analysis of IFC’s maximum exposures as a result of its investment in these VIEs at June 30, 2012 and June 30, 2011 is as follows (US$ millions): June 30, 2012 Equity Debt Risk Loans investments securities Guarantees management Total Manufacturing, agribusiness and services Asia $ 93 $ - $ 4 $ - $ - $ 97 Europe, Middle East and North Africa 284 30 3 - - 317 Sub-Saharan Africa, Latin America and Caribbean 140 31 - - - 171 Total manufacturing, agribusiness and services 517 61 7 - - 585 Financial markets Asia 20 57 - - - 77 Europe, Middle East and North Africa 56 42 85 - - 183 Sub-Saharan Africa, Latin America and Caribbean 62 114 55 1 - 232 Other 72 - 122 - 13 207 Total financial markets 210 213 262 1 13 699 Infrastructure and natural resources Asia 721 33 33 - - 787 Europe, Middle East and North Africa 406 31 2 - 72 511 Sub-Saharan Africa, Latin America and Caribbean 556 27 25 8 15 631 Total infrastructure and natural resources 1,683 91 60 8 87 1,929 Maximum exposure to VIEs $ 2,410 $ 365 $ 329 $ 9 $ 100 $ 3,213 85 Page 91 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2011 Equity Debt Risk Loans investments securities Guarantees management Total Manufacturing, agribusiness and services Asia $ 55 $ 2 $ 8 $ - $ - $ 65 Europe, Middle East and North Africa 97 69 - - - 166 Sub-Saharan Africa, Latin America and Caribbean 408 30 2 - - 440 Total manufacturing, agribusiness and services 560 101 10 - - 671 Financial markets Asia 10 12 41 - - 63 Europe, Middle East and North Africa 92 71 88 133 - 384 Sub-Saharan Africa, Latin America and Caribbean 62 44 6 - - 112 Other 111 9 69 - 16 205 Total financial markets 275 136 204 133 16 764 Infrastructure and natural resources Asia 740 51 20 - - 811 Europe, Middle East and North Africa 489 12 5 16 8 530 Sub-Saharan Africa, Latin America and Caribbean 348 34 - - 39 421 Total infrastructure and natural resources 1,577 97 25 16 47 1,762 Maximum exposure to VIEs $ 2,412 $ 334 $ 239 $ 149 $ 63 $ 3,197 The carrying amount of investments and maximum exposure to VIEs at June 30, 2012 and June 30, 2011 is as follows (US$ millions): June 30, 2012 Investment Portfolio Carrying amount Committed but Maximum of investments not yet disbursed exposure Loans $ 1,749 $ 661 $ 2,410 Equity investments 212 153 365 Debt securities 329 - 329 Guarantees 9 - 9 Risk management 79 21 100 Maximum exposure to VIEs $ 2,378 $ 835 $ 3,213 June 30, 2011 Investment Portfolio Carrying amount Committed but Maximum of investments not yet disbursed exposure Loans $ 1,745 $ 667 $ 2,412 Equity investments 209 125 334 Debt securities 239 - 239 Guarantees 149 - 149 Risk management 44 19 63 Maximum exposure to VIEs $ 2,386 $ 811 $ 3,197 NOTE V – ADVISORY SERVICES IFC provides advisory services to government and private sector clients through four business lines: access to finance; investment climate; public-private partnerships and sustainable business. 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 designations as well as fees received from the recipients of the services. IFC administers donor funds through trust funds (Trust Funds). The donor funds may be used to support feasibility studies, project preparation, and other advisory services initiatives. Donor funds are restricted for purposes specified in agreements with the donors. IFC’s funding for advisory services are made in accordance with terms approved by IFC’s Board. Donor funds under administration and IFC’s funding can be commingled in accordance with administration agreements with donors. The comingled funds are held in a separate liquid asset investment portfolio (The “Poolâ€?), managed by IBRD, which is not commingled with IFC’s other liquid assets. Donor funds are refundable until expended for their designated purpose. 86 Page 92 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Pool is actively managed and invested in accordance with the investment strategy established for all trust funds administered by the World Bank Group. The primary objective of the investment strategy is to maintain liquidity to meet foreseeable cash flow needs with a secondary objective of providing investment returns. Prior to July 1, 2011, the portion of the Pool representing undisbursed donor funds was not reported on IFC’s consolidated balance sheet. Further, advisory services expenses incurred were reported net of donor funding. Beginning July 1, 2011, the entire Pool, including the portion represented by undisbursed donor funds, is reported at fair value in other assets. Due to the refundable nature of undisbursed donor funds, a corresponding obligation is recorded in other liabilities - changes in the fair value of the portion of the pool representing undisbursed donor funds are recorded in other liabilities. Further, advisory services expenses are reported gross - an amount equal to the portion of advisory services expenses funded by donors is included in advisory services income. As of June 30, 2012, other assets include $602 million representing the entire Pool, including undisbursed donor funds of $406 million and IFC advisory services funding of $196 million. Included in other liabilities as of June 30, 2012 is $406 million of refundable undisbursed donor funds. NOTE W – PENSION AND OTHER POSTRETIREMENT BENEFITS IBRD, IFC and MIGA participate in a defined benefit Staff Retirement Plan (SRP), a Retired Staff Benefits Plan (RSBP) and a Post-Employment Benefits Plan (PEBP) that cover substantially all of their staff members. The SRP provides pension benefits and includes a cash balance plan. The RSBP provides certain health and life insurance benefits to eligible retirees. The PEBP provides certain pension benefits administered outside the SRP. IFC uses a June 30 measurement date for its pension and other postretirement benefit plans. The amounts presented below reflect IFC’s respective share of the costs, assets and liabilities of the plans. All costs, assets and liabilities associated with these plans are allocated between IBRD, IFC and MIGA based upon their employees’ respective participation in the plans. Costs allocated to IBRD are then shared between IBRD and IDA based on an agreed cost-sharing ratio. IDA, IFC and MIGA reimburse IBRD for their proportionate share of any contributions made to these plans by IBRD. Contributions to these plans are calculated as a percentage of salary. The following table summarizes the benefit costs associated with the SRP, RSBP, and PEBP allocated to IFC for the years ended June 30, 2012, June 30, 2011 and June 30 2010 (US$ millions): SRP RSBP PEBP 2012 2011 2010 2012 2011 2010 2012 2011 2010 Benefit cost Service cost $ 87 $ 78 $ 60 $ 17 $ 16 $ 12 $ 9 $ 8 $ 6 Interest cost 112 109 107 17 16 14 6 5 5 Expected return on plan assets (150) (137) (141) (18) (16) (14) - - - Amortization of prior service cost 2 1 2 - * * * * * Amortization of unrecog- nized net loss 6 20 11 4 6 5 4 3 2 Net periodic pension cost (income) $ 57 $ 71 $ 39 $ 20 $ 22 $ 17 $ 19 $ 16 $ 13 * 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, 2012, June 30, 2011 and June 30, 2010, expenses for these plans of $96 million, $109 million and $69 million, respectively, were allocated to IFC. The following table summarizes the projected benefit obligations, fair value of plan assets, and funded status associated with the SRP, RSBP, and PEBP for IFC for the years ended June 30, 2012 and June 30, 2011 (US$ 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 invested in fixed income and equity instruments. 87 Page 93 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SRP RSBP PEBP 2012 2011 2012 2011 2012 2011 Projected benefit obligations Beginning of year $ 2,166 $ 1,927 $ 305 $ 268 $ 127 $ 100 Service cost 87 78 17 15 9 8 Interest cost 112 109 17 16 7 6 Participant contributions 27 26 2 1 * - Retiree Drug Subsidy received - - - 1 - - Amendments - - 25 - - - Benefits paid (100) (88) (6) (6) (6) (5) Actuarial loss (gain) 355 114 56 10 38 18 End of year 2,647 2,166 416 305 175 127 Fair value of plan assets Beginning of year 2,347 2,042 266 213 - - Participant contributions 27 26 2 1 - - Actual return on assets 94 317 6 34 - - Employer contributions 63 50 26 24 - - Benefits paid (100) (88) (6) (6) - - End of year 2,431 2,347 294 266 - - Funded status* (216) 181 (122) (39) (175) (127) Accumulated benefit obligations $ 1,812 $ 1,461 $ 416 $ 304 $ 148 $ 108 * Positive funded status is reflected in Receivables and other assets under prepaid pension and other postretirement benefit cost, in Note J; negative funded status is included in Payables and other liabilities under liabilities under retirement benefits plans, in Note L Currently IFC is enrolled in the U.S. Government Retiree Drug Subsidy (RDS) program. Effective January 1, 2013, IFC will be moving from RDS to an Employer Group Waiver Plan (EGWP), an employer-sponsored prescription drug plan that further enhances coordination with Medicare prescription drug coverage under Medicare Part D. During the fiscal year ended June 30, 2012, amendments were made to the RSBP. These include the integration of the prescription drug coverage with EGWP, thereby providing reimbursements for standard and income related premiums paid for medical insurance under Medicare Part B to all eligible plan participants effective on July 1, 2012, and providing reimbursements of Medicare Part D income-related premium amounts once the plan is integrated with EGWP, for all eligible plan participants effective January 1, 2013. The effect of these changes is a $25 million increase to the projected benefit obligation at June 30, 2012. The following tables present the amounts included in Accumulated Other Comprehensive Income relating to Pension and Other Postretirement Benefits (US$ millions): Amounts included in Accumulated Other Comprehensive Loss in the year ended June 30, 2012: SRP RSBP PEBP Total Net actuarial loss $ 648 $ 151 $ 108 $ 907 Prior service cost 4 25 1 30 Net amount recognized in accumulated other comprehensive loss $ 652 $ 176 $ 109 $ 937 Amounts included in Accumulated Other Comprehensive Loss in the year ended June 30, 2011: SRP RSBP PEBP Total Net actuarial loss $ 244 $ 87 $ 75 $ 406 Prior service cost 5 - 1 6 Net amount recognized in accumulated other comprehensive loss $ 249 $ 87 $ 76 $ 412 The estimated amounts that will be amortized from Accumulated Other Comprehensive Income (Loss) into net periodic benefit cost in the fiscal year ending June 30, 2013 are as follows (US$ millions): SRP RSBP PEBP Total Net actuarial loss $ 36 $ 8 $ 7 $ 51 Prior service cost 1 2 * 3 Amount estimated to be amortized into net periodic benefit cost $ 37 $ 10 $ 7 $ 54 * Less than $0.5 million 88 Page 94 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Assumptions The actuarial assumptions used are based on financial market interest rates, 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, 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, 2012, June 30, 2011 and June 30, 2010: Weighted average assumptions used to determine projected benefit obligation (%) SRP RSBP PEBP 2012 2011 2010 2012 2011 2010 2012 2011 2010 Discount rate 3.90 5.30 5.75 4.10 5.50 6.00 3.90 5.20 5.75 Rate of compensation increase 5.40 5.90 6.20 5.40 5.90 6.20 Health care growth rates - at end of fiscal year 6.30 6.90 7.00 Ultimate health care growth rate 3.60 4.00 4.25 Year in which ultimate rate is reached 2022 2022 2022 Weighted average assumptions used to determine net periodic pension cost (%) SRP RSBP PEBP 2012 2011 2010 2012 2011 2010 2012 2011 2010 Discount rate 5.30 5.75 7.00 5.50 6.00 7.00 5.20 5.75 7.00 Expected return on plan assets 6.40 6.75 7.75 6.70 7.75 7.75 Rate of compensation increase 5.90 6.20 6.70 5.90 6.20 6.70 Health care growth rates: -at end of fiscal year 6.90 7.00 7.00 Ultimate health care growth rate 4.00 4.25 4.75 Year in which ultimate rate Is reached 2022 2022 2017 The 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 $ 9 $ (7) Effect on postretirement benefit obligation 89 (69) 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., neutral 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 an annual review of key assumptions. The key long-term objective is to target and secure asset performance that is reasonable in relation to the growth rate of the underlying liabilities and the assumed sponsor contribution rates. This is particularly so in the case of the SRP, which has liabilities that can be projected with a reasonable level of confidence based on the actuarial assumptions. 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 various asset classes and strategies including equity, quasi-equity, private equity and real estate. 89 Page 95 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The 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 desired 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 revised target asset allocations for the SRP and RSBP were approved in December 2010 and April 2011, respectively. The following table presents the actual and target asset allocation at June 30, 2012 and June 30, 2011 by asset category for the SRP and RSBP. The portfolios are still in a period of transition to the new SAA, especially with regard to private equity, and hedge funds and real assets, which explains for the most part, the differences between the target allocation and the actual allocation as of June 2012. SRP RSBP Target Target Allocation % of Plan Assets Allocation % of Plan Assets 2012 (%) 2012 2011 2012 (%) 2012 2011 Asset class Fixed income & cash 31.0 33 33 24.0 32 33 Public equity 27.0 24 24 29.0 27 27 Private equity 15.0 20 20 20.0 24 25 Hedge funds and active overlay 15.0 11 11 15.0 8 8 Real assets* 12.0 12 12 12.0 9 7 Total 100.0 100.0 100.0 100.0 100.0 100.0 * Real assets are primarily comprised of Real Estate and Real Estate Investment Trusts (REITS), with a small allocation to infrastructure and timber. Significant concentrations of risk in Plan assets The 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. Risk management practices Managing investment risk is an integral part of managing the assets of the Plans. Liability driven investment management and asset diversification are central to the overall investment strategy and risk management approach for the SRP. The surplus volatility risk (defined as the annualized standard deviation of asset returns relative to that of liabilities) is considered the primary indicator of the overall investment risk of the Plans. It is used to define the risk tolerance level and establish the overall level of investment risk. Investment 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. Monitoring 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. Credit risk is monitored on a regular basis and assessed for possible market 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. 90 Page 96 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fair value measurements and disclosures All plan assets are measured at fair value on recurring basis. The following table presents the fair value hierarchy of major categories of plans assets as of June 30, 2012 and June 30, 2011 (US$ millions): June 30, 2012 Fair value measurements on a recurring basis SRP RSBP Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Debt securities Time Deposits $ - $ 9 $ - $ 9 $ - $ 4 $ - $ 4 Securities purchased under resale agreements 15 - - 15 3 - - 3 Government and agency securities 595 104 - 699 38 49 - 87 Corporate and convertible bonds - 27 - 27 - 3 - 3 Asset-backed securities - 9 - 9 - 1 * 1 Mortgage-backed securities - 49 - 49 - 1 * 1 Total Debt securities 610 198 - 808 41 58 * 99 Equity securities US common stocks 73 - - 73 8 - - 8 Non-US common stocks 240 - - 240 33 - - 33 Mutual funds 107 - - 107 9 - - 9 Real estate investment trusts (REITS) 57 - - 57 3 - - 3 Total Equity securities 477 - - 477 53 - - 53 Commingled funds - 140 - 140 - 28 - 28 Private equity - - 491 491 - - 67 67 Hedge funds - 173 68 241 - 16 7 23 Derivative assets /liabilities (*) (1) - (1) 1 (*) - 1 Real estate (including Infrastructure and timber - 65 174 239 * 2 21 23 Other assets /liabilities**, net - * - 36 - - - - Total Assets $ 1,087 $ 575 $ 733 $ 2,431 $ 95 $ 104 $ 95 $ 294 June 30, 2011 Fair value measurements on a recurring basis SRP RSBP Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Debt securities Time Deposits $ - $ 43 $ - $ 43 $ - $ 4 $ - $ 4 Securities purchased under resale agreements 54 - - 54 4 - - 4 Government and agency securities 470 178 - 648 11 48 - 59 Corporate and convertible bonds - 47 - 47 - 21 - 21 Asset-backed securities - 22 5 27 - 1 * 1 Mortgage-backed securities - 77 3 80 - 1 * 1 Total Debt securities 524 367 8 899 15 75 * 90 Equity securities US common stocks 62 - - 62 6 - - 6 Non-US common stocks 219 - - 219 26 - - 26 Mutual funds 47 - - 47 7 - - 7 Real estate investment trusts (REITS) 48 - - 48 * - - * Total Equity securities 376 - - 376 39 - - 39 Commingled funds - 138 - 138 - 31 - 31 Private equity - - 475 475 - - 66 66 Hedge funds - 218 61 279 - 16 6 22 Derivative assets /liabilities 3 (5) - (2) * (1) - (1) Real estate (including Infrastructure and timber - 59 139 198 - 2 17 19 Other assets /liabilities**, net - * - (17) - - - * Total Assets $ 903 $ 777 $ 683 $ 2,346 $ 54 $ 123 $ 89 $ 266 * Less than $0.5 million. ** Includes receivables and payables carried at amounts that approximate fair value. 91 Page 97 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following tables present a reconciliation of Level 3 assets held during the year ended June 30, 2012 and 2011 (US$ millions). For the fiscal year ended June 30, 2011, investments in certain real estate funds that were identified as redeemable within 90 days of the period end were transferred out of Level 3 into Level 2. __________________________________________________________________________________________________________________ June 30, 2012 SRP: Fair value measurements using significant unobservable inputs Corporate Asset- Mortgage- Private Real Hedge Total and backed backed equity estate funds convertible securities securities debt __________________________________________________________________________________________________________________ Beginning of the fiscal year $ - $ 5 $ 3 $ 475 $ 139 $ 61 $ 683 Actual return on plan assets: Relating to assets still held at the reporting date * (*) 1 (42) 4 (1) (38) Relating to assets sold during the period * * (1) 40 6 (1) 44 Purchase, issuance and settlements, net (*) (5) (2) 18 25 11 47 Transfers in - - * - - 4 4 Transfers out - (*) (1) - - (6) (7) Balance at end of fiscal year $ * $ * $ * $ 491 $ 174 $ 68 $ 733 * Less than $0.5 million _________________________________________________________________________________________________________________ June 30, 2012 RSBP: Fair value measurements using significant unobservable inputs Corporate Asset- Mortgage- Private Real Hedge Total and backed backed Equity Estate Funds Convertible Securities Securities Debt __________________________________________________________________________________________________________________ Beginning of the fiscal year $ - $ * $ * $ 66 $ 17 $ 6 $ 89 Actual return on plan assets: Relating to assets still held at the reporting date - (*) * (5) 3 (*) (2) Relating to assets sold during the period - (*) * 6 2 (*) 8 Purchase, issuance and settlements, net - (*) (*) * (1) 2 1 Transfers in - - - - - * * Transfers out - (*) (*) - - (1) (1) Balance at end of fiscal year $ - $ * $ * $ 67 $ 21 $ 7 $ 95 * Less than $0.5 million _________________________________________________________________________________________________________________ June 30, 2011 SRP: Fair value measurements using significant unobservable inputs Corporate Asset- Mortgage- Private Real Hedge Total and backed backed equity estate funds convertible securities securities debt __________________________________________________________________________________________________________________ Beginning of the fiscal year $ 1 $ 9 $ 4 $ 406 $ 136 $ 78 $ 634 Actual return on plan assets: Relating to assets still held at the reporting date - 1 * 11 28 8 48 Relating to assets sold during the period - (1) * 51 3 5 58 Purchase, issuance and settlements, net * 1 * 7 29 (31) 6 Transfers in (out) (1) (5) (1) - (57) 1 (63) Balance at end of fiscal year $ * $ 5 $ 3 $ 475 $ 139 $ 61 $ 683 * Less than $0.5 million 92 Page 98 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS __________________________________________________________________________________________________________________ June 30, 2011 RSBP: Fair value measurements using significant unobservable inputs Corporate Asset- Mortgage- Private Real Hedge Total And backed backed Equity Estate Funds Convertible Securities Securities Debt __________________________________________________________________________________________________________________ Beginning of the fiscal year $ * $ * $ * $ 55 $ 12 $ 7 $ 74 Actual return on plan assets: Relating to assets still held at the reporting date - - - 4 2 1 7 Relating to assets sold during the period - - - 7 1 1 9 Purchase, issuance and settlements, net - - - - 4 (3) 1 Transfers in (out) - - - - (2) * (2) Balance at end of fiscal year $ * $ * $ * $ 66 $ 17 $ 6 $ 89 * Less than $0.5 million 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 Debt 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 asset backed securities 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 net asset value (NAV) as provided by the investment manager or sponsor of the fund based on valuation of underlying investments, and reviewed by management. 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, and reviewed by management, 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, and reviewed by management, 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. 93 Page 99 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 NAVs provided by external managers or fund administrators (based on the valuations of underlying investments) on a monthly basis, and reviewed by management, 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, 2012 (US$ millions): SRP RSBP PEBP Before Federal Federal subsidy subsidy** July 1, 2012 - June 30, 2013 $ 95 $ 6 $ * $ 8 July 1, 2013 - June 30, 2014 103 6 - 9 July 1, 2014 - June 30, 2015 110 7 - 9 July 1, 2015 - June 30, 2016 119 8 - 10 July 1, 2016 - June 30, 2017 128 9 - 11 July 1, 2017 - June 30, 2022 766 65 - 70 * Less than $0.5 million ** Effective January 1,2013, IFC will be moving from RDS to EGWP. See page 93 for further discussion. 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, 2012 is $70 million and $25 million, respectively. 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, 2012, were $57 million ($50 million - year ended June 30, 2011; $39 million - year ended June 30, 2010). Other chargebacks include $26 million for the year ended June 30, 2012 ($26 million - year ended June 30, 2011; $29 million - year ended June 30, 2010). NOTE Y – 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. 94 Page 100 INTERNATIONAL FINANCE CORPORATION INDEPENDENT AUDITORS’ REPORT PROJECT 95 COMMITMENTS PROJECT COMMITMENTS This table includes projects signed and processed during FY12. All amounts are given in U.S. dollars, regardless of the currency of the transaction. Under the Global Trade Finance Program, IFC provides guarantee coverage of bank risk in emerging markets, where conï¬?rming banks need risk mitigation to support their export clients because of limited capacity for country and bank exposure. NOTE ON CATEGORIZATION OF PROJECTS: Projects are assigned a category of A, B, or C, according to their potential environmental and social impacts—or FI, in the case of investments through ï¬?nancial intermediaries that on-lend to clients whose projects may present environmental and social risks. A: Business activities with potential signiï¬?cant adverse environ- mental or social risks and/or impacts that are diverse, irrevers- ible, or unprecedented. B: Business activities with potential limited adverse environmental or social risks and/or impacts that are few in number, generally site-speciï¬?c, largely reversible, and readily addressed through mitigation measures. C: Business activities with minimal or no adverse environmental or social risks and/or impacts. FI: Business activities involving investments in FIs or through deliv- ery mechanisms involving ï¬?nancial intermediation. This category is further divided into: FI–1: when an FI’s existing or proposed portfolio includes, or is expected to include, substantial ï¬?nancial exposure to business activities with potential signiï¬?cant adverse environmental or social risks or impacts that are diverse, irreversible, or unprecedented. FI–2: when an FI’s existing or proposed portfolio consists of, or is expected to consist of, business activities that have potential limited adverse environmental or social risks or impacts that are few in number, generally site-speciï¬?c, largely reversible, and readily addressed through miti- gation measures; or includes a very limited number of business activities with potential signiï¬? cant adverse environmental or social risks or impacts that are diverse, irreversible, or unprecedented. FI–3: when an FI’s existing or proposed portfolio includes ï¬?nancial exposure to business activities that predomi- nantly have minimal or no adverse environmental or social impacts. PROJECT 96 Fiscal Year 2012 COMMITMENTS Environment & IFC Loan & Social Category Quasi-Loan IFC Region Country Name Company Name Code Commitments ($) EAST ASIA AND THE PACIFIC Cambodia ACLEDA Bank PLC FI-2 10,000,000 Prasac Microï¬?nance Institution FI-3 5,000,000 China Ambow Education Holding Ltd. B 50,000,000 AMERICAN PACIFIC MEDICAL LIMITED B 15,000,000 Asia Paciï¬?c Medical Group Limited B — Bank of Beijing (formerly BCCB) FI — Bank of Deyang FI — C&G Environmental Protection Holdings Limited B — CFPA Microï¬?nance Management Co. FI — Hangzhou Rural Cooperative Bank FI — Industrial Bank FI — Jiangsu Financial Leasing Co., Ltd. FI-2 49,459,867 Jiangxi Jinyuan Agriculture Development Co., Ltd. B 12,000,000 Nature Elements Asia Renewable Energy and Cleantech FI — Fund, L.P. Shanghai Fosun Pharmaceutical Group Co. Ltd. B 47,104,635 Shanghai Hengfu Logistics Co., Ltd. B — SinoGreen Fund, L.P. FI — Sound Global Ltd. B — United Water Corporation B 16,000,000 Universtar Science & Technology (Shenzhen) Co., Ltd. B — Urumqi Tian Rong Micro Credit Co., Ltd. FI — East Asia and Paciï¬?c Region ADM Asia Restructuring Facility FI 20,000,000 Aloe Environment Fund III FI — Clearwater Coinvestment Vehicle FI 50,000,000 GIH Group Holdings South Asia Pte. Ltd. B 3,889,688 Global Indian Schools Holdings Limited B 15,558,754 IHH Healthcare Berhad (formerly Integrated Healthcare B — Holdings Berhad) Salamander Energy PLC B — Indonesia Bank Andara FI — Bank BTPN FI 100,000,000 Falcon House Partners Indonesia Fund I, L.P. FI — PT Bank CIMB Niaga Tbk C 75,000,000 PT Medco Power Indonesia B — PT Wintermar Offshore Marine Tbk B 45,000,000 PT. Bank Hana Indonesia FI — Lao People’s Democratic Republic Korea Western Power Corporation Limited C 2,000,000 Mongolia Khan Bank of Mongolia, Ulanbaatar, Mongolia FI — Newcom LLC B 40,000,000 XacBank Ltd. FI-2 — Papua New Guinea Bank South Paciï¬?c FI-2 — Kongo Coffee Limited B — Philippines Bank of the Philippine Islands FI — BDO Unibank Inc. FI — Mindoro Resources Ltd. B — Thailand Bangkok Mitsubishi UFJ Lease Risk Sharing Facility FI — Continental Automotive (Thailand) Co., Ltd. B 47,045,250 Lombard Asia IV FI — Solar Power (Korat 2) Company Limited B 3,970,708 Solar Power (Loei 1) Company Limited B 3,970,708 IFC Financials and Projects 2012 97 IFC Equity & Trade Finance Non-Trade Total Syndications Quasi-Equity Risk Management Guarantee Finance Guarantee Commitments for Commitments Commitments ($) Commitments ($) Commitments ($) Commitments ($) IFC’s Own Account ($) [B-loans only] ($) 1,225,000 — 69,149 — 11,294,149 — — — — — 5,000,000 — — — — — 50,000,000 — — — — — 15,000,000 — 20,000,000 — — — 20,000,000 — — — 240,000,000 — 240,000,000 — — — 770,000 — 770,000 — 5,000,000 — — — 5,000,000 — 6,301,501 — — — 6,301,501 — — — 2,182,808 — 2,182,808 — — — — 51,925,982 51,925,982 — — — — — 49,459,867 — 8,000,000 — — — 20,000,000 — 25,000,000 — — — 25,000,000 — — — — — 47,104,635 — 6,000,000 — — — 6,000,000 — 20,000,000 — — — 20,000,000 — 1 — — — 1 — — — — — 16,000,000 — 1,062,841 — — — 1,062,841 — 1,588,638 — — — 1,588,638 — 10,000,000 — — — 30,000,000 — 25,000,000 — — — 25,000,000 — — — — — 50,000,000 — — — — — 3,889,688 — — — — — 15,558,754 — 47,292,504 — — — 47,292,504 — 5,696,953 — — — 5,696,953 — 2,496,356 — — — 2,496,356 — — — — — 100,000,000 — 25,000,000 — — — 25,000,000 — — — — — 75,000,000 — 25,000,000 — — — 25,000,000 — — — — — 45,000,000 — 12,500,000 — — — 12,500,000 — — — — — 2,000,000 — — — 675,000 — 675,000 — — — — — 40,000,000 — 4,933,911 — 1,781,963 — 6,715,874 — — — 13,906,179 — 13,906,179 — — — — 2,956,200 2,956,200 — — — — 59,290,881 59,290,881 — 9,355,826 — — — 9,355,826 — 588,264 — — — 588,264 — — — — 35,859,489 35,859,489 — — — — — 47,045,250 47,045,250 25,000,000 — — — 25,000,000 — — — — — 3,970,708 — — — — — 3,970,708 — PROJECT 98 Fiscal Year 2012 COMMITMENTS Environment & IFC Loan & Social Category Quasi-Loan IFC Region Country Name Company Name Code Commitments ($) EAST ASIA AND THE PACIFIC SRF Industries (Thailand) Limited B 45,000,000 TMB Bank Public Company Limited FI 100,000,000 Vanuatu National Bank of Vanuatu FI — Vietnam An Binh Commercial Joint Stock Bank FI — Global CyberSoft, Inc. C — LienViet Joint Stock Commercial Bank C — Ngon Coffee Company Limited B 18,000,000 Orient Commercial Joint Stock Bank FI-2 25,000,000 Piaggio Vietnam Co.Ltd. B — Saigon Thuong Tin Commercial Joint Stock Bank FI — Tien Phong Commercial Joint Stock Bank C — Vietnam Export Import Commercial Joint Stock Bank FI-2 — Vietnam International Commercial Joint Stock Bank FI — Vietnam Investments Fund II, L.P. FI — Vietnam Joint Stock Commercial Bank for Industry and Trade FI — Vietnam Technological and Commercial Joint Stock Bank FI-2 50,000,000 EUROPE AND CENTRAL ASIA Albania Antea Cement Sh.A. A — Bankers Petroleum Ltd. B 25,000,000 CEZ Shperndarje SHA B 72,377,500 Enso Hydro Energji sh.p.k B — Armenia ACBA-Credit Agricole Bank Closed Joint Stock Company FI 30,000,000 Ameriabank CJSC FI — Byblos Bank Armenia C 5,000,000 HSBC Bank Armenia cjsc FI 11,000,000 Inecobank FI-2 — Lydian International Ltd. B — Azerbaijan AzeriGazbank FI — DEMIRBANK OJSC FI — JSC Bank Respublika FI-2 — UniBank FI — Belarus Belarusian Bank for Small Business FI-3 — Belarusky Narodny Bank FI — JSC Belgazprombank C — JSC BPS-BANK (Formerly Belpromstroibank ) C — MINSK TRANSIT BANK FI — Priorbank Joint Stock Company C — The Alutech Group B 31,008,750 Bulgaria Eurobank EFG Bulgaria A.D. C — First Investment Bank A.D. FI — ZBE Partners EAD B 61,965,315 Central Asia Region Fawaz Abdulaziz Al Hokair & Co. B 50,000,000 Croatia RP Global CSE d.d. B 24,807,000 Georgia Bank of Georgia FI-2 25,000,000 Clean Energy Invest A.S. C 256,000 Georgian Urban Enerji Ltd. A — JSC Bank Republic FI — JSC Tbilvino B 1,500,000 TBC Bank FI — Kazakhstan Bank CenterCredit FI — Jambyl Cement LLP B — IFC Financials and Projects 2012 99 IFC Equity & Trade Finance Non-Trade Total Syndications Quasi-Equity Risk Management Guarantee Finance Guarantee Commitments for Commitments Commitments ($) Commitments ($) Commitments ($) Commitments ($) IFC’s Own Account ($) [B-loans only] ($) — — — — 45,000,000 — — — — — 100,000,000 — 2,187,425 — — — 2,187,425 — — — 8,800,000 — 8,800,000 — 4,455 — — — 4,455 — — — 15,096,212 — 15,096,212 — — — — — 18,000,000 — — — 20,410,245 — 45,410,245 10,000,000 — 1,800,000 — — 1,800,000 — — — 207,401,978 — 207,401,978 — — — 380,000 — 380,000 — — — 81,477,540 — 81,477,540 — — — 74,000,000 — 74,000,000 — 15,000,000 — — — 15,000,000 — 5,307,768 — — — 5,307,768 — — — 336,377,923 — 386,377,923 — 6,697,890 — — — 6,697,890 — — — — — 25,000,000 — — — — — 72,377,500 — 8,661,900 — — — 8,661,900 — — — — — 30,000,000 — — — 31,232,792 — 31,232,792 — — — — — 5,000,000 — — — — — 11,000,000 — — — 200,000 — 200,000 — 1,951,000 — — — 1,951,000 — — — 966,270 — 966,270 — — — 4,519,353 — 4,519,353 — — — 1,415,107 — 1,415,107 — — — 1,194,209 — 1,194,209 — 1,213,303 — — — 1,213,303 — — — 2,902,794 — 2,902,794 — — — 21,996,002 — 21,996,002 — — — 4,074,055 — 4,074,055 — — — 382,931 — 382,931 — — — 49,414 — 49,414 — — — — — 31,008,750 — — — 1,860,525 — 1,860,525 — — — 31,715,858 — 31,715,858 — — — — — 61,965,315 55,292,760 — — — — 50,000,000 — — — — — 24,807,000 43,412,250 — — 44,803,195 — 69,803,195 — — — — — 256,000 — — — — — — 11,500,000 — — 3,464,679 — 3,464,679 — — — — — 1,500,000 — — — 1,273,629 — 1,273,629 — — — 61,392,958 — 61,392,958 — 5,000,505 — — — 5,000,505 — PROJECT 100 Fiscal Year 2012 COMMITMENTS Environment & IFC Loan & Social Category Quasi-Loan IFC Region Country Name Company Name Code Commitments ($) EUROPE AND CENTRAL ASIA MicroCredit Organization Arnur Credit LLP FI-3 3,000,000 Kosovo TEB Sh.A. FI-2 — Kyrgyz Republic Canadian Asian Central Investment Ltd. C 600,000 CJSC Finca Micro-Credit Company FI 4,000,000 Kompanion Financial Group Microï¬?nance CJSC FI 6,000,000 Macedonia, Former Yugoslav EVN Macedonia A.D. Skopje B 4,611,950 Republic of NLB Tutunska banka, A.D. Skopje FI — Ohridska Banka A.D. Ohrid FI 13,441,500 Moldova CB Moldova Agroindbank S.A. FI — Energo Continent C 3,000,000 Glass Container Prim S.A. B 10,000,000 Montenegro City of Podgorica B 13,271,745 Romania Agricover Credit IFN S.A. FI 16,801,875 Banca Romaneasca S.A. C — Bancpost S.A. FI — Cernavoda Power SC A — GE Garanti Bank FI 32,482,125 Lidl Romania Societate in Comandita B 66,565,000 MedLife S.A. B — Pestera Wind Farm S.A. A 38,969,886 S.C. Transport Trade Services S.A. B — Russian Federation Asian-Paciï¬?c Bank (Open joint-stock company) FI — AVA Peter Ltd. B — Brunswick Rail Leasing Limited & Brunswick Rail Service B 70,000,000 Limited Brunswick Wagon Leasing B — CapMan Russia Fund L.P. FI — CREDIT BANK OF MOSCOW (OJSC) FI — Forus Bank FI-3 3,620,019 IFC Russian Bank Capitalization Fund, L.P. FI — IXcellerate Ltd. C — KuibyshevAzot JSC B 10,000,000 MDM Bank C — Metallurgical Commercial Bank Joint Stock Company FI 10,363,589 MORESON MANAGEMENT LIMITED B — NBD Bank FI 10,305,914 OAO Promsvyazbank C — RosEvroBank Joint Stock Commercial Bank FI — Rusï¬?nance Bank LLC C 45,250,234 Setcar Holdings Ltd. B — Transcapitalbank FI — Trivon AG C — ZAO Credit Evropa Bank FI 50,000,000 ZAO Locko Bank FI — ZAO Raiffeisenbank FI 75,000,000 Serbia Banca Intesa A.D. Beograd FI — Cacanska Banka A.D. FI 7,237,750 Eurobank EFG A.D. Beograd FI — Komercijalna Banka A.D. Beograd FI-3 66,565,000 MK Group d.o.o B 55,815,750 IFC Financials and Projects 2012 101 IFC Equity & Trade Finance Non-Trade Total Syndications Quasi-Equity Risk Management Guarantee Finance Guarantee Commitments for Commitments Commitments ($) Commitments ($) Commitments ($) Commitments ($) IFC’s Own Account ($) [B-loans only] ($) — — — — 3,000,000 — — — 334,921 — 334,921 — — — — — 600,000 — — — — — 4,000,000 — — — — — 6,000,000 — — — — — 4,611,950 — — — 233,863 — 233,863 — — — — — 13,441,500 — — — 7,830,520 — 7,830,520 — — — — — 3,000,000 — — — — — 10,000,000 — — — — — 13,271,745 — — — — — 16,801,875 — — — 310,087 — 310,087 — — — 50,380,862 — 50,380,862 — — — — — — 22,090,920 — — — — 32,482,125 — — — — — 66,565,000 — — — — — — 56,976,000 — — — — 38,969,886 14,097,830 15,999,600 — — — 15,999,600 — — — 28,787,906 — 28,787,906 — 12,000,000 — — — 12,000,000 — — — — — 70,000,000 180,000,000 — — — — — 30,000,000 5,078,000 — — — 5,078,000 — — — 106,545,293 — 106,545,293 131,000,000 — — — — 3,620,019 — 125 — — — 125 — 2,600,000 — — — 2,600,000 — — — — — 10,000,000 — — — 15,500,000 — 15,500,000 — — — 1,000,000 — 11,363,589 — 35,000,000 — — — 35,000,000 — — — — — 10,305,914 — — — 94,581,250 — 94,581,250 — — — 59,000,000 — 59,000,000 — — — — — 45,250,234 — 20,000,000 — — — 20,000,000 — 1,161,446 — 54,724,241 — 55,885,686 — 25,000,000 — — — 25,000,000 — — — — — 50,000,000 75,000,000 — — 39,983,195 — 39,983,195 — — — — — 75,000,000 — 12,114,830 — — — 12,114,830 — — — — — 7,237,750 — — — 8,032,425 — 8,032,425 — — — — — 66,565,000 — — — — — 55,815,750 — PROJECT 102 Fiscal Year 2012 COMMITMENTS Environment & IFC Loan & Social Category Quasi-Loan IFC Region Country Name Company Name Code Commitments ($) EUROPE AND CENTRAL ASIA PMC Automotive d.o.o. B 26,883,000 Societe Generale Banka Srbija A.D. Beograd FI 86,824,500 Unicredit Bank Srbija A.D. FI 72,182,500 Vino Zupa A.D. B 15,504,375 Southern Europe Region Titan Danube S.A. B — Triglav INT Holdinska Druzba, d.d. FI — Tajikistan Micro Lending Organization IMON International LLC FI 5,000,000 Open Joint Stock Company, Bank Eskhata FI — Tajero LLC B 1,700,000 Turkey Alternatifbank A.S. FI 25,000,000 Fibabanka A.S. FI 30,000,000 Finansbank A.S. FI-2 — MNT Saglik Hizmetleri ve Ticaret A.S. B 15,000,000 Sekerbank T.A.S. FI 25,000,000 Tiryaki Agro Gida San. ve Tic. A.S. B 30,000,000 TURKIYE SINAI KALKINMA BANKASI, A.S. FI 75,000,000 UHG Topco Cooperatief U.A. B — Yapi ve Kredi Bankasi, A.S. FI 75,000,000 Ukraine Bayer RSF— Credit Agricole Ukraine B — HPC Ukraina B 32,000,000 Mriya Agro Holding Public Limited B 5,000,000 PJSC Concern Galnaftogaz B — PJSC OTP Bank C — Public Joint Stock Company Credit Europe Bank FI-2 15,000,000 Raiffeisen Bank Aval FI — The State Export Import Bank of Ukraine C — Uzbekistan Asaka Bank C — Hamkorbank, Joint Stock Commercial Bank FI — Uzbek-China-Britain Joint Venture “International Beverages B 4,100,000 Tashkentâ€? Ltd. LATIN AMERICA AND THE CARIBBEAN Argentina Banco CMF S.A. C — Banco de Galicia y Buenos Aires, S.A. FI — Banco Itau Argentina S.A. C — Banco Patagonia S.A. FI — Banco Supervielle S.A. C — BBVA Frances S.A. C — Medanito, S.A. B — Regulus Resources Inc. B — S.A. San Miguel A.G.I.C.I. y F. B 5,000,000 Belize Atlantic Bank Belize FI — Bolivia Banco Bisa S.A. C — Banco de Credito C — Banco Ganadero FI — Banco Mercantil S.A. FI — Brazil AEGEA Saneamento S/A B 49,584,728 Banco ABC BRASIL S.A. C — Banco Cooperativo Sicredi S/A FI 50,000,000 Banco Daycoval S.A. FI — Banco Fibra S.A. FI — Banco Industrial do Brasil S.A. FI-2 — IFC Financials and Projects 2012 103 IFC Equity & Trade Finance Non-Trade Total Syndications Quasi-Equity Risk Management Guarantee Finance Guarantee Commitments for Commitments Commitments ($) Commitments ($) Commitments ($) Commitments ($) IFC’s Own Account ($) [B-loans only] ($) — — — — 26,883,000 — — — — — 86,824,500 — — — — — 72,182,500 — — — — — 15,504,375 — 66,665,000 — — — 66,665,000 — 33,282,500 — — — 33,282,500 — — — — — 5,000,000 — — — 270,436 — 270,436 — — — — — 1,700,000 — — — — — 25,000,000 — — — — — 30,000,000 — 3,125,384 — — — 3,125,384 — 15,000,000 — — — 30,000,000 — — — 40,500,775 — 65,500,775 — — — — — 30,000,000 — — — 20,475,000 — 95,475,000 — 7,142,857 — — — 7,142,857 — — — 89,656,700 — 164,656,700 — — — — 5,000,000 5,000,000 — — — — — 32,000,000 — — — — — 5,000,000 — — — — — — 30,000,000 — — 41,754,185 — 41,754,185 — — — — — 15,000,000 — — — 317,045 — 317,045 — — — 41,561,305 — 41,561,305 — — — 8,268,900 — 8,268,900 — 484,875 — 2,732,000 — 3,216,875 — — — — — 4,100,000 — — — 23,129,108 — 23,129,108 — — — 73,095,020 — 73,095,020 — — — 26,608,642 — 26,608,642 — — — 14,577,449 — 14,577,449 — — — 10,945,170 — 10,945,170 — — — 30,000,000 — 30,000,000 — 24,000,000 — — — 24,000,000 — 744,754 — — — 744,754 — — — — — 5,000,000 19,698,519 — — 1,139,824 — 1,139,824 — — — 264,080 — 264,080 — — — 739,425 — 739,425 — — — 4,580,672 — 4,580,672 — — — 7,942,324 — 7,942,324 — — — — — 49,584,728 — — — 89,227,820 — 89,227,820 — — — — — 50,000,000 — — — 165,694,486 — 165,694,486 — 16,387,510 — 142,720,694 — 159,108,204 — — — 28,321,668 — 28,321,668 — PROJECT 104 Fiscal Year 2012 COMMITMENTS Environment & IFC Loan & Social Category Quasi-Loan IFC Region Country Name Company Name Code Commitments ($) LATIN AMERICA AND THE CARIBBEAN Banco Industrial e Comercial S.A. FI — Banco Indusval S.A. FI — Banco Itau Unibanco S.A. FI 50,000,000 Banco Pine S.A. C — Banco Soï¬?sa S.A. FI — BRASILFactors C — Centro de Apoio aos Pequenos Empreendimentos do Estado FI — do Maranhao Companhia Brasileira de Securitizacao C — Construtora Norberto Odebrecht S.A. A — Energia Florestal S.A. B — Estacio Participacoes S.A. B 70,000,000 Hospital e Maternidade São Luiz S.A. B 19,644,286 Latapack Ball Embalagens Ltda. B 8,050,000 MBAC Fertilizer Corp. A 40,000,000 NBC BANK BRASIL S.A. BANCO MULTIPLO C — Tecon Salvador S.A. B 30,000,000 Terra Brasis FI — TriBanco Brazil FI 15,000,000 Vonpar Alimentos S.A. B 50,000,000 Central America Region Continental Towers Holding Corp. B 40,000,000 CoreCo Central America Fund I, L.P. FI-2 — Chile Banco Bilbao Vizcaya Argentaria (Chile), S.A. C — Bco Internacional S.A. C — Factorline S.A. FI — Inversiones Magallanes S.A. FI — Colombia BANCOLOMBIA S.A. FI — BBVA Colombia S.A. C — Caruquia S.A. E.S.P. B — Empresas Publicas de Medellin E.S.P. B 25,000,000 Fundacion Cardiovascular de Colombia B 30,000,000 Guanaquitas S.A. E.S.P. B — Sac-Be Ventures Colombia SAS B 12,700,000 Costa Rica Banco Improsa S.A. FI — Banco LAFISE Costa Rica, S.A. C — Banco Promerica de Costa Rica, S.A. FI — Pricom Cariari S.A. B 2,300,000 Dominican Republic Asociacion La Nacional de Ahorros y Prestamos para la Vivienda FI-2 5,019,305 Banco ADOPEM FI — Banco Multiple Leon, S.A. C — Fondo para el Desarrollo, Inc. FI 5,019,305 Fundacion Universitaria O&M B 20,000,000 WIND Telecom S.A. B — Ecuador Holding Tonicorp S.A. B 30,000,000 El Salvador Banco Agricola S.A. FI — Guatemala Banco GyT Continental S.A. FI — Banco Industrial S.A. (Guatemala) FI — Banco Internacional S.A. C — Guyana Guyana Bank for Trade and Industry C — Haiti Capital Bank, S.A. B — Dlo Haiti, Inc. C 820,000 IFC Financials and Projects 2012 105 IFC Equity & Trade Finance Non-Trade Total Syndications Quasi-Equity Risk Management Guarantee Finance Guarantee Commitments for Commitments Commitments ($) Commitments ($) Commitments ($) Commitments ($) IFC’s Own Account ($) [B-loans only] ($) — — 14,573,874 — 14,573,874 — — — 57,625,000 — 57,625,000 — — — — — 50,000,000 240,000,000 — — 220,102,897 — 220,102,897 — — — 27,250,000 — 27,250,000 — 5,000,000 — — — 5,000,000 — — — — 543,552 543,552 — 783,240 — — — 783,240 — — — — 50,000,000 50,000,000 — 17,611,482 — — — 17,611,482 — — — — — 70,000,000 — — — — — 19,644,286 — — — — — 8,050,000 24,150,000 35,000,000 — — — 75,000,000 — — — 22,500,000 — 22,500,000 — — — — — 30,000,000 50,000,000 9,483,167 — — — 9,483,167 — — — — — 15,000,000 15,000,000 — — — — 50,000,000 — — — — — 40,000,000 80,000,000 10,000,000 — — — 10,000,000 — — — 26,000,000 — 26,000,000 — — — 40,000,000 — 40,000,000 — 3,424,098 — — — 3,424,098 — 10,000,000 — — — 10,000,000 — — — — 27,979,855 27,979,855 — — — 90,134,372 — 90,134,372 — — 350,000 — — 350,000 — — — — — 25,000,000 324,000,000 — — — — 30,000,000 — — 350,000 — — 350,000 — — — — — 12,700,000 — — — 12,450,504 — 12,450,504 — — — 11,551,927 — 11,551,927 — — — 7,850,112 — 7,850,112 — — — — — 2,300,000 — — — — — 5,019,305 — 206,015 — — — 206,015 — — — 2,552,000 — 2,552,000 — — — — — 5,019,305 — — — — — 20,000,000 — 7,300,000 — — — 7,300,000 — — — — — 30,000,000 — — — 5,000,000 — 5,000,000 — 5,431,937 — 118,870,251 — 124,302,188 — — — 72,193,656 — 72,193,656 — — — 11,056,895 — 11,056,895 — — — 1,142,736 — 1,142,736 — — — 1,120,000 — 1,120,000 — — — — — 820,000 — PROJECT 106 Fiscal Year 2012 COMMITMENTS Environment & IFC Loan & Social Category Quasi-Loan IFC Region Country Name Company Name Code Commitments ($) LATIN AMERICA AND THE CARIBBEAN Leopard Haiti Fund, L.P. FI — Honduras Banco Atlantida S.A. FI 45,000,000 BANCO DEL PAIS S.A. C — Banco Financiera Comercial Hondurena S.A. (Banco Ficohsa) FI — Banco LAFISE Honduras, S.A. C — Compania Hondurena de Energia Renovable, S.A. de C.V. B 30,000,000 Latin America Region Belcorp Limited B 50,000,000 DELAWARE CONSULTORIA, S.L. C 5,823,854 Emergia Contact Center S.L. C 9,302,625 IFC African, Latin American & Caribbean Fund, L.P. FI — Latin Renewables Infrastructure Fund, L.P. FI-1 — Ouro FI-1 — Sura Asset Management España S.L. C — Yellowpepper Holding Corp. C 1,500,000 Mexico Alta Growth Capital, Mexico Fund II, L.P. FI — Banco del Bajio, S.A. FI — Banco Mercantil del Norte, S. A. Institucion de Banca Multiple FI — Banco Monex, S.A. Institucion de Banca Multiple C — Desarrolladora Homex S.A.B. de C.V. B 72,506,238 Fideicomiso Santa Fe 802-2007 B 13,938,096 Financiamiento Progresemos, S.A. de C.V., SOFOM ENR FI 2,505,449 Financiera Educativa de Mexico S.A. de C.V. FI — GEO Alpha S.A.B. de C.V. B — GMAC Financiera C 1,077,242 Grupo Financiero Mifel, S.A. de C.V. FI — Impulsora Plaza Leon S.A. de CV B 8,173,124 North American Software S.A. de C.V. C — Promotora de Viviendas Integrales, S.A. de C.V. B — Tiendas Comercial Mexicana S.A. de C.V. B 90,948,744 Universidad Autonoma de Guadalajara, A.C. B 45,794,177 Urbi Desarrollos Urbanos, S.A.B. de C.V. B 13,698,446 Nicaragua Banco de America Central, S.A. C — Banco de Finanzas FI 5,000,000 Banco de la Produccion S.A. C — LAFISE Bancentro, S.A. C — Panama Banco General S.A. FI 50,000,000 BBVA Panama S.A. FI 25,000,000 Multibank C — Paraguay Agrofertil S.A. B 15,000,000 Banco Bilbao Vizcaya Argentaria Paraguay S.A. FI-3 — Banco Continental S.A.E.C.A. FI — BANCO ITAU PARAGUAY S.A. FI — Banco Regional S.A. FI — NFD Agro Limited B 7,000,000 Sudameris Bank FI 3,000,000 UABL Limited B 15,000,000 Peru Amerika Financiera S.A. FI — Anglo American Quellaveco S.A. B — Banco Interamericano de Finanzas S.A.— BIF FI — Empresa Agroindustrial Laredo S.A.A. B — Financiera Creditos Arequipa S.A. FI 12,637,056 IFC Financials and Projects 2012 107 IFC Equity & Trade Finance Non-Trade Total Syndications Quasi-Equity Risk Management Guarantee Finance Guarantee Commitments for Commitments Commitments ($) Commitments ($) Commitments ($) Commitments ($) IFC’s Own Account ($) [B-loans only] ($) 10,000,000 — — — 10,000,000 — — — 48,404,880 — 93,404,880 — — — 4,776,387 — 4,776,387 — — — 10,813,250 — 10,813,250 — — — 16,800,000 — 16,800,000 — — — — — 30,000,000 45,000,000 — — — — 50,000,000 80,000,000 2,354,625 — — — 8,178,479 — — — — — 9,302,625 — 47,117,117 — — — 47,117,117 — 15,000,000 — — — 15,000,000 — 125,000,000 — — — 125,000,000 — 125,000,000 — — — 125,000,000 — — — — — 1,500,000 — 15,000,000 — — — 15,000,000 — — — 2,922,345 — 2,922,345 — 25,000,000 — — — 25,000,000 — — — 18,999,955 — 18,999,955 — — — — — 72,506,238 — — — — — 13,938,096 — — — — — 2,505,449 — 2,249,904 — — — 2,249,904 — 25,000,000 — — — 25,000,000 — — — — 1,695,963 2,773,205 — 25,000,000 — — — 25,000,000 — — — — — 8,173,124 — 392,972 — — — 392,972 — — — — 4,258,291 4,258,291 — — — — — 90,948,744 — — — — — 45,794,177 — — — — — 13,698,446 — — — 437,340 — 437,340 — — — 15,587,372 — 20,587,372 — — — 241,050 — 241,050 — — — 1,530,000 — 1,530,000 — — — — — 50,000,000 — — — 1,000,000 — 26,000,000 — — — 101,717,150 — 101,717,150 — — — — — 15,000,000 — — — 16,633,990 — 16,633,990 — — — 9,944,645 — 9,944,645 — — — 2,699,867 — 2,699,867 — — — 26,426,089 — 26,426,089 — — — — — 7,000,000 — — — 49,288,000 — 52,288,000 — — — — — 15,000,000 — — — — 5,657,967 5,657,967 — 11,800,000 — — — 11,800,000 — — — 4,706,140 — 4,706,140 — — 250,000 — — 250,000 — — — — — 12,637,056 — PROJECT 108 Fiscal Year 2012 COMMITMENTS Environment & IFC Loan & Social Category Quasi-Loan IFC Region Country Name Company Name Code Commitments ($) LATIN AMERICA AND THE CARIBBEAN La Positiva Vida Seguros y Reaseguros S.A. C — MIBANCO, Banco de la Microempresa, S.A. FI 15,000,000 Protecta C — Sociedad Agricola Viru S.A. B — Universidad Peruana de Ciencias Aplicadas, S.A. B 39,519,852 St. Lucia Bank of Saint Lucia Limited C — Suriname De Surinaamsche Bank N.V. C — Uruguay Nuevo Banco Comercial S.A. FI — MIDDLE EAST AND NORTH AFRICA Afghanistan Afghanistan International Bank CJSC C — First Microï¬?nance Bank of Afghanistan FI — Algeria Maghreb Leasing Algerie S.P.A. FI — Egypt, Arab Republic of Ahli United Bank (Egypt) S.A.E. FI — Cairo for Investment & Real Estate Development S.A.E. B 15,000,000 Egyptian Fertilizers Company A 200,000,000 Galaxy Chemicals (Egypt) S.A.E. B 8,000,000 Orascom Construction Group B 100,000,000 Orascom Construction Industries S.A.E. A — Iraq Bazian Cement Company Ltd. B 50,000,000 Credit Bank of Iraq S.A. FI — Jordan AL ETIHAD C — Bank of Jordan Ltd. C — Cairo Amman Bank C — Capital Bank of Jordan FI — Hikma Pharmaceuticals Ltd. B 110,000,000 Jordan India Fertilizer Company B — Red Sea Energy Private Shareholding Company B 9,500,000 Lebanon Bank of Beirut FI — Banque Libano-Francaise C — BLC bank S.A.L. C — Credit Libanais S.A.L. FI — Fransabank S.A.L. (Fransabank) FI — MENA Region Arab Infrastructure Investment Vehicle FI — FIMBank PLC C — Kuwait Energy PLC B 75,000,000 Medgulf C — Morocco FONDEP MicroCredit FI — Kasbah Resources Limited B — Mixta Africa, S.A. B — Saham Finances C — Pakistan Allied Bank Limited FI — Askari Commercial Bank Limited C — Bank Al Habib Limited C — Bank Alfalah Limited C — Habib Bank Limited (HBL) FI — Habib Metropolitan Bank Ltd. C — Karachi Port Trust B 70,000,000 Kashf Microï¬?nance Bank FI — MATCO Rice Processing (Pvt.) Limited B — MCB Bank Limited C — Meezan Bank Limited U — IFC Financials and Projects 2012 109 IFC Equity & Trade Finance Non-Trade Total Syndications Quasi-Equity Risk Management Guarantee Finance Guarantee Commitments for Commitments Commitments ($) Commitments ($) Commitments ($) Commitments ($) IFC’s Own Account ($) [B-loans only] ($) 10,000,000 — — — 10,000,000 — 3,361,030 — — — 18,361,030 25,000,000 409,529 — — — 409,529 — — — — — — 20,000,000 — — — — 39,519,852 — — — 1,064,110 — 1,064,110 — — — 1,895,569 — 1,895,569 — — — 36,184 — 36,184 — — — 2,677,413 — 2,677,413 — 1,195,219 — — — 1,195,219 — — — — 5,152,845 5,152,845 — 6,212,209 — 1,598,702 — 7,810,911 — — — — — 15,000,000 — — — — — 200,000,000 125,000,000 — — — — 8,000,000 — — — — — 100,000,000 — 49,999,988 — — — 49,999,988 — — — — — 50,000,000 — 885,641 — — — 885,641 — — — 12,568,178 — 12,568,178 — — — 224,551 — 224,551 — — — 300,000 — 300,000 — — — 2,836,735 — 2,836,735 — 27,500,000 — — — 137,500,000 — — 2,600,000 — — 2,600,000 — 968,945 — — — 10,468,945 — — — 224,743,511 — 224,743,511 — — — 70,598,524 — 70,598,524 — — — 8,104,359 — 8,104,359 — — — 19,998,011 — 19,998,011 — — — 52,005,473 — 52,005,473 — 50,000,000 — — — 50,000,000 — — — 57,556,349 — 57,556,349 — — — — — 75,000,000 — 123,997,110 — — — 123,997,110 — — — — 8,281,427 8,281,427 — 3,720,641 — — — 3,720,641 — 2,383 — — — 2,383 — 69,862,500 — — — 69,862,500 — — — 13,138,929 — 13,138,929 — — — 13,573,035 — 13,573,035 — — — 36,354,472 — 36,354,472 — — — 61,957,335 — 61,957,335 — — — 33,894,247 — 33,894,247 — — — 55,849,144 — 55,849,144 — — — — — 70,000,000 — 524,051 — — — 524,051 — 5,063,677 — — — 5,063,677 — — — 61,288,582 — 61,288,582 — — — 23,983,819 — 23,983,819 — PROJECT 110 Fiscal Year 2012 COMMITMENTS Environment & IFC Loan & Social Category Quasi-Loan IFC Region Country Name Company Name Code Commitments ($) MIDDLE EAST AND NORTH AFRICA NIB Bank Limited C — Pakistan International Bulk Terminal Limited B 26,500,000 SilkBank Limited FI — Soneri Bank Limited C — Star Hydropower Limited (SHPL) A 60,000,000 United Bank Limited C — Zorlu Enerji Pakistan Ltd. B 38,100,000 Saudi Arabia AlAhli Takaful Company C — Tunisia Candax Energy Inc. B — Maghreb Private Equity Fund III LLC FI — West Bank and Gaza Alrafah Microï¬?nance Bank U — Bank of Palestine FI — Wataniya Palestine Mobile Telecommunication Company B 50,000,000 SOUTH ASIA Bangladesh BRAC Bank FI — Eastern Bank Limited C — Export Import Bank of Bangladesh Ltd. C — Lafarge Surma Cement Limited A — Pran Dairy Ltd. B 10,000,000 Southeast Bank Limited FI — The City Bank Limited FI 25,000,000 Bhutan Bank of Bhutan C — Bhutan National Bank Limited C — India APF II India Holdings Pvt. Ltd. FI — Apollo Hospitals Enterprise Limited B 30,000,000 Applied Solar Technologies Pvt. Ltd. C — ATC Tires Private Limited B 50,000,000 AU Financiers (India) Private Limited FI — Axis Bank Limited FI 70,000,000 BanyanTree Growth Capital II FI — Bhilwara Energy Limited A — Bhilwara Green Energy Limited B 14,041,901 Continental Carbon India Limited B — Cosmo Films Limited B 10,000,000 Craftsman Automation Private Limited B — Dunar Foods Limited B — Educomp Solutions Limited B 40,000,000 Equitas Holdings Private Limited FI-3 — Flareum Solar Technologies Private Limited FI-2 — Granules India Limited B 10,000,000 India Knowledge-Manufacturing Company FI — Indian Mortgage Guarantee Company C — Infuse Capital FI-2 — Kalki Communication Technologies Pvt. Ltd. B — Kotak Mahindra Bank Limited FI — Laxmi Organic Industries Limited B 10,000,000 Lok Capital II LLC FI — Mahindra Solar One Private Limited B 5,028,254 NEREUS INDIA ALTERNATIVE ENERGY FUND, LLC FI — NSL Renewable Power Pvt. Ltd. A — Paradeep Phosphates Ltd. B 50,000,000 IFC Financials and Projects 2012 111 IFC Equity & Trade Finance Non-Trade Total Syndications Quasi-Equity Risk Management Guarantee Finance Guarantee Commitments for Commitments Commitments ($) Commitments ($) Commitments ($) Commitments ($) IFC’s Own Account ($) [B-loans only] ($) — — 11,020,813 — 11,020,813 — 19,000,000 — — — 45,500,000 — — — 15,803,565 — 15,803,565 — — — 6,270,146 — 6,270,146 — — — — — 60,000,000 — — — 2,807,348 — 2,807,348 — — — — — 38,100,000 — 2,799,701 — — — 2,799,701 — 9,532,155 — — — 9,532,155 — 21,713,250 — — — 21,713,250 — — — 1,756,232 — 1,756,232 — — — 10,957,180 — 10,957,180 — — — — — 50,000,000 10,000,000 — — 80,568,742 — 80,568,742 — — — 67,963,875 — 67,963,875 — — — 582,608 — 582,608 — 1,600,000 — — — 1,600,000 — — — — — 10,000,000 — — — 36,688,736 — 36,688,736 — — — — — 25,000,000 — — — 888,431 — 888,431 — — — 375,688 — 375,688 — 20,000,000 — — — 20,000,000 — — — — — 30,000,000 — 3,355,994 — — — 3,355,994 — — — — — 50,000,000 — 6,717,103 — — — 6,717,103 — — — — — 70,000,000 — 25,000,000 — — — 25,000,000 — 27,057 — — — 27,057 — — — — — 14,041,901 — 4,085,023 — — — 4,085,023 — — — — — 10,000,000 — 3,131,078 — — — 3,131,078 — 17,524,025 — — — 17,524,025 — 15,000,000 — — — 55,000,000 — 16,025,641 — — — 16,025,641 — 1,000,000 — — — 1,000,000 — — — — — 10,000,000 — 15,000,000 — — — 15,000,000 — 5,258,368 — — — 5,258,368 — 5,000,000 — — — 5,000,000 — 1,280,896 — — — 1,280,896 — — — 52,152,155 — 52,152,155 — 9,708,740 — — — 19,708,740 — 2,500,000 — — — 2,500,000 — — — — — 5,028,254 — 20,000,000 — — — 20,000,000 — 20,000,000 — — — 20,000,000 — — — — — 50,000,000 — PROJECT 112 Fiscal Year 2012 COMMITMENTS Environment & IFC Loan & Social Category Quasi-Loan IFC Region Country Name Company Name Code Commitments ($) SOUTH ASIA Piaggio Vehicles Private Ltd. India B 17,850,000 Pragati India Fund Limited FI — Rhodia Inc. B 36,064,309 SAME DEUTZ-FAHR India Private Ltd. B 12,403,500 Self Employed Women’s Association FI — Shalivahana Green Energy Ltd. B — Simran Wind Project Pvt. Ltd. B 4,651,633 Snowman Logistics Limited B 6,131,834 Sparkle Port Services Limited B 10,599,266 Super Religare Laboratories Limited B — Suvidhaa Inforserve Private Limited C — Tata Cleantech Capital Limited FI — The Federal Bank Limited C — Ujjivan Financial Services Limited FI-3 — Utkarsh Micro Finance Private Limited FI — Vortex Engineering Private Limited C — YES BANK Ltd. FI 75,000,000 Zephyr Peacock India Fund III Limited FI — Nepal Bank of Kathmandu Limited FI 8,000,000 Business Oxygen Pvt. Ltd. FI 6,700,000 Himalayan Bank Limited C — Laxmi Bank Limited C — Nepal Investment Bank Ltd. C — Nepal Water & Energy Development Co. Pvt., Ltd. C — Rural Microï¬?nance Development Centre Ltd. FI — Southern Asia Region South Asia Clean Energy Fund, L.P. FI — Sri Lanka Commercial Bank of Ceylon FI 65,000,000 National Development Bank PLC FI — Nations Trust Bank Ltd. C — RenewGen Enviornment Protection Kotte Pvt. Ltd. B — Sanasa Development Bank Ltd. FI — SUB-SAHARAN AFRICA Africa Region 8 Miles Fund I ‘A’, L.P. FI — African Reinsurance Corporation FI — Alios Finance, S.A. FI-2 9,000,000 Convergence Partners Communications Infrastructure FI — Fund LLC Emerging Africa Infrastructure Fund Ltd. FI 45,000,000 Emerging Markets Communications, Inc. C 12,000,000 Safal Investments (Mauritius) Ltd. B 15,000,000 Angola Banco de Fomento. S.A.R.L. C — Benin Diamond Bank Benin S.A. C — Ecobank Benin C — Burkina Faso Ecobank-Burkina C — Gryphon Minerals B — Burundi Interbank Burundi S.A. FI — Opulent (B) Ltd. B 5,500,000 PROGIMMO B 3,500,000 Cameroon Ecobank Cameroun S.A. FI — Kribi Power Development Company A 79,878,000 Societe Civile Immobiliere SIGS B 14,512,095 IFC Financials and Projects 2012 113 IFC Equity & Trade Finance Non-Trade Total Syndications Quasi-Equity Risk Management Guarantee Finance Guarantee Commitments for Commitments Commitments ($) Commitments ($) Commitments ($) Commitments ($) IFC’s Own Account ($) [B-loans only] ($) — — — — 17,850,000 — 20,000,000 — — — 20,000,000 — — — — — 36,064,309 — — — — — 12,403,500 — — — — 1,612,980 1,612,980 — 1,472,176 — — 15,199,275 16,671,451 — — — — — 4,651,633 — — — — — 6,131,834 — — — — — 10,599,266 — 24,527,330 — — — 24,527,330 — 1,500,000 — — — 1,500,000 — 3,199,344 — — — 3,199,344 — — — 74,115 — 74,115 — 8,012,821 — — — 8,012,821 — 646,269 — — — 646,269 — 2,759,326 — — — 2,759,326 — — — — — 75,000,000 — 15,000,000 — — — 15,000,000 — — — 8,972,032 — 16,972,032 — — — — — 6,700,000 — — — 4,995,712 — 4,995,712 — — — 1,114,856 — 1,114,856 — — — 1,899,310 — 1,899,310 — 3,000,000 — — — 3,000,000 — 717,799 — — — 717,799 — 8,500,000 — — — 8,500,000 — 3,204,568 — 6,930,546 — 75,135,114 — — — 11,577,382 80,948 11,658,330 — — — 30,000 — 30,000 — 2,200,000 — — — 2,200,000 — 900,983 — — — 900,983 — 50,000,000 — — — 50,000,000 — 13,968,800 — — — 13,968,800 — — — — — 9,000,000 — 35,000,000 — — — 35,000,000 — — 2,000,000 — — 47,000,000 — 7,500,000 — — — 19,500,000 — — — — — 15,000,000 — — — 50,287,391 — 50,287,391 — — — 8,735,124 — 8,735,124 — — — 26,202,031 — 26,202,031 — — — 17,147,767 — 17,147,767 — 2,986,516 — — — 2,986,516 — — — 1,980,000 — 1,980,000 — — — — — 5,500,000 — — — — — 3,500,000 — — — 15,635,567 — 15,635,567 — — — — — 79,878,000 — — — — — 14,512,095 — PROJECT 114 Fiscal Year 2012 COMMITMENTS Environment & IFC Loan & Social Category Quasi-Loan IFC Region Country Name Company Name Code Commitments ($) SUB-SAHARAN AFRICA Societe Commerciale de Banque Cameroun C — Central African Republic Ecobank Centrafrique S.A. FI — Chad Ecobank Tchad S.A. FI — Congo, Democratic Republic of Advans Banque Congo FI — Congo, Republic of Credit du Congo C — Cote D’Ivoire Banque Internationale pour le Commerce et l’Industrie de la FI — Cote d’Ivoire Ecobank—Cote d’Ivoire S.A. C — Rialto Energy Ltd. A — Sama Resources Inc. B — Societe Ivoirienne de Banque C — Societe Ivoirienne de Productions Animales B — Eastern Africa Region Export Trading Company Limited B — RVR Investments (Pty) Limited A — Ethiopia Allana Potash Corporation B — Nyota Minerals Limited B — Gambia, The Ecobank Gambia Limited C — Ghana A & C Development Company B 4,348,000 Advans Ghana Savings and Loans Company Limited FI — Alliance Estates Limited B 5,450,000 Ecobank Ghana Limited FI — Guaranty Trust Bank (Ghana) Limited C — Kosmos Energy Finance International A 67,000,000 The Trust Bank C — Tullow Oil PLC B 50,000,000 UT Bank Ltd. FI 5,000,000 Vegpro Kenya Limited B 7,000,000 Guinea Ecobank Guinea C — SIMFER S.A. A 150,000,000 Kenya Bank of Africa Kenya Ltd. FI — BARCLAYS BANK OF KENYA LIMITED C — Diamond Trust of Kenya Limited FI — Ecobank Kenya Limited FI — Equity Bank Limited FI 100,000,000 I and M Bank Ltd. C — KENYA AIRWAYS B — Kenya Commercial Bank FI — Prime Bank Limited C — Thika Power Limited A 37,143,985 Liberia Ecobank Liberia FI — Guaranty Trust Bank (Liberia) Ltd. C — Madagascar AccesBanque Madagascar FI — Bank of Africa Madagascar FI — Malawi First Merchant Bank Malawi Ltd. C — NBS Bank Limited FI — Mali Ecobank Mali FI — Scatc Solar A.S. C 1,500,000 Mauritania Attijariwafa Bank Mauritanie S.A. C — Generale de Banque de Mauritanie pour l’Investissement et le FI — Commerce Mauritius Helios Towers Mauritius Holding Ltd. B 175,558 IFC Financials and Projects 2012 115 IFC Equity & Trade Finance Non-Trade Total Syndications Quasi-Equity Risk Management Guarantee Finance Guarantee Commitments for Commitments Commitments ($) Commitments ($) Commitments ($) Commitments ($) IFC’s Own Account ($) [B-loans only] ($) — — 8,492,518 — 8,492,518 — — — 2,597,274 — 2,597,274 — — — 1,331,300 — 1,331,300 — 496,300 — — — 496,300 — — — 9,904,888 — 9,904,888 — — — — 17,018,112 17,018,112 — — — 9,477,184 — 9,477,184 — 10,836,500 — — — 10,836,500 — 1,217,078 — — — 1,217,078 — — — 448,401 — 448,401 — 3,199,927 — — — 3,199,927 — — — — 4,326,008 4,326,008 — 10,100,000 — — — 10,100,000 — 1,305,024 — — — 1,305,024 — 2,021,193 — — — 2,021,193 — — — 4,831,300 — 4,831,300 — — — — — 4,348,000 — 281,906 — — — 281,906 — — — — — 5,450,000 — — — 66,028,594 1,152,135 67,180,729 — — — 47,370,406 — 47,370,406 — — — — — 67,000,000 — — — 61,549,982 — 61,549,982 — — — — — 50,000,000 — 7,500,000 — 130,958 — 12,630,958 — — — — — 7,000,000 — — — 1,000,000 — 1,000,000 — — — — — 150,000,000 — — — 151,199 — 151,199 — — — 2,578,700 — 2,578,700 — 2,061,316 — 35,176,586 — 37,237,902 — — — 14,087,000 — 14,087,000 — — — — — 100,000,000 — — — 18,493,077 — 18,493,077 — 25,000,000 — — — 25,000,000 — — — 20,736,000 — 20,736,000 — — — 3,458,597 — 3,458,597 — — — — — 37,143,985 — — — 11,000,000 — 11,000,000 — — — 528,833 — 528,833 — 518,117 — — — 518,117 — — — 38,407,768 — 38,407,768 — — — 15,901,008 — 15,901,008 — — — 10,640,131 — 10,640,131 — — — 14,800,237 — 14,800,237 — — — — — 1,500,000 — — — 1,916,000 — 1,916,000 — — — 9,676,278 — 9,676,278 — — — — — 175,558 — PROJECT 116 Fiscal Year 2012 COMMITMENTS Environment & IFC Loan & Social Category Quasi-Loan IFC Region Country Name Company Name Code Commitments ($) SUB-SAHARAN AFRICA I&P Capital (III) LLC Ltd. FI — Mozambique AFRICAN BANKING CORPORATION MOZAMBIQUE C — Baobab Resources UJV B — Merec Industries Limitada B 25,000,000 Niger Ecobank Niger C — Nigeria Access Bank PLC FI-2 — BEL IMPEX LIMITED B 7,500,000 Custodian and Allied Insurance PLC FI 12,500,000 Diamond Bank PLC FI — Ecobank Nigeria PLC FI — Fidelity Bank C — First City Monument Bank FI-3 — Funtaj International Schools Limited B 5,000,000 Guaranty Trust Bank PLC FI — IHS Nigeria PLC B — InterSwitch Limited C — La Fayette Microï¬?nance Bank Limited FI — Persianas Limited (Mauritius) B 50,000,000 Zenith Bank PLC C — Rwanda Banque Commerciale du Rwanda (BCR) C — Business Partners International Rwanda SME Fund Limited FI 800,000 Ecobank Rwanda Limited C — KCB Rwanda S.A. FI 5,000,000 Sao Tome and Principe Banco Internacional de Sao Tome e Principe C — Senegal CBAO Groupe Attijariwafa FI — Ecobank Senegal C — Patisen B 12,107,400 Societe Eiffage de la Nouvelle Autoroute Concedee A — Sierra Leone Vitafoam Sierra Leone Limited B 2,848,000 South Africa Assupol Life Limited C — Farmsecure PTY B 58,804,504 Sasï¬?n Bank Limited FI 7,700,000 South Sudan UAP Properties Ltd. B 5,000,000 Tanzania AccessBank Tanzania Limited FI — AFRICAN BANKING CORPORATION TANZANIA C — African Eagle Resources B — Diamond Trust Bank Tanzania Ltd. C — Exim Bank of Tanzania FI — Helio Resource Corp. B — Togo Ecobank Togo C — Uganda Diamond Trust Bank Uganda Ltd. C — International Medical Group B 2,200,000 Orient Bank Limited C — Western Africa Region Cauris Capital Partners II FI — Zambia AFRICAN BANKING CORPORATION ZAMBIA C — Zambeef Products PLC B 30,000,000 IFC Financials and Projects 2012 117 IFC Equity & Trade Finance Non-Trade Total Syndications Quasi-Equity Risk Management Guarantee Finance Guarantee Commitments for Commitments Commitments ($) Commitments ($) Commitments ($) Commitments ($) IFC’s Own Account ($) [B-loans only] ($) 13,177,000 — — — 13,177,000 — — — 12,987,689 — 12,987,689 — 1,025,609 — — — 1,025,609 — — — — — 25,000,000 — — — 4,000,000 — 4,000,000 — — — 263,495,566 — 263,495,566 — — — — — 7,500,000 — — — — — 12,500,000 — — — 166,802,892 — 166,802,892 — — — 63,126,583 — 63,126,583 — — — 109,701 — 109,701 — — — 169,335,806 — 169,335,806 — — — — — 5,000,000 — — — 1,483,486 — 1,483,486 — 10,000,000 — — — 10,000,000 — 10,500,000 — — — 10,500,000 — 1,081,900 — — — 1,081,900 — 37,000,000 — — — 87,000,000 — — — 15,000,000 — 15,000,000 — — — 3,117,139 — 3,117,139 — (800,000) — — — — — — — 9,980,798 — 9,980,798 — — — — — 5,000,000 — — — 55,915 — 55,915 — — — 7,460,737 — 7,460,737 — — — 18,660,694 — 18,660,694 — 3,618,875 — — — 15,726,275 — — 2,800,000 — — 2,800,000 — — — — — 2,848,000 — 20,925,910 — — — 20,925,910 — — — — — 58,804,504 — — 150,000 13,087,854 — 20,937,854 — — — — — 5,000,000 — 500,594 — — — 500,594 — — — 3,768,313 — 3,768,313 — 6,919,650 — — — 6,919,650 — — — 2,120,922 — 2,120,922 — — — 1,640,927 — 1,640,927 — 1,706,313 — — — 1,706,313 — — — 7,688,905 — 7,688,905 — — — 3,270,317 — 3,270,317 — — — — — 2,200,000 — — — 800,000 — 800,000 — 7,218,250 — — — 7,218,250 — — — 1,853,601 — 1,853,601 — — — — — 30,000,000 — PROJECT 118 Fiscal Year 2012 COMMITMENTS Environment & IFC Loan & Social Category Quasi-Loan IFC Region Country Name Company Name Code Commitments ($) WORLD World Region Access Microï¬?nance Holding AG FI — Armajaro Trading Group Limited A 30,000,000 BNP PARIBAS (SUISSE) S.A. C 100,000,000 CCFP ING Bank N.V. FI-2 250,000,000 Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A. FI 250,000,000 (Rabobank Nederland) ECOM Agroindustrial Corp. Ltd. A 50,000,000 IFC Capitalization (Equity) Fund, L.P. FI — IFC Capitalization (Subordinated Debt) Fund, L.P. FI 27,520,363 JP Morgan Chase & Co. FI — MIFA Fund S.A., SICAV-SIF FI 16,750,000 O3B Networks Limited B — ProCredit Holding AG & Co.KGaA FI — Societe Generale S.A. FI 250,000,000 SunEdison Energy Holding (Singapore) Pte Ltd. B — SunEdison Energy Holding B.V. B — The Currency Exchange Fund N.V. C — Wells Fargo Bank, N.A. C — IFC Financials and Projects 2012 119 IFC Equity & Trade Finance Non-Trade Total Syndications Quasi-Equity Risk Management Guarantee Finance Guarantee Commitments for Commitments Commitments ($) Commitments ($) Commitments ($) Commitments ($) IFC’s Own Account ($) [B-loans only] ($) 9,703,125 — — — 9,703,125 — — — — — 30,000,000 — — — — — 100,000,000 — — — — — 250,000,000 — — — — — 250,000,000 — — — — — 50,000,000 — 36,587,741 — — — 36,587,741 — 287,587 — — — 27,807,950 — — 100,000,000 — — 100,000,000 — — — — — 16,750,000 — 1,500,000 — — — 1,500,000 — 5,357,229 — — — 5,357,229 — — — — — 250,000,000 — 50,000,000 — — — 50,000,000 — 5,000,000 — — — 5,000,000 — 30,000,000 — — — 30,000,000 — — — — 100,000,000 100,000,000 — INVESTMENT 120 Statement of Cumulative Gross Commitments1 PORTFOLIO (at June 30, 2012) (US$ Thousands) Number of Loan & Guarantee Region Country Enterprises IFC Participations Total SUB-SAHARAN AFRICA Angola 7 251,966.1 – 251,966.1 Benin 10 95,082.9 – 95,082.9 Botswana 6 33,454.1 – 33,454.1 Burkina Faso 14 75,412.6 – 75,412.6 Burundi 8 46,260.5 – 46,260.5 Cameroon 37 572,108.6 471,500.0 1,043,608.6 Cape Verde 6 15,901.9 – 15,901.9 Central African Republic 1 5,528.4 – 5,528.4 Chad 7 46,644.2 13,900.0 60,544.2 Congo, Democratic Republic of 20 237,721.3 94,000.0 331,721.3 Congo, Republic of 7 124,910.3 25,000.0 149,910.3 Cote D’Ivoire 47 317,183.7 70,963.8 388,147.5 Djibouti 1 4,000.0 – 4,000.0 Eritrea 1 949.2 – 949.2 Ethiopia 8 98,927.5 1,719.0 100,646.5 Gabon 5 145,588.0 110,000.0 255,588.0 Gambia, The 10 20,192.8 – 20,192.8 Ghana 68 1,518,157.4 432,750.0 1,950,907.4 Guinea 11 219,683.6 – 219,683.6 Guinea-Bissau 4 7,246.0 – 7,246.0 Kenya 85 1,090,774.4 59,294.6 1,150,069.1 Lesotho 2 454.0 – 454.0 Liberia 7 45,070.4 – 45,070.4 Madagascar 21 183,942.1 21,000.0 204,942.1 Malawi 20 148,769.5 9,500.0 158,269.5 Mali 23 162,469.2 40,000.0 202,469.2 Mauritania 13 121,775.1 9,502.6 131,277.7 Mauritius 16 123,794.8 96.0 123,890.8 Mozambique 27 317,455.9 – 317,455.9 Namibia 6 44,969.3 – 44,969.3 Niger 3 18,808.1 – 18,808.1 Nigeria 88 4,975,954.7 237,155.0 5,213,109.8 Rwanda 15 79,253.5 – 79,253.5 Sao Tome and Principe 1 299.5 – 299.5 Senegal 31 248,209.6 12,398.0 260,607.6 Seychelles 7 39,443.2 2,500.0 41,943.2 Sierra Leone 8 66,851.0 25,000.0 91,851.0 Somalia 2 974.6 – 974.6 South Africa 76 1,807,870.0 15,000.0 1,822,870.0 South Sudan 1 5,000.0 – 5,000.0 Sudan 6 27,267.8 6,488.8 33,756.6 Swaziland 9 47,779.5 – 47,779.5 Tanzania 54 306,723.2 13,040.5 319,763.7 Togo 11 181,396.6 – 181,396.6 Uganda 50 330,190.1 13,088.4 343,278.4 Zambia 37 242,425.5 20,285.8 262,711.3 Zimbabwe 51 284,261.9 99,000.0 383,261.9 Regional Investments: Sub-Saharan Africa 72 2,034,084.9 1,906.0 2,035,990.9 IFC Financials and Projects 2012 121 Number of Loan & Guarantee Region Country Enterprises IFC Participations Total EAST ASIA AND THE PACIFIC Cambodia 10 136,245.2 60,000.0 196,245.2 China 210 4,978,735.0 1,233,109.3 6,211,844.3 Fiji 8 47,993.2 2,500.0 50,493.2 Indonesia 112 3,140,202.8 1,724,655.4 4,864,858.2 Kiribati 1 1,798.0 – 1,798.0 Korea, Republic of 51 868,449.2 195,700.0 1,064,149.2 Lao People’s Democratic Republic 10 41,951.8 – 41,951.8 Malaysia 12 154,868.4 5,389.1 160,257.5 Mongolia 15 209,510.4 – 209,510.4 Papua New Guinea 8 250,638.8 – 250,638.8 Philippines 97 2,591,053.2 695,879.6 3,286,932.8 Samoa 7 20,096.6 – 20,096.6 Singapore 1 546.8 – 546.8 Solomon Islands 1 35,000.0 – 35,000.0 Thailand 79 1,571,757.5 1,748,419.3 3,320,176.9 Tonga 1 6,787.0 – 6,787.0 Vanuatu 3 16,604.0 – 16,604.0 Vietnam 48 2,623,689.6 253,135.0 2,876,824.6 Regional Investments: East Asia and the Paciï¬?c 36 971,614.0 – 971,614.0 SOUTH ASIA Bangladesh 30 1,034,383.5 52,745.4 1,087,128.9 Bhutan 3 13,658.6 – 13,658.6 India 340 8,542,806.3 1,371,639.8 9,914,446.0 Maldives 7 168,250.0 8,500.0 176,750.0 Nepal 18 151,240.2 36,000.0 187,240.2 Sri Lanka 35 512,070.8 23,615.6 535,686.4 Regional Investments: South Asia 10 271,570.0 – 271,570.0 EUROPE AND CENTRAL ASIA Albania 18 380,273.1 9,893.0 390,166.1 Armenia 12 238,409.5 – 238,409.5 Azerbaijan 26 489,129.1 197,930.0 687,059.1 Belarus 17 340,496.0 – 340,496.0 Bosnia and Herzegovina 29 300,854.9 10,577.6 311,432.5 Bulgaria 25 645,749.4 183,646.7 829,396.1 Croatia 16 552,114.3 166,695.5 718,809.8 Czech Republic 18 455,175.9 245,587.9 700,763.8 Estonia 11 137,806.1 11,855.0 149,661.1 Georgia 17 573,056.7 11,500.0 584,556.7 Hungary 34 437,985.4 70,334.8 508,320.2 Kazakhstan 32 1,202,439.2 282,916.7 1,485,355.9 Kosovo 3 27,799.5 – 27,799.5 Kyrgyz Republic 15 101,536.2 – 101,536.2 Latvia 7 80,966.8 35,000.0 115,966.8 Lithuania 11 95,041.0 9,309.0 104,350.0 Macedonia, former Yugoslav Republic of 14 200,678.0 25,000.0 225,678.0 Moldova 17 201,070.9 25,000.0 226,070.9 Montenegro 6 86,754.2 – 86,754.2 Poland 44 438,121.4 115,316.8 553,438.3 INVESTMENT 122 Statement of Cumulative Gross Commitments1 PORTFOLIO (at June 30, 2012) (US$ Thousands) Number of Loan & Guarantee Region Country Enterprises IFC Participations Total EUROPE AND CENTRAL ASIA Romania 39 1,478,080.6 478,163.5 1,956,244.1 Russian Federation 181 7,180,746.0 2,296,019.1 9,476,765.1 Serbia 36 1,168,590.9 135,630.3 1,304,221.2 Slovak Republic 7 115,543.7 – 115,543.7 Slovenia 11 211,484.1 47,382.7 258,866.8 Tajikistan 17 75,887.5 – 75,887.5 Turkey 158 6,030,870.0 3,443,543.2 9,474,413.1 Ukraine 43 1,682,040.0 631,700.0 2,313,740.0 Uzbekistan 17 93,447.0 12,900.0 106,347.0 Regional Investments: Europe and Central Asia 57 2,197,076.0 149,007.0 2,346,083.1 LATIN AMERICA AND THE CARIBBEAN Antigua and Barbuda 1 30,000.0 – 30,000.0 Argentina 191 4,699,380.8 3,654,163.0 8,353,543.8 Barbados 6 128,625.1 – 128,625.1 Belize 4 26,936.9 11,000.0 37,936.9 Bolivia 29 449,262.2 140,500.0 589,762.2 Brazil 235 10,580,635.9 5,737,821.8 16,318,457.7 Chile 53 1,561,952.5 1,160,604.7 2,722,557.1 Colombia 111 2,530,730.6 1,168,631.0 3,699,361.6 Costa Rica 27 379,594.6 99,708.8 479,303.4 Dominica 1 700.0 – 700.0 Dominican Republic 34 601,594.2 231,850.0 833,444.2 Ecuador 23 323,127.5 39,240.1 362,367.6 El Salvador 18 330,883.1 113,500.0 444,383.1 Grenada 2 8,000.0 – 8,000.0 Guatemala 24 793,341.0 210,000.0 1,003,341.0 Guyana 7 25,877.2 – 25,877.2 Haiti 10 81,414.5 12,000.0 93,414.5 Honduras 19 649,640.4 124,400.8 774,041.2 Jamaica 22 418,795.6 186,744.5 605,540.1 Mexico 181 4,967,190.4 2,217,133.5 7,184,324.0 Nicaragua 20 291,511.2 12,428.6 303,939.7 Panama 25 1,421,023.3 153,300.0 1,574,323.3 Paraguay 15 605,113.2 10,000.0 615,113.2 Peru 71 1,824,897.9 753,621.2 2,578,519.1 St. Lucia 3 45,421.9 – 45,421.9 Suriname 1 1,895.6 – 1,895.6 Trinidad and Tobago 15 358,653.7 235,000.0 593,653.7 Uruguay 17 298,815.5 120,000.0 418,815.5 Venezuela, Republica Bolivariana de 39 897,229.5 703,791.4 1,601,021.0 Regional Investments: Latin America and the Caribbean 63 1,272,733.0 320,000.0 1,592,733.0 IFC Financials and Projects 2012 123 Number of Loan & Guarantee Region Country Enterprises IFC Participations Total MIDDLE EAST AND NORTH AFRICA Afghanistan 7 153,972.3 – 153,972.3 Algeria 14 253,557.3 5,556.9 259,114.2 Bahrain 1 216,274.0 – 216,274.0 Egypt, Arab Republic of 87 2,707,085.4 789,871.3 3,496,956.7 Iran, Islamic Republic of 11 63,342.9 8,199.5 71,542.4 Iraq 5 319,896.1 50,000.0 369,896.1 Jordan 43 1,050,682.1 380,384.0 1,431,066.1 Lebanon 33 1,583,129.5 230,430.0 1,813,559.5 Morocco 38 772,977.2 515,014.1 1,287,991.2 Oman 7 230,859.6 57,000.0 287,859.6 Pakistan 124 4,050,071.6 607,970.1 4,658,041.8 Saudi Arabia 8 236,286.0 – 236,286.0 Syrian Arab Republic 4 24,731.6 – 24,731.6 Tunisia 27 447,597.8 417,227.8 864,825.6 United Arab Emirates 3 75,000.0 – 75,000.0 Yemen, Republic of 14 206,004.2 56,104.7 262,108.9 Regional Investments: Middle East and North Africa 32 1,042,160.6 3,000.0 1,045,160.6 WORLDWIDE Australia 2 975.0 – 975.0 Cyprus 7 32,181.5 645.3 32,826.7 Finland 4 1,233.1 1,914.5 3,147.6 Greece 6 25,742.3 40,131.3 65,873.6 Israel 1 10,500.0 – 10,500.0 Italy 1 960.0 – 960.0 Portugal 7 51,811.1 11,000.0 62,811.1 Spain 5 19,042.5 1,685.0 20,727.5 Regional Investments: Worldwide 91 4,728,667.3 183,000.0 4,911,667.3 Other2 24 290,029.0 11,400.0 301,429.0 TOTAL 4,984 126,553,679.1 38,597,259.3 165,150,938.5 1. Commitments are composed of funds to be provided by IFC for its own account and funds to be provided by participants through the purchase of an interest in IFC’s investment. 2. Of this amount, $9.8 million ($8.4m for IFC and $1.4m for participant’s account) represents investments made at a time when the authorities on Taiwan represented China in the International Finance Corporation. The balance represents investments in the West Bank and Gaza, Taiwan, China and Hong Kong SAR, China. NOTES AND 124 DEFINITIONS NOTES AND DEFINITIONS The ï¬?scal year at IFC runs from July 1 to June 30. Thus FY12 began on July 1, 2011, and ended on June 30, 2012. Investment amounts are given in U.S. dollars unless otherwise speciï¬?ed. Rounding of numbers may cause totals to differ from the sum of individual ï¬?gures in some tables. Loan participants and IFC fully share the commercial credit risks of projects but, because IFC is the lender of record, participants receive the same tax and country risk beneï¬?ts that IFC derives from its special status as a multilateral ï¬?nancial institution. Quasi-equity instruments incorporate both loan and equity features, which are designed to provide varying degrees of risk/return trade- offs that lie between those of straight loan and equity investments. On- lending is the process of lending funds from IFC’s own sources through intermediaries, such as local banks and microï¬?- nance institutions. The World Bank includes the International Bank of Reconstruction and Development and the International Development Association. The World Bank Group includes IBRD, IDA, IFC, the Multilateral Investment Guarantee Agency, and the International Centre for Settlement of Investment Disputes. 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