BUILDING A BETTER FUTURE 2023 ANNUAL REPORT FINANCIALS Table of Contents 56 CONSOLIDATED FINANCIAL 2 STATEMENTS AND INTERNAL CONTROL REPORTS MANAGEMENT’S DISCUSSION 57 Management’s Report Regarding AND ANALYSIS  Effectiveness of Internal Control over  Financial Reporting 3 Selected Financial Data 59 Independent Auditors’ Report on the 4 Executive Summary  Effectiveness of Internal Control over 8 Overview  Financial Reporting 11 Client Services 60 Consolidated Balance Sheets 25 Liquid Assets 6 1 Consolidated Statements of Operations 26 Funding Resources 62 Consolidated Statements of  Comprehensive Income 29 Risk Management 63 Consolidated Statements of 42 Critical Accounting Policies  Changes in Capital 45 Results of Operations 64 Consolidated Statements of 51 Governance and Control  Cash Flows 54 Appendix 66 Consolidated Statement of  Capital Stock and Voting Power 68 Notes to Consolidated Financial  Statements 141 Independent Auditors’ Report 143 INVESTMENT PORTFOLIO Cumulative Gross Commitments by  Region IFC 2023 ANNUAL REPORT FINANCIALS 1 MANAGEMENT’S DISCUSSION AND ANALYSIS 2 IFC 2023 ANNUAL REPORT FINANCIALS This Management’s Discussion and Analysis (MD&A) discusses the financial results of the International Finance Corporation (IFC or the Corporation) for the fiscal year ended June 30, 2023 (FY23). The MD&A contains forward looking statements which may be identified by such terms as “anticipates,” “believes,” “expects,” “intends,” “plans”, “aims” 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. IFC undertakes no obligation to update any forward-looking statements. Certain reclassifications of prior years’ information have been made to conform with the current year’s presentation. Table 1: Selected Financial Data FOR THE YEAR ENDED JUNE 30 2023 2022 2021 (US$ in millions) (FY23) (FY22) (FY21) Investments Highlights (Section III) Long-Term Finance (LTF) Commitments (Own Account and Core Mobilization) $ 31,706 $ 23,165 $ 23,305 Short-Term Finance (STF) Commitments (Own Account and Core Mobilization)a 12,023 10,426 8,498 Disbursements 18,689 13,198 11,438 Statement of Operations Net income (loss) (Section VIII) $ 672 $ (464) $ 4,209 Income available for designation (Section II) 681 382 1,066 AS OF THE YEAR ENDED JUNE 30 (US$ in millions) 2023 2022 Balance Sheet Total assets $110,547 $ 99,010 b Liquid assets (Section IV) 40,120 41,717 Investments (Section III) 51,502 44,093 Borrowings outstanding, including fair value adjustments (Section V) 52,443 48,269 Total capital (Section V) 35,038 32,805 a. Starting FY23, short-term finance core mobilization commitments were included in commitments reporting. Previous years’ information were updated to conform with the current year’s presentation. b. Net of securities sold under repurchase agreements, payable for cash collateral received and associated derivatives. AS OF THE YEAR ENDED JUNE 30 2023 2022 Capital Utilization Ratio Capital Utilization Ratio (CUR) 60.7% 62.0% IFC 2023 ANNUAL REPORT FINANCIALS 3 SECTION l. influence the global outlook, disproportionately affect- ing the poor and vulnerable, and worsening global inequality. High inflation, rising interest rates, Russia’s EXECUTIVE SUMMARY invasion of Ukraine, large macroeconomic imbal- ances, and shortages of energy, fertilizer, and food This executive summary highlights selected informa- have caused a sharp global economic downturn. In tion and may not contain all of the information that is response, IFC has been working with partners at global important to readers of this document. For a complete and country levels to support its clients in enhancing description of IFC’s FY23’s performance, as well as the resilience and laying the groundwork for rebuilding risks and critical accounting estimates affecting IFC, better. In June 2022, IFC launched a $1.0 billion African this MD&A should be read in its entirety. Trade and Supply Chain Finance Program (ATRI), the first of an expected series of platforms, to strengthen With its many years of experience and its depth of intra-African trade. In October 2022, IFC launched knowledge in the international development arena, IFC its Global Food Security Platform, a new $6.0  billion plays a key role in achieving the World Bank Group’s financing facility, to strengthen the private sector’s (WBG1) goal of helping countries achieve better devel- ability to respond to the global food and security crisis opment outcomes. IFC contributes to both the WBG’s and help support food production. In November 2022, twin goals of ending extreme poverty and promot- the Board approved the Africa and Middle East, Central ing shared prosperity, and to the Forward Look 2, by Asia, and Pakistan (MCAP) Venture Capital Platform, providing financing and advisory services primarily a $225 million envelope that will help IFC to deepen to the private sector in developing countries that the Venture Capital markets and to grow its impact in are members of IFC. IFC and its affiliated organiza- the target regions, most importantly by providing IFC tions seek to help countries achieve improvements in with the agility to meet market needs and more effi- growth, job creation, poverty reduction, governance, ciently process investments in Digital Transformation the environment, climate adaptation and resilience, companies. human capital, infrastructure and debt transpar- ency. To further enhance these efforts, the Board and Management have been working on an Evolution Roadmap for the WBG to better address the scale of RUSSIA’S INVASION OF development challenges by adapting the WBG’s vision UKRAINE and mission, strengthening its operating model, and enhancing its financial capacity and model. The road- Russia’s invasion of Ukraine that began in February map puts strong emphasis on the private sector and 2022 has negatively impacted regional and global on IFC as key partner to support coordinated efforts financial markets and economic conditions. As of around global priorities. Key priorities for IFC in the June  30, 2023, IFC had investments in Ukraine, the Evolution Roadmap include enabling and facilitat- Russian Federation, and Belarus with a total carrying ing mobilization of private capital across developing value3 of $305 million, less than 1% of the total invest- and emerging markets, leveraging the expertise from ments portfolio. Recognizing there is a heightened across the WBG in support of the global development degree of uncertainty and judgment in incorporating agenda, and scaling blended finance. Management is the impact, especially the impact from spillovers to in the process of advancing agreed actions and devel- other countries, valuations of equity investments, debt oping further proposals. securities and certain loans reported at fair value reflect In April 2018, IFC’s Board of Governors approved a cap- management’s best estimates as of June 30, 2023. ital increase package comprising a three-step capital In evaluating the appropriateness of IFC’s reserve raising process: conversion of a portion of retained against losses, IFC has considered the impact of earnings into paid-in capital, a Selective Capital Russia’s invasion of Ukraine largely through its rating Increase (SCI), and General Capital Increase (GCI) that system that classifies its loans according to creditwor- would provide up to $5.5 billion additional paid-in cap- thiness and risk. A number of the credit risk ratings ital. In April 2023, the subscription deadline for SCI and of individual loans deteriorated since then, reflecting GCI was extended to April 16, 2025 and April 16, 2024 general credit considerations and specific consider- respectively and the payment deadline for SCI was ations related to Russia’s invasion of Ukraine. As the extended to April 16, 2025, to be aligned with the GCI situation is still evolving, IFC expects further impacts payment deadline. As of June 30, 2023, 120 countries which are not reflected in the model calculated reserve have subscribed a total of $4.4 billion, and payment of and cannot be directly attributed to any individual $3.0 billion has been received from 100 countries. loan. As a result, a $135 million qualitative overlay was Aligned with the capital increase, IFC continued to applied for the estimated losses due to the invasion grow its footprint in the poorest countries and frag- and its spillover macroeconomic impact in March 2022, ile areas. New and ongoing challenges continue to which remained unchanged as of June 30, 2023. 1. The other institutions of the WBG are the International Bank for Reconstruction and Development (IBRD), the International Development Association (IDA), the Multilateral Investment Guarantee Agency (MIGA), and the International Centre for Settlement of Investment Disputes (ICSID). 2. The Forward Look: A Vision for the WBG in 2030, describes how the WBG will deliver on its twin goals and its three priorities. The Forward Look rests on four pillars: serving all clients; mobilizing resources for development; leading on global issues; and improving the business model. 3. Please refer to Section III. Client Services Disbursed Investment Portfolio section for the definition of carrying value. 4 IFC 2023 ANNUAL REPORT FINANCIALS IFC’S RESPONSES Figure 1: Income Measures IFC has been supporting clients in Ukraine through (US$ in millions) loan disbursements, advisory assistance, risk-shar- ing agreements and trade finance lines — to enable Income Available for Designations    access to essential fuel and food products and facilitate Net income (loss) exports. IFC’s financing included $81  million in port- 4,500 4,209 folio disbursements and $131 million of trade finance guarantees for imports of critical goods. In addition, in 3,600 FY23, IFC committed $65 million to support tech and 2,700 export-oriented entrepreneurs in Ukraine, $22  mil- 1,800 lion to support Ukrainian small and medium-sized 1,066 900 681 672 enterprises via financial institutions and $69 million to 382 (464) finance operations of a global grain trader in Ukraine. 0 IFC also agreed with its development partners from (900) the European Union to repurpose grants provided to FY21 FY22 FY23 the IFC-managed Ukraine Energy Efficiency Fund to finance housing for internally displaced people and to help restore damaged residential housing. Finally, Income Available for Designations totaled $681  mil- leveraging its advisory services, IFC launched the lion in FY23, as compared to $382 million in FY22. On Digital Data Corridor initiative to enable informa- August 3, the Board of Directors approved a designa- tion exchange between credit bureaus in Ukraine and tion of $60 million to Funding Mechanism for Technical countries receiving refugees to facilitate their access Assistance and Advisory Services (FMTAAS). This des- to finance. ignation is expected to be noted with approval by the Board of Governors in fiscal year 2024 (FY24). Going forward, IFC’s interventions in Ukraine will be guided by the Economic Resilience Action (ERA) INVESTMENT OPERATIONS program for Ukraine discussed with the IFC Board in December 2022. IFC will mostly provide liquidity and In FY23, IFC committed $16.7  billion in long-term working capital support to help preserve businesses investments for its Own Account and $15.0 billion from and enable provision of important goods and services. Core Mobilization, totaling $31.7 billion in LTF. Total LTF IFC will also selectively consider investments to sup- commitments represent a 37% increase from FY22 that port provision of essential infrastructure services. In supported 325 LTF projects in developing countries. In parallel, IFC will grow its advisory and upstream pro- addition, IFC extended $12.0 billion in STF in FY23, 15% gram to prepare for the reconstruction phase. IFC has higher than FY22. Overall, IFC delivered a combined already signed a Memorandum of Understanding with total of LTF and STF of $43.7 billion in FY23, 30% higher the Government of Ukraine to act as a strategic advisor than FY22. Furthermore, IFC disbursed $18.7 billion for for attracting private capital in reconstruction. its own account in FY23 as compared to $13.2 billion in FY22. FINANCIAL PERFORMANCE Figure 2: LTF and STF SUMMARY Commitments (US$ in billions) The financial performance of IFC has been significantly LTF commitments    STF commitments influenced by the volatile emerging equity markets as 32 well as changes in interest rates. 24 NET INCOME AND INCOME AVAILABLE FOR DESIGNATIONS 16 IFC’s net income was $672  million in FY23, as com- pared to a net loss of $464 million in FY22, primarily 8 resulting from reversal of previous year mark to market losses and additional interest income from Treasury 0 and higher income from loans and debt securities. FY19 FY20 FY21 FY22 FY23 IFC 2023 ANNUAL REPORT FINANCIALS 5 Figure 3: Disbursements Figure 5: Liquid Assets (US$ in billions) (US$ in billions) 20 50 40 15 30 10 20 5 10 0 0 FY19 FY20 FY21 FY22 FY23 June 19 June 20 June 21 June 22 June June 23 2023 INVESTMENT PORTFOLIO BORROWINGS The carrying value 4 of IFC’s outstanding investment Borrowings outstanding (including fair value adjust- portfolio was $51.5 billion at June 30, 2023, an increase ments) increased by $4.1  billion from $48.3  billion at of $7.4  billion compared to June  30, 2022, primarily June 30, 2022 to $52.4 billion at June 30, 2023, mainly driven by a $7.6 billion increase attributed to new dis- due to net new issuances of $4.5 billion. bursements exceeding repayments, prepayments and New borrowings under the medium and long-term divestments. borrowing program (on a funding authorization basis) in FY23 was $13.7  billion as compared to $9.1  billion Figure 4: Investments in FY22. (US$ in billions) Figure 6: Borrowings 60 (US$ in billions) 50 60 40 30 40 20 10 20 0 June 19 June 20 June 21 June 22 June 23 0 LIQUID ASSETS June 19 June 20 June 21 June 22 June 23 The Net Asset Value (NAV) of the liquid assets portfo- lios decreased by $1.6 billion to $40.1 billion at June 30, 2023 from June 30, 2022. The market funded liquidity portfolio declined by $1.9 billion as outflows from net disbursements to loans exceeded inflows from net borrowings. The net worth funded liquidity portfolio increased by $346 million in FY23. 4. Please refer to Section III. Client Services Disbursed Investment Portfolio section for the definition of carrying value. 6 IFC 2023 ANNUAL REPORT FINANCIALS ECONOMIC CAPITAL FRAMEWORK IFC’s Capital Adequacy, as measured by CUR was 60.7% as of June 30, 2023, lower than 62.0% level as of June 30, 2022. The reduction (improvement) in CUR was largely attributed to an increase in Capital Available, with increases in paid-in capital, undesignated retained earnings, and accumulated other comprehensive income. There was also an increase in Capital Required, primarily due to increases in capital to support the Loan and Treasury portfolios. Figure 7: Capital Utilization Ratio 100% 75% 50% 25% 0% June 19 June 20 June 21 June 22 June 23 IFC 2023 ANNUAL REPORT FINANCIALS 7 SECTION II. IFC’s capital base and its assets and liabilities, other than its equity investments, are primarily denomi- nated in U.S. dollars ($ or US$) or swapped into U.S. OVERVIEW dollars along with borrowings denominated in cur- rencies other than U.S. dollars which are invested in IFC is the largest global development institution such currencies. Overall, IFC seeks to minimize foreign focused on the private sector in developing countries. exchange and interest rate risks arising from its loans, Established in 1956, IFC is owned by 186 member coun- debt securities and liquid assets by closely matching tries, a group that collectively determines its policies. the currency and rate basis of its assets in various IFC is a member of the WBG but is a legal entity sepa- currencies with liabilities having the same character- rate and distinct from IBRD, IDA, MIGA, and ICSID, with istics. IFC generally manages non-equity investment its own Articles of Agreement, share capital, financial related and certain lending related residual currency structure, management, and staff. Membership in IFC and interest rate risks by utilizing currency and interest is open only to member countries of IBRD. IFC is not rate swaps and other derivative instruments. liable for the obligations of the other institutions. BASIS OF PREPARATION FINANCIAL BUSINESS MODEL OF IFC’S CONSOLIDATED IFC helps developing countries achieve sustainable FINANCIAL STATEMENTS growth by financing private sector investment, mobi- lizing capital in international financial markets, and The accounting and reporting policies of IFC conform providing advisory services to businesses and govern- to accounting principles generally accepted in the ments. IFC’s principal investment products are loans, United States of America (U.S. GAAP). IFC’s account- equity investments, debt securities and guarantees. ing policies are discussed in more detail in Section VII, IFC also plays an active and direct role in mobilizing Critical Accounting Policies, and in Note A to IFC’s additional funding from other investors and lenders consolidated financial statements as of and for the through a variety of means. Such means principally year ended June 30, 2023 (FY23 consolidated financial comprise: parallel loans, loan participations, the statements). Certain reclassifications of prior years’ Managed Co-lending Portfolio Program (MCPP), the information have been made to conform with the cur- non-IFC portion of structured finance transactions rent year’s presentation. and the non-IFC portion of commitments in funds IFC uses Income Available for Designations (a non-U.S. managed by IFC Asset Management Company and GAAP measure) as a basis for designations of retained advisory mobilization (collectively Core Mobilization). earnings. Income Available for Designations comprises Unlike most other development institutions, IFC does net income excluding unrealized gains and losses on not accept host government guarantees of its expo- investments and borrowings5 and grants to IDA in the sures. IFC raises virtually all of the funds for its lending year ended June 30, 2021. activities through the issuance of debt obligations in the international capital markets, while maintain- ing a small borrowing window with IBRD. Equity investments are funded from capital (or net worth). Table 2: Reconciliation of Net Income or Loss to Income Available for Designations FOR THE YEAR ENDED JUNE 30 (US$ in millions) 2023 2022 2021 Net income (loss) $ 672 $ (464) $ 4,209 Adjustments to reconcile Net income (loss) to Income Available for Designations Unrealized (gains) losses on investments (41) 740 (3,285) Unrealized losses (gains) on borrowings 50 106 (71) Grants to IDA – – 213 Income Available for Designations $ 681 $ 382 $ 1,066 5. Unrealized gains and losses on investments and borrowings presented in the table includes unrealized gains and losses from associated derivatives. 8 IFC 2023 ANNUAL REPORT FINANCIALS Table 3: Summary of Financial Results FOR THE YEAR ENDED JUNE 30 (US$ in millions) 2023 2022 2021 Consolidated statement of operations highlights: Income from loans and guarantees, including realized gains and losses on loans and associated derivatives $ 2,290 $ 1,156 $ 1,116 (Provision) release of provision for losses on loans, off-balance sheet credit exposures and other receivables (22) (126) 201 Income from equity investments and associated derivatives 191 208 3,201 Income from debt securities, including realized gains and losses on debt securities and associated derivatives 518 414 340 Provision for losses on available-for-sale debt securities (7) (14) (3) Income (loss) from liquid asset trading activities 1,464 (413) 327 Charges on borrowings (2,598) (302) (326) Other income 518 419 595 Other expenses (1,721) (1,653) (1,687) Foreign currency transaction (losses) gains on non-trading activities (86) 76 (148) Income (loss) before net unrealized gains and losses on non-trading financial instruments accounted for at fair value and grants to IDA 547 (235) 3,616 Net unrealized gains (losses) on non-trading financial instruments accounted for at fair value 125 (229) 806 Income (loss) before grants to IDA 672 (464) 4,422 Grants to IDA – – (213) Net income (loss) $ 672 $ (464) $ 4,209 AS OF THE YEAR ENDED JUNE 30 (US$ in millions) 2023 2022 Consolidated balance sheet highlights: Total assets $110,547 $ 99,010 Liquid assets a 40,120 41,717 Investments 51,502 44,093 Borrowings outstanding, including fair value adjustments 52,443 48,269 Total capital $ 35,038 $ 32,805 of which Undesignated retained earnings $ 11,589 $ 10,840 Designated retained earnings 221 298 Accumulated other comprehensive income (loss) (AOCI) 632 (82) Paid-in capital 22,596 21,749 a. Net of securities sold under repurchase agreements, payable for cash collateral received and associated derivatives. IFC 2023 ANNUAL REPORT FINANCIALS 9 Table 4: Key Financial Ratios AS OF THE YEAR ENDED JUNE 30 (US$ in billions, except ratios) 2023 2022 Overall liquidity ratio a 104% 111% Debt-to-equity ratiob 1.6 1.6 Total reserve against losses on loans to total disbursed portfolio c 3.7% 4.4% Capital measures: Capital Availabled 34.8 32.5 Capital Requirede 21.1 20.1 Capital Utilization Ratio f 60.7% 62.0% a. Overall Liquidity Policy states that IFC would at all times maintain a minimum level of liquidity, plus undrawn borrowing commitments from the IBRD, such that it would cover at least 45% of the next three years’ estimated net cash requirements. IFC’s overall liquidity as a percentage of the next three years’ estimated net cash needs stood at 104% as of June 30, 2023, above the minimum requirement of the Board of 45%. b. Debt to equity (leverage) ratio is defined as outstanding borrowings plus committed guarantees divided by total capital (comprises of paid-in capital, retained earnings and Accumulated other comprehensive income (loss)). IFC’s debt-to-equity ratio was 1.6 as of June 30, 2023, well within the maximum of 4 required by the policy approved by IFC’s Board of Directors, c. Total reserve against losses on loans to total disbursed loan portfolio is defined as reserve against losses on loans as a percentage of the total disbursed loan portfolio. d. Capital Available: Resources available to absorb potential losses, calculated as: Balance Sheet Capital less Designated Retained Earnings. e. Capital Required: Aggregate minimum Economic Capital required to maintain IFC’s AAA rating. f. CUR is defined as Capital Required divided by Capital Available. 10 IFC 2023 ANNUAL REPORT FINANCIALS SECTION III. IFC supervises its projects to monitor project perfor- mance and compliance with contractual obligations and with IFC’s internal policies and procedures. CLIENT SERVICES INVESTMENT PRODUCTS BUSINESS Loans — IFC finances projects and companies through loans, typically for five to ten years. IFC also makes OVERVIEW loans to intermediary banks, leasing companies, and other financial institutions for on-lending. IFC provides For all new investments, IFC articulates the expected long-term local-currency solutions and helps compa- impact on sustainable development and, as projects nies access local capital markets through loans from mature, assesses the quality of the development ben- IFC denominated in local currency, derivatives which efits realized. allow clients to hedge existing or new foreign currency IFC’s strategic focus areas are aligned to advance the denominated liabilities back in to the client’s local cur- WBG’s global priorities. rency, and structured finance which enable clients to borrow in local currency from other sources. While IFC’s loans have traditionally been denominated in the major currencies, IFC has made it a priority to struc- INVESTMENT ture local currency products based on client demand SERVICES and on IFC’s ability to fund in local-currency and/or economically hedge loans in these currencies through IFC’s investments are normally made in its develop- the use of derivatives, principally currency and interest ing member countries. IFC’s Articles of Agreement rate swaps and financial futures. mandate that IFC shall invest in productive private Loans generally have the following characteristics: enterprises. The requirement for private ownership does not disqualify enterprises that are partly owned • Term — typically amortizing with final maturities by the public sector if such enterprises are organized generally for seven to twelve years, although some under local commercial and corporate law, operate loans have been made for tenors as short as one year free of host government control in a market context and as long as 20 years and according to profitability criteria, and/or are in • Currency — primarily in major convertible currencies, the process of being completely or partially privatized. principally U.S. dollar, and to a lesser extent, Euro, but with a growing local-currency loan portfolio IFC’s investment products and services are designed to meet the needs of clients in different industries — prin- • Interest rate — typically variable (or fixed and swapped into variable) cipally infrastructure, manufacturing, agribusiness, disruptive technologies and funds, services, and finan- • Pricing — reflects such factors as market conditions and country and project risks cial markets. Investment services product lines include: loans, equity investments, debt securities, trade and Equity Investments — Equity investments provide supply-chain finance, local currency finance, partial developmental support and long-term growth capital credit guarantees, portfolio risk-sharing facilities, that private enterprises need. IFC invests directly in securitizations, blended finance, venture capital, the companies’ equity, and also through private-equity IDA Private Sector Window (IDA-PSW), client risk funds. IFC generally invests between 5 and 20 percent management and various mobilization products such of a company’s equity. IFC’s equity investments are as loan participations, parallel loans and the Managed typically in the form of common or preferred stock Co-lending Portfolio Program (MCPP). Since the start which is not mandatorily redeemable by the issuer or of Coronavirus Disease 2019 (COVID-19) pandemic, puttable to the issuer by IFC. Equity investments are IFC has been providing financing under the COVID-19 usually denominated in the currency of the country in Response Facilities. which the investment is made. IFC also uses put and call options, profit participation features, conversion IFC’s investment project cycle can be divided into the features, warrants and other types of instruments in following stages: managing its equity investments. • Business Development Debt Securities — Investments typically in the form of • Early Review bonds and notes issued in bearer or registered form, • Appraisal securitized debt obligations (e.g., asset-backed secu- • Investment Review rities (ABS), mortgage-backed securities (MBS), and • Negotiations other collateralized debt obligations) and preferred • Public Disclosure shares that are mandatorily redeemable by the issuer • Board Review and Approval or puttable to the issuer by IFC. • Commitment • Disbursement of funds Trade and Supply Chain Finance — IFC’s Global Trade • Project Supervision, and Development Finance Program (GTFP) guarantees trade-related Outcome Tracking payment obligations of approved financial institutions. • Evaluation Separately, the Global Trade Liquidity Program (GTLP) • Closing and Critical Commodities Finance Program (CCFP) provides liquidity, through risk sharing, for trade in IFC 2023 ANNUAL REPORT FINANCIALS 11 developing countries. IFC also has a number of other • $2  billion from the Working Capital Solutions Trade and Supply Chain Finance related programs, Program, which provides funding to emerging-mar- including Global Trade Supplier Finance (GTSF), Global ket banks to extend credit to help businesses shore Warehouse Finance Program (GWFP), Working Capital up their working capital and thereby maintain viable Solutions (WCS) and Global Structured Trade Finance private sector firms. Program (GTST). • $2 billion from the Global Trade Liquidity Program, and the Critical Commodities Finance Program, Local Currency Finance — Lending to the private sec- both of which offer risk-sharing support to local tor in developing countries has traditionally been in the banks so they can continue to finance viable com- form of loans denominated in non-local currency such panies in emerging markets. as the U.S. dollar or the Euro. But the volatility in cur- rency markets represents a major risk for companies In February 2021, the Board approved an extension with revenues in local currency. IFC provides long-term of the COVID Facility dedicated to the Base of the local currency solutions and helps companies access Pyramid Program (BOP) for $400 million, focused on local capital markets. supporting financial service providers in this sector. In March 2022, the Board approved the extension of both Guarantees and Partial Credit Guarantees — IFC’s FTCF and BOP until June 2023, as well as an increase guarantee is available for debt instruments and trade of up to $200  million for the BOP, making the total obligations of clients and covers commercial as well as available for COVID facilities $8.6 billion. noncommercial risks. IFC will provide local currency guarantees, but when a guarantee is called, the client IDA-PSW — The IDA-PSW is a development finance will generally be obligated to reimburse IFC in U.S. tool to crowd-in more private sector investment dollar terms. A partial credit guarantee represents a where it is most needed. The $2.5 billion IDA-PSW was promise of full and timely debt service payment up created under the IDA18 for IFC and MIGA to rebalance to a predetermined amount. Typically, the sum that the risk-reward profile for private sector projects in IFC pays out under the guarantee covers creditors the poorest countries eligible to borrow from IDA and irrespective of the cause of default. The guarantee Fragile and Conflict-Affected Situations (FCS). The IDA- amount may vary over the life of the transaction based PSW is implemented through four facilities: on the borrower’s expected cash flows and creditors’ concerns regarding the stability of cash flows. The • Risk Mitigation Facility: Involves both MIGA and IFC, this facility is designed to provide project-based guarantee is structured to reduce the probability of guarantees to encourage/mobilize private sector default of the debt instrument and increase the recov- investment in infrastructure projects and public-pri- ery if default occurs. vate partnerships. Portfolio Risk Sharing Facilities —  A risk shar- • Local Currency Facility: Administered by IFC, this ing facility allows a client to sell a portion of the risk facility is designed to provide local currency denom- associated with a pool of assets. The assets typically inated loans, investments or hedges to private sector remain on the client’s balance sheet and the risk trans- clients who operate in markets where there are lim- fer comes from a partial guarantee provided by IFC. ited currency hedging capabilities. In the absence of currency hedging instruments and creditworthy Securitizations — IFC invests in domestic or cross-bor- counterparties, IDA would enter into swaps or der securitizations and provides credit enhancement indemnity agreement with IFC. to transactions through funded or unfunded partici- pations, mainly at the mezzanine level. • Blended Finance Facility: Administered by IFC, this facility blends PSW financing support with IFC Blended Finance — In addition to providing commer- investments to support SMEs, agribusiness and other cial financing for IFC’s own account, IFC uses a number pioneering investments. of complementary tools to crowd in private sector • MIGA Guarantee Facility: Administered by MIGA, financing that would otherwise not be available to this facility is designed to expand the coverage of projects with high development impact. IFC blends MIGA Political Risk Insurance (PRI) products through concessional funds, typically from development part- shared first-loss or risk participation similar to ners, alongside IFC’s own commercial funding. reinsurance. COVID-19 Response Facilities — In March 2020, IFC’s Client Risk Management Services — IFC extends Board of Directors approved a Fast Track COVID-19 long-maturity risk management products to clients in Facility (COVID Facility, or FTCF) in the amount of developing countries. IFC provides derivative products $8 billion, as part of a WBG crisis response package. to its clients to allow them to hedge their interest rate, currency, or commodity-price exposures. IFC inter- • $2  billion from the Real Sector Crisis Response mediates between clients in developing countries and Envelope, which supports existing clients in the derivatives market makers to provide such clients with infrastructure, manufacturing, agriculture and ser- access to risk management products to bridge the vices industries. IFC offers loans to companies in credit gap between its clients and the market. need, and if necessary, make equity investments. This instrument also helps companies in the healthcare Mobilization Products — IFC promotes development sector that are seeing an increase in demand. by mobilizing financing for the private sector in its • $2  billion from the existing Global Trade Finance developing member countries. Program, which allows financial institutions to pro- Loan Participations (B Loans): Through its B Loan vide trade financing to companies that import and Program, IFC offers participants the opportunity to export goods. lend to IFC-financed projects. These loans are a key part of IFC’s efforts to mobilize additional private sector 12 IFC 2023 ANNUAL REPORT FINANCIALS financing in developing countries, thereby broadening Distressed Asset Recovery Program: This program focuses the Corporation’s developmental impact. When an IFC on the acquisition and resolution of distressed assets, loan includes financing from the market through the B the refinancing, and roll-over risk of viable entities, Loan Program, IFC retains a portion of the loan for its and the restructuring of small- and medium-sized own account (the A Loan), and sells participations in enterprises. the remaining portion to participants (the B Loan). The Short-Term Finance Core Mobilization: Non-IFC portion borrower signs a single Loan Agreement with IFC, and of transactions guaranteed under the Global Trade IFC signs a Participation Agreement with the partici- Finance Program and Global Trade Supplier Finance pant or participants. IFC is the sole contractual lender Program made available to the clients due to IFC’s for the borrower. While IFC is the lender of record, the active and direct involvement in guaranteeing the participants’ involvement is known to the borrower. trade transaction or receivable. The structure allows participants to fully benefit from IFC’s status as a multilateral development institution. Mobilization by Decision: Mobilization activities not eli- gible for automatic recognition by the programs above A Loan Participations: An A Loan Participation (ALP) may receive recognition by decision of the Corporate is an exposure management tool which IFC uses to Risk Committee. reduce its risk exposures to a client, country or sector. An ALP is created through the partial sale of an A Loan to commercial banks or other financial institutions and is governed by a Participation Agreement, much INVESTMENT like the agreement used for B Loans. As in a B Loan, IFC remains the lender of record for the entire A Loan PROGRAM and an ALP participant shares all project risks with IFC and has the same benefits of a traditional B Loan COMMITMENTS participant. Long-Term Finance (LTF) Commitments comprise Own Parallel Loans: IFC acts as an arranger — and can also Account and Core Mobilization and totaled $31.7 billion act as an administrative agent — by using its existing in FY23, an increase of $8.5 billion or 37% from FY22. IFC’s mobilization platform, deal-structuring expertise and FY23 LTF Own Account Commitments were $16.7 bil- global presence to identify investments, perform due lion ($12.6 billion in FY22) and Core Mobilization was diligence, and negotiate loan documents in coopera- $15.0 billion ($10.6 billion in FY22). Short-Term Finance tion with parallel lenders. (STF) Commitments Own Account were $11.0 billion in MCPP: MCPP creates diversified portfolios of emerg- FY23 ($9.7 billion in FY22) and Core Mobilization was ing market private sector loans. MCPP leverages IFC’s $1.0 billion in FY23 ($767 million in FY22). Total program origination capacity and deep market knowledge delivery (LTF and STF) was $43.7 billion in FY23 as com- to source opportunities for third party investors to pared to $33.6 billion in FY22. co-lend alongside IFC. MCPP gives IFC the ability to In direct response to the COVID-19 pandemic, IFC com- provide larger financing packages than it could from its mitted $4.1 billion in FY23 including $1.0 billion under own account and increases the pool of financing avail- its Fast Track COVID-19 Facility in support of IFC’s able for achieving development goals. MCPP builds a existing clients. Outside of the facility, IFC committed loan portfolio for an investor that mirrors the portfolio an additional $3.1 billion in financing to support clients IFC is creating for its own account. MCPP investors and in response to COVID-19. Since the start of the COVID- IFC sign upfront administration agreements deter- 19, IFC committed $8.4  billion under the Fast Track mining the makeup of the portfolio based on agreed COVID-19 Facility and additional $17.0  billion outside eligibility. Investors pledge capital upfront and then of the facility. as IFC identifies eligible deals, investor exposure is allocated alongside IFC’s own per the terms of the Committed portfolio (sum of (i) committed but undis- agreement. bursed (undisbursed) balance; and (ii) disbursed and outstanding balance) increased by $6.5  billion from Debt Securities Mobilization: IFC helps issuers access $63.0 billion at June 30, 2022 to $69.5 billion at June 30, capital markets with advisory services and supports 2023. The committed debt (including loan and loan-like the issuance of debt securities for entities that seek to instruments) portfolio increased by $5.7  billion from access global capital markets and reach new investors. $44.0 billion at June 30, 2022 to $49.7 billion at June 30, Private Equity Funds Mobilization: Non-IFC portion of 2023, mainly due to new commitments outpaced investment in PE funds (including growth equity, ven- repayments, prepayments, sales and cancellations. ture capital and mezzanine funds) raised due to IFC’s The committed equity (including equity and equity-like role and involvement in the fund. instruments) portfolio of $14.2 billion at June 30, 2023 increased by $412 million from June 30, 2022 reflect- Trade Mobilization: Non-IFC portion of investment in ing new investment commitments are in excess of the specific project under the Global Trade Liquidity sales and cancellations in FY23. Committed guarantees Program, the Critical Commodities Finance Program, and risk management portfolio increased by $347 mil- the Global Warehouse Finance Program, the Global lion from $5.2 billion at June 30, 2022 to $5.6 billion at Structured Trade Finance Program, and the Global June 30, 2023 due to new commitments in excess of Supply Chain Finance Program made available to Client maturities and cancellations. due to IFC’s active and direct involvement in raising resources. IFC 2023 ANNUAL REPORT FINANCIALS 13 CORE MOBILIZATION Core Mobilization is financing from entities other than IFC that becomes available to clients due to IFC’s direct involvement in raising resources. IFC mobilizes such private sector finance from other entities through a number of means, as outlined in the table below. Table 5: Long-Term Finance and Short-Term Finance Commitments (Own Account and Core Mobilization) FOR THE YEAR ENDED JUNE 30 (US$ in millions) 2023 2022 Long-Term Finance Own Account Commitments Loans $ 14,135 $ 10,190 Equity investments 1,761 1,622 Guarantees 704 719 Client risk management 77 38 Total Long-Term Finance Own Account Commitments $16,677 $12,569 Long-Term Finance Core Mobilization Syndication Parallel loans $ 2,984 $ 1,656 Loan participations 1,870 1,754 Managed Co-lending Portfolio Program 457 65 Debt Securities Syndication 181 — Total Syndication $ 5,492 $ 3,475 AMC (see definitions in Table 8) Asia Fund $ 13 $ 142 MENA Fund 2 — FIG Fund — 59 China-Mexico Fund — 47 Total AMC Mobilization $ 15 $ 248 Advisory Mobilization (see definitions in Section III — Advisory Services) Public Private Partnership $ 3,687 $ 3,534 Corporate Finance Service Equity Mobilization 25 28 Total Advisory Mobilization $ 3,712 $ 3,562 IFC Initiatives Global Trade Liquidity Program, Critical Commodities Finance Program, Global Warehouse Finance Program and Global Structured Trade Finance Program $ 2,163 $ 2,041 Mobilization by Decision 1,665 — Debt Security Mobilization 1,030 1,140 Private Equity Funds Mobilization 700 — Debt and Asset Recovery Program 252 130 Total IFC Initiatives $ 5,810 $ 3,311 Total Long-Term Finance Core Mobilization $ 15,029 $ 10,596 Total Long-Term Finance (Own Account and Core Mobilization) $ 31,706 $ 23,165 Short-Term Finance Own Account Commitments Short-Term Finance Own Account $ 11,027 $ 9,659 Short-Term Finance Core Mobilization a 996 767 Total Short-Term Finance Commitments (Own Account and Core Mobilization) $ 12,023 $ 10,426 Total Long-Term Finance and Short-Term Finance Commitmentsb (Own Account and Core Mobilization) $ 43,729 $ 33,591 a. Starting FY23, short-term finance core mobilization commitments were included in commitments reporting. Previous years’ information was updated to conform with the current year’s presentation. b Debt security commitments are included in loans and equity investments based on their predominant characteristics. 14 IFC 2023 ANNUAL REPORT FINANCIALS INVESTMENT region and industry sector as of June  30, 2023 and June 30, 2022 is shown below: DISBURSEMENTS IFC disbursed $18.7 billion for its own account in FY23 Figure 8: Disbursed Investment ($13.2 billion in FY22): $13.9 billion of loans ($10.1 billion Portfolio Distribution by in FY22), $1.0 billion of equity investments ($1.5 billion in FY22), and $3.8 billion of debt securities ($1.6 billion Region (US$ in millions) in FY22). Asia and Pacific 17,114 DISBURSED INVESTMENT 14,942 Latin America and the Caribbean, and Europe PORTFOLIO 16,035 12,749 IFC’s total disbursed investment portfolio (a non- Africa U.S. GAAP performance measure) was $52.8  billion 10,150 at June  30, 2023 ($45.1  billion — June  30, 2022), com- prising the disbursed loan portfolio of $32.9  billion 8,860 ($27.7  billion — June  30, 2022), the disbursed equity Middle East, Central Asia, Türkiye, portfolio of $10.4 billion ($10.5 billion — June 30, 2022), Pakistan, and Afghanistan and the disbursed debt security portfolio of $9.5 billion 6,050 ($6.9 billion — June 30, 2022). 5,346 Other IFC’s disbursed investment portfolio is diversified by 3,464 industry sector and geographic region. The distribution of the disbursed investment portfolio by geographical 3,217    FY23    FY22 Table 6: Disbursed Investment Portfolio Distribution by Industry Sector DISBURSED INVESTMENTS AS A % OF TOTAL FOR THE YEAR ENDED JUNE 30 (US$ in millions) 2023 2022 2023 2022 Finance & Insurance $23,445 $18,564 44% 41% Collective Investment Vehicles 4,745 4,494 9% 10% Electric Power 4,141 4,220 8% 9% Chemicals 2,527 2,174 5% 5% Transportation and Warehousing 2,076 1,934 4% 4% Construction and Real Estate 1,978 1,588 4% 4% Wholesale and Retail Trade 1,697 1,544 3% 3% Agriculture and Forestry 1,622 1,660 3% 4% Industrial & Consumer Products 1,578 1,256 3% 3% Information 1,236 796 2% 2% Others 7,768 6,884 15% 15% Total $52,813 $45,114 100% 100% The carrying value of IFC’s investment portfolio com- The carrying value of IFC’s investment portfolio was prises: (i) the disbursed investment portfolio; (ii) less $51.5  billion at June  30, 2023 ($44.1  billion — June  30, reserve against losses on loans and debt securities; 2022), comprising the loan portfolio of $31.4  billion (iii) unamortized deferred loan origination fees; (iv) ($26.2  billion — June  30, 2022), the equity portfo- less disbursed amount allocated to a related finan- lio of $10.8  billion ($11.1  billion — June  30, 2022), and cial instrument reported separately in other assets the debt securities portfolio of $9.3  billion ($6.7  bil- or derivative assets; (v) unrealized gains and losses lion — June 30, 2022). on equity investments held by consolidated variable interest entities; and (vi) unrealized gains and losses . on investments. IFC 2023 ANNUAL REPORT FINANCIALS 15 LOANS IFC’s disbursed loan portfolio totaled $32.9  bil- The carrying value of IFC’s loan portfolio (comprising lion at June  30, 2023 ($27.7  billion — June  30, 2022), the disbursed loan portfolio, together with adjust- increased by $5.2 billion or 19%. Loans comprised 62% ments as detailed in Note D to IFC’s FY23 consolidated of the disbursed investment portfolio as of June  30, financial statements), increased by $5.2 billion (19.8%) 2023 (62% — June  30, 2022) and 61% of the carrying to $31.4  billion at June  30, 2023 from $26.2  billion at amount of the investment portfolio as of June 30, 2023 June 30, 2022, analyzed as follows: (59% — June 30, 2022). Figure 9: Carrying Value of Loan Portfolio (US$ in millions) 13,838 114 31,414 (7,307) (1,389) (23) (51) 26,223 9 June 2022 Changes Disbursements Repayments Prepayments Write-offs net Foreign Others* June 2023 in Reserves of recoveries Exchange and Fair Value Losses * Mainly represents loan sales, transfers and conversions to equity investments. The increase in the carrying value of the loan portfo- can fund itself in local bond markets. The outstanding lio was primarily driven by disbursements exceeding local currency denominated loans were $5.9 billion as of repayments and prepayments by $5.1 billion. June 30, 2023, a $1.3 billion increase from June 30, 2022. The increase was mainly due to higher disbursements The weighted average contractual interest rate on of loans denominated in Chinese renminbi, Brazilian fixed and variable rate loans at June 30, 2023 was 7.8%, real, Indonesian rupiah, Colombian peso and South up from 5.2% at June 30, 2022. African rand compared with FY22. IFC has also made loans in a number of frontier market currencies such Loans have been traditionally denominated in the as Vietnamese dong, Tanzanian shilling, Kazakhstan major currencies, but IFC has an extensive portfolio tenge, Bangladeshi taka, Tunisian dinar, Pakistani rupee of local currency products. IFC typically offers local and Sri Lankan rupee. currency products in other currencies where it can economically hedge the local currency loan cash flows At June 30, 2023, 70% of IFC’s disbursed loan portfolio back into U.S. dollars using swap markets or where it was U.S. dollar-denominated (74% – June 30, 2022). 16 IFC 2023 ANNUAL REPORT FINANCIALS The currency composition of the disbursed loan portfolio at June 30, 2023 and June 30, 2022 is shown below: Table 7: Currency Composition of the Disbursed Loan Portfolio DISBURSED LOANS AS A % OF TOTAL FOR THE YEAR ENDED JUNE 30 (US$ in millions) 2023 2022 2023 2022 U.S. dollar $22,859 $20,530 70% 74% Euro 4,134 2,612 13% 9% Chinese renminbi 1,429 1,389 4% 5% Brazilian real 1,081 548 3% 2% Indonesian rupiah 837 537 3% 2% Colombian peso 523 374 2% 1% South African rand 406 260 1% 1% Indian rupee 284 362 1% 1% Mexican peso 265 324 1% 1% Others 1,068 763 2% 4% Total $32,886 $27,699 100% 100% After the effect of interest rate swaps and currency swaps, IFC’s loans are principally denominated in variable rate U.S. dollars. EQUITY INVESTMENTS IFC’s disbursed equity portfolio totaled $10.4 billion at 2023 (23% — June  30, 2022), and 21% of the carrying June 30, 2023 ($10.5 billion — June 30, 2022), a decrease amount of the investment portfolio at June 30, 2023 of $177 million or 2%. Equity investments accounted for (25% — June 30, 2022). 20% of IFC’s disbursed investment portfolio at June 30, The carrying value of IFC’s equity investment portfolio (comprising the disbursed equity portfolio, together with adjustments as detailed in Note D to IFC’s FY23 consolidated financial statements), declined by $359 million (3.2%) to $10.8 billion at June 30, 2023 ($11.1 billion — June 30, 2022), analyzed as follows: Figure 10: Carrying Value of Equity Investment Portfolio (US$ in millions) 1,033 11,137 97 10,778 (183) (1,306) June 2022 Changes in Fair Value Purchases Cost of Sales Others* June 2023 * Mainly represents conversions and transfers from loans and debt securities to equity investments. The decrease in the carrying value of equity investment portfolio was mainly due to net sales of equity invest- ments and lower valuations. DEBT SECURITIES IFC’s disbursed debt security portfolio totaled portfolio at June 30, 2023 (15% — June 30, 2022) and 18% $9.6  billion at June  30, 2023 ($6.9  billion — June  30, of the carrying amount of the investment portfolio at 2022), an increase of $2.7 billion or 39%. Debt securi- June 30, 2023 (15% — June 30, 2022). ties accounted for 18% of IFC’s disbursed investment IFC 2023 ANNUAL REPORT FINANCIALS 17 The carrying value of IFC’s debt security portfolio (com- FY23 consolidated financial statements), increased prising the disbursed debt security portfolio, together by $2.6  billion (38.3%) to $9.3  billion at June  30, 2023 with adjustments as detailed in Note D to IFC’s ($6.7 billion — June 30, 2022), analyzed as follows: Figure 11: Carrying Value of Debt Security Portfolio (US$ in millions) 3,818 15 9,310 (1,053) (24) (68) 6,733 (111) June 2022 Changes in Purchases Redemptions Prepayments Foreign Others* June 2023 Reserves and Exchange Fair Value Gains * Mainly represents conversions and transfers from debt securities to equity investments. The increase in the carrying value of the debt security portfolio was primarily driven by purchases exceeding redemptions and prepayments by $2.7 billion in FY23. Additional information on IFC’s investment portfolio as of and for the years ended June 30, 2023 and June 30, 2022, can be found in Notes D, E, F, G, H, P, R and T to IFC’s FY23 consolidated financial statements. GUARANTEES AND PARTIAL CREDIT GUARANTEES IFC offers partial credit guarantees to clients covering, on a risk-sharing basis, client obligations on bonds and/ or loans. IFC’s guarantee is available for debt instruments and trade obligations of clients and covers commer- cial as well as non-commercial risks. IFC provides local currency guarantees, but when a guarantee is called, the client is generally obligated to reimburse IFC in U.S. dollars terms. Guarantee fees are consistent with IFC’s loan pricing policies. Guarantees of $4.4 billion remained outstanding (i.e., not called) as of June 30, 2023 ($4.2 billion — June 30, 2022). At the corporate level, IFC combines portfolio analy- INVESTMENT PORTFOLIO sis with sector and local expertise along with project MANAGEMENT knowledge and projections of global macroeconomic and market trends to inform decisions about program At the core of IFC’s approach to portfolio management and strategy. IFC also regularly conducts stress tests is the aim to build and proactively manage a portfolio to assess the performance of the portfolio against that produces strong financial results and develop- possible macroeconomic developments, and to identify ment impact. IFC achieves this through a combination and address risks. of strong presence on the ground and deep sector At the project level, IFC’s multidisciplinary teams, expertise, that enables IFC to stay close to its clients including investment and sector specialists with deep and markets, monitor trends and anticipate impacts industry expertise, closely monitor investment perfor- of external factors. mance and compliance with investment agreements. Active portfolio management depends on timely and IFC does this through site visits to evaluate project accurate information to drive business decisions. implementation, and through active engagement with Regional investment teams regularly review the sponsors and government officials, where relevant, regional industry portfolio with Senior Management to identify potential problems early on and formu- and Risk to ensure continued oversight and assess late appropriate solutions. IFC also monitors clients’ broad trends as well as performance of select projects. environmental and social (E&S) performance in a risk- Additionally, quarterly reviews of IFC’s portfolio results based manner and measures financial performance are presented to the Board, along with an in-depth and development results. analysis at the end of each fiscal year. IFC’s investment IFC closely assesses its equity portfolio on an ongoing and portfolio teams, largely based in field offices, com- basis including proactively identifying assets ready for plement global reviews with asset-by-asset quarterly divestments where IFC’s development role has been assessments for investments. completed. This rebalancing of the equity portfolio is 18 IFC 2023 ANNUAL REPORT FINANCIALS the result of an analysis that takes into account market $7.7  billion across 57 countries — June  30, 2022), of conditions, opportunities, expected returns, and risks, which $8.3 billion ($6.9 billion — June 30, 2022) has been and is adjusted periodically as required. To improve its committed. IFC will continue to deploy the remaining governance structure, IFC has appointed Global Equity funds raised as IFC identifies projects that meet inves- Heads, who focus on strategic business development, tors’ investment criteria. central oversight and management of IFC’s larger and more complex equity positions throughout the invest- IDA-PSW ment lifecycle. The IDA-IFC-MIGA Private Sector Window (PSW) was For projects in financial distress, IFC’s Department of created under IDA’s Eighteenth Replenishment of Special Operations (CSO) determines the appropriate Resources (IDA18) to mobilize private sector invest- remedial actions to optimize the Corporation’s overall ment in IDA only countries and IDA-eligible Fragile return on a net present value basis while minimiz- and Conflict-affected Situations (FCS). Under IDA’s ing reputational risk and, where possible, maximizing Twentieth Replenishment of Resources (IDA20), developmental impact. It seeks to keep the project $2.5  billion has been allocated to PSW, bringing the operational to achieve the intended development cumulative total allocation to $5.5 billion. impact and negotiates agreements with creditors and shareholders to share the burden of restructur- As of June  30, 2023, a combined total of $3.8  billion ing. Investors and other partners participating in IFC’s ($2.9 billion — June 30, 2022) of instruments under the operations are kept regularly informed, and IFC con- IDA18 through IDA20 had been approved, of which sults or seeks their consent as appropriate. $2.8 billion ($2.1 billion — June 30, 2022) related to IFC. Refer to Note B to the FY23 consolidated financial IFC continues to invest in information-technology statements for transaction details. systems to better support the management of its portfolio, and continuously enhance its governance, AMC through the Portfolio Management Department, which works closely together with stakeholders both IFC Equity Mobilization Department (AMC), invests in the global industry and regional departments. third-party capital and IFC capital, enabling out- side investors to invest alongside IFC in developing MCPP markets. Investors in funds managed by AMC have included sovereign wealth funds, national pension As of June  30, 2023, eleven global investors have funds, multilateral and bilateral development institu- pledged $12.7 billion ($10.0 billion — June 30, 2022) to tions, national development agencies and international MCPP, with certain programs investing across all sec- financial institutions (IFIs). tors and others focused on infrastructure or financial institutions exclusively. Investors have also approved Cumulatively through June 30, 2023, AMC raised total funding for 263 projects totaling $10.0  billion across funds of $10.1 billion ($10.1 billion — June 30, 2022). 63 countries as of June 30, 2023 (218 projects totaling IFC 2023 ANNUAL REPORT FINANCIALS 19 The Funds managed by AMC and their activities as of and for the year ended June 30, 2023 and 2022 are sum- marized as follows. As of June 30, 2023, all Funds managed by AMC are in post investment period. Table 8: Funds Managed by AMC THROUGH JUNE 30, 2023 TOTAL FUNDS RAISED FOR THE YEAR ENDED SINCE INCEPTION JUNE 30, 2023 FROM CUMULATIVE INVESTMENT INVESTMENT FROM OTHER INVESTMENT COMMITMENTS DISBURSEMENTS (US$ in millions) TOTAL IFC INVESTORS COMMITMENTS a MADE BY FUND b MADE BY FUND Post Investment Period IFC Capitalization (Equity) Fund, LP (Equity Capitalization Fund) $ 1,275 $ 775 $ 500 $ 1,214 $ – $ – IFC Capitalization (Subordinated Debt) Fund, LP (Sub-Debt Capitalization Fund) 1,725 225 1,500 1,614 – – IFC African, Latin American and Caribbean Fund, LP (ALAC Fund) 1,000 200 800 864 – – IFC Catalyst Fund, LP, IFC Catalyst Fund (UK), LP and IFC Catalyst Fund (Japan), LP (collectively, Catalyst Funds) 418 75 343 363 – 8 IFC Global Infrastructure Fund, LP (Global Infrastructure Fund)c 1,430 200 1,230 902 – – IFC Global Emerging Markets Fund of Funds, LP and IFC Global Emerging Markets Fund of Funds (Japan Parallel), LP (collectively, GEM Funds) 800 150 650 757 – 86 Women Entrepreneurs Debt Fund, LP (WED Fund) 115 30 85 110 – – IFC Middle East and North Africa Fund, LP (MENA Fund) 162 60 102 86 4 8 China-Mexico Fund, LP (China- Mexico Fund) 1,200 – 1,200 362 – 10 IFC Financial Institutions Growth Fund, LP (FIG Fund) 505 150 355 344 – 3 IFC Emerging Asia Fund, LP (Asia Fund) 693 150 543 573 16 97 Post Investment Period Total 9,323 2,015 7,308 7,189 20 212 Liquidated Funds Africa Capitalization Fund, Ltd. (Africa Capitalization Fund) 182 – 182 130 – – IFC Russian Bank Capitalization Fund, LP (Russian Bank Cap Fund) 550 250 300 82 – – Liquidated Funds Total 732 250 482 212 – – Grand Total $10,055 $2,265 $ 7,790 $ 7,401 $ 20 $ 212 a. Net of commitment cancellations. b. Excludes commitment cancellations from prior periods. c. Includes co-investment fund managed by AMC on behalf of Fund LPs. 20 IFC 2023 ANNUAL REPORT FINANCIALS THROUGH JUNE 30, 2022 TOTAL FUNDS RAISED FOR THE YEAR ENDED SINCE INCEPTION JUNE 30, 2022 FROM CUMULATIVE INVESTMENT INVESTMENT FROM OTHER INVESTMENT COMMITMENTS DISBURSEMENTS (US$ in millions) TOTAL IFC INVESTORS COMMITMENTS a MADE BY FUND b MADE BY FUND Investment Period IFC Financial Institutions Growth Fund, LP (FIG Fund) $ 505 $ 150 $ 355 $ 347 $ 90 $ 138 IFC Emerging Asia Fund, LP (Asia Fund) 693 150 543 559 187 197 Investment Period Total 1,198 300 898 906 277 335 Post Investment Period IFC Capitalization (Equity) Fund, LP (Equity Capitalization Fund) 1,275 775 500 1,214 – – IFC Capitalization (Subordinated Debt) Fund, LP (Sub-Debt Capitalization Fund) 1,725 225 1,500 1,614 – – IFC African, Latin American and Caribbean Fund, LP (ALAC Fund) 1,000 200 800 864 – – IFC Catalyst Fund, LP, IFC Catalyst Fund (UK), LP and IFC Catalyst Fund (Japan), LP (collectively, Catalyst Funds) 418 75 343 363 – 7 IFC Global Infrastructure Fund, LP (Global Infrastructure Fund)c 1,430 200 1,230 929 – – IFC Global Emerging Markets Fund of Funds, LP and IFC Global Emerging Markets Fund of Funds (Japan Parallel), LP (collectively, GEM Funds) 800 150 650 757 – 117 Women Entrepreneurs Debt Fund, LP (WED Fund) 115 30 85 110 – – IFC Middle East and North Africa Fund, LP (MENA Fund) 162 60 102 82 4 13 China-Mexico Fund, LP (China- Mexico Fund) 1,200 – 1,200 362 47 47 Post Investment Period Total 8,125 1,715 6,410 6,295 51 184 Liquidated Funds Africa Capitalization Fund, Ltd. (Africa Capitalization Fund) 182 – 182 130 – – IFC Russian Bank Capitalization Fund, LP (Russian Bank Cap Fund) 550 250 300 82 – – Liquidated Funds Total 732 250 482 212 – – Grand Total $10,055 $2,265 $7,790 $ 7,413 $ 328 $ 519 a. Net of commitment cancellations. b. Excludes commitment cancellations from prior periods. c. Includes co-investment fund managed by AMC on behalf of Fund LPs. IFC 2023 ANNUAL REPORT FINANCIALS 21 As of June 30, 2023, AMC managed multiple funds (col- lectively referred to as the AMC Funds), in its capacity UPSTREAM AND as General Partner (GP)/Manager of these funds. ADVISORY SERVICES However, none of these funds require consolidation by IFC, because the third party limited partners of Starting January 2023, upstream and advisory orga- these funds have a substantive ability to remove IFC nizational units in IFC regional industry departments as GP/Manager. All AMC Funds are investment com- have been fully integrated to deliver holistic solutions panies and are required to report their investment to enable new investment opportunities for IFC and assets at fair value through net income. IFC’s owner- others, enhance the development impact and oper- ship interests in these AMC Funds are shown in the ational performance of existing IFC investments, and following table: improve the enabling environment to open new mar- kets for private sector investments. IFC’S Providing advice and engaging in early stage project OWNERSHIP development activities are critical enablers of the IFC’s AMC Funds INTEREST 3.0 strategy to create markets and mobilize private a IFC Capitalization (Equity) Fund, L.P. 61% capital. Through IFC’s Upstream and Advisory pro- IFC Capitalization (Subordinated Debt) grams, IFC works with clients — including companies, Fund, L.P. 13% financial institutions, industries, and governments IFC African, Latin American and — to transform ideas into increased private sector Caribbean Fund, LP 20% investment, green growth, inclusive job creation, and bankable projects. IFC helps to establish the necessary IFC Catalyst Fundsb 18% conditions that will attract capital and sustainable IFC Global Infrastructure Fund, LP 17% investments and mobilize private capital through its China-Mexico Fund, LP —% Public-Private Partnership (PPP) transaction advisory IFC Financial Institutions Growth Fund, LP 30% work. IFC works with its investment clients to improve their operations and enhance their development IFC Global Emerging Markets Fund impact on local supply chains and communities. IFC of Fundsc 19% supports the creation of bankable investment projects IFC Middle East and North Africa Fund, LP 37% in challenging markets and nascent sectors through Women Entrepreneurs Debt Fund, LP 26% early-stage project preparation and development, IFC Emerging Asia Fund, LP 22% de-risking activities before their financial close. IFC’s Upstream and Advisory work is informed by a. By virtue of certain rights granted to non-IFC limited partner interests, IFC does not control or consolidate this fund. the joint IFC and World Bank Country Private Sector b. The ownership interest of 18% reflects IFC’s ownership interest Diagnostics; the WBG’s multi-year Country Partnership taking into consideration the overall commitments for the Frameworks; and IFC’s Country Strategies and Sector IFC Catalyst Funds, which comprises IFC Catalyst Fund, LP, Deep Dives. IFC Catalyst Fund (UK), LP and IFC Catalyst Fund (Japan), LP (collectively, IFC Catalyst Funds). IFC does not have an Through IFC’s Upstream and Advisory Services: ownership interest in either the IFC Catalyst Fund (UK), LP or the IFC Catalyst Fund (Japan), LP. • IFC helps companies attract and retain private inves- c. The ownership interest of 19% reflects IFC’s ownership interest tors and partners, enter new markets, and increase taking into consideration the current committed amounts their impact. IFC provides tailored market insights for the IFC Global Emerging Markets Fund of Funds, which as well as technical advice on how to improve com- comprises IFC Global Emerging Markets Fund of Funds, LP and IFC Global Emerging Markets Fund of Funds, (Japan Parallel) panies’ operational performance and sustainability. LP. IFC does not have an ownership interest in the IFC Global • IFC helps industries adopt good practices and stan- Emerging Markets Fund of Funds, (Japan Parallel) LP. dards to increase competitiveness, productivity, and sustainability. • IFC helps governments structure public-private part- nerships to improve people’s access to high-quality infrastructure and basic services. IFC also advises on improving the business environment through reforms that promote investment, spur growth, and create jobs — while providing support for the implementa- tion of these reforms. • IFC contributes to the costs and efforts necessary to determine the feasibility of a potential project and brings its expertise to specific project development activities, at times using its resources to fund capital and/or operational expenditures by the project with the aim of proving a business model in a specific country or region. • IFC works in collaboration with the World Bank to provide policy advice and develop activities that help create markets and support future transactions in multiple industries, especially in IDA eligible countries and FCS. 22 IFC 2023 ANNUAL REPORT FINANCIALS • IFC works with global experts to generate ideas and and local content. IFC also works closely with private analyses to address the most urgent challenges in sector clients to acquire a social license to operate in private sector development. IFC fosters peer-to- tough environments by increasing benefits to local peer learning at a global scale through its networks communities; mitigating social risks; and addressing convening policymakers and influencers, which IFC obstacles to gender equality and inclusion in the work- effectively leveraged to help support its clients during place, across the supply chain. the pandemic. Corporate Finance Services: IFC supports clients to Particularly in the poorest and conflict-affected areas identify and enter new markets and structure entry of the world, IFC works with clients to improve their strategies. IFC helps companies attract international environmental, social, and governance practices, investors, bring in new skills, expertise, and capital. including those related to gender. IFC helps devel- IFC supports the structuring of complex projects and oping economies realize the economic potential of offers advice on the design and execution of partner- clean energy and green building. IFC helps lagging pri- ships, joint ventures, and acquisitions. vate sectors transform into the digital age. IFC helps Green Buildings: IFC offers tools and training to help potential investment clients improve their operational companies construct buildings that use energy, water, performance and management practices to attract the and materials more efficiently. IFC also helps govern- financing they need. ments establish related policy frameworks and works with banks to launch green-finance products. HOW IFC WORKS WITH COMPANIES Small and Medium Enterprises (SMEs): IFC helps Agribusiness: IFC helps companies improve produc- SMEs strengthen their skills and performance, tivity and sustainability by focusing on operational improving their ability to participate in the supply and efficiency, food safety and standards, adoption of tech- distribution networks of larger firms. IFC advises com- nology to the agribusiness value chain, good soil and panies and governments on how to improve working water management, and professionalizing smallholder conditions and boost the competitiveness of the textile farmer supply chains while applying climate-smart and sector’s supply chain. gender-smart practices. Gender Equality and Economic Inclusion: IFC works Health: IFC supports healthcare providers in improv- with companies to enhance the recruitment, reten- ing the quality of healthcare outcomes through tion, and promotion of women and other underserved deploying the new IFC IQ-Healthcare assessment tool groups. IFC also helps companies increase women’s and accompanying Advisory Services. IFC also runs a access to financial services, technology, information, community of practice to support Women’s Leadership and markets. in Healthcare, focusing on the unique challenges to Environment, Social & Governance (ESG): IFC pro- women leaders in the sector. vides integrated ESG advice to help companies improve Education: Through IFC’s new initiative, Vitae, IFC access to capital, achieve long-term success, and supports higher education institutions in improving implement crisis management and pandemic response, employability outcomes for their graduates, thereby by adopting corporate governance structures, in line minimizing the skills gap for the changing job realities with the IFC Corporate Governance Methodology, as of the 21st century. well as environmental and social risk management systems in line with the IFC Performance Standards. Manufacturing: IFC works with its clients in the IFC’s guidance addresses holistically the management manufacturing sector to develop and finance their of potential or actual changes to the environment, decarbonization strategies, as well as improve the pro- including pollution, biodiversity impacts, carbon emis- ductivity of their direct operations and supply chains. sions, climate change, natural resource use; potential This includes bringing a gender-smart lens to com- or actual changes on surrounding community and panies’ employment challenges and supporting the workers, including the incidence of gender-based deployment of supply chain finance tied to improved violence; and improving governance structures and sustainability performance. processes, such as board functioning, gender diversity Tourism: IFC helps businesses modernize their tourism in corporate leadership, ethical conduct, controls, dis- offerings and maximize the potential of their natural closure, and transparency. IFC builds the capacity of and cultural assets. IFC works with clients to assess industry associations and service providers to influence the impact and devise strategies to restore their tour- ESG practices market wide. ism sectors as quickly as possible. Disruptive Technologies: IFC works across the entre- Infrastructure: IFC supports private and sub-sov- preneurial and venture capital ecosystem supporting ereign public sector clients to become attractive accelerators, seeds funds and new fund managers in destinations for infrastructure investments and helps frontier geographies, connects high-impact proven close the infrastructure gaps. IFC works with sub- tech solutions globally with corporate customers national governments to strengthen institutions and to de-risk tech adoption, increases capital flow to regulations; improve critical infrastructure and envi- women entrepreneurs and promotes adoption of dig- ronmental sustainability; foster skills and innovation; ital training platforms for improving digital skills for expand access to finance; build capacity to manage tax employment. and royalty payments to improve community welfare IFC 2023 ANNUAL REPORT FINANCIALS 23 HOW IFC WORKS WITH FINANCIAL financial systems and capital markets. This includes INTERMEDIARIES AND FUNDS supporting governments to establish the key building blocks, both regulations and institutions, to increase Financial Institutions: IFC helps clients strengthen access to finance, such as credit information, use of risk management and diversify product offerings to moveable assets to secure lending, and debt resolution. key priority areas such as SME finance, gender, housing IFC works closely with the World Bank and leverage finance, and renewable energy. Through knowledge its expertise alongside IFC investment resources to sharing of best SME-banking practices and solu- jointly develop local capital markets in selected focus tions, IFC helps build financial institutions’ capacity countries. to expand access to credit; expand their financial and ESG Landscape Initiative: IFC helps governments, non-financial services, including to women-led/owned private companies, and stakeholders, assess, and mit- businesses; supports sustainable supply chains; and igate risks and cumulative impacts at a multi-project catalyzes investment opportunities in emerging and level, across specific geographic areas (landscapes). developing market economies. IFC supports financial Landscape initiatives enable governments to consider institutions to define and implement their digitiza- E&S impacts in broader sectoral planning, achieve tion strategy roadmaps and accelerate their digital significant efficiencies with companies implement- transformation. ing joint assessments and management strategies Fund Managers: IFC helps develop the private equity and address environmental and social bottlenecks industry in frontier markets and provides non-in- upstream of investment and project development. vestment-related advice to fund managers. IFC helps Enabling Investment Climate: IFC helps improve increase ESG investment into emerging markets by the business environment through economy-wide and providing asset managers with ESG data and artificial increasingly more sector-specific reforms that address intelligence-powered analytics. regulatory barriers and promote investment, spur growth through increased competitiveness and access HOW IFC WORKS WITH GOVERNMENTS to markets, and create jobs. This work is increasingly an entry point for IFC’s upstream agenda. IFC works Public-Private Partnerships: IFC helps governments closely with the World Bank to leverage their expertise design and implement PPPs that are tailored to local for private sector development. needs, helps solve infrastructure bottlenecks, and achieves national development goals by mobilizing Cities Initiative: IFC helps local governments, private technical and managerial expertise and capital. municipalities, and provinces prioritize and develop sustainable, resilient infrastructure services for their Financial Sector: IFC works with governments and the citizens. private sector to promote universal access to finance, build resilient, transparent, and smooth-functioning As of June 30, 2023, the IFC Advisory Services portfolio totaled $1.4 billion ($1.4 billion — June 30, 2022). FY23 program expenditures were $260 million ($251 million in FY22) with a strong focus on IFC’s strategic priority areas — IDA eligible countries at 54%, fragile and conflict-affected situations at 28%, and climate change at 27%, (compared to 51%, 21% and 25% respectively in FY22). Table 9: IFC Advisory Services — Program Expendituresa by Region PROGRAM EXPENDITURE AS A % OF TOTAL FOR THE YEAR ENDED JUNE 30 (US$ in millions) 2023 2022 2023 2022 Africa  $ 99  $ 99 38% 39% East Asia and the Pacific 34 29 13% 12% World 31 31 12% 13% Latin America and the Caribbean 27 26 10% 10% South Asia 23 20 9% 8% Europe 21 20 8% 8% Middle East 13 15 5% 6% Central Asia and Türkiye 12 11 5% 4% Total Program Expenditures  $260  $251 100% 100% a. The program expenditure presented herein is based on the Operational reporting methodology, which includes all project expenditures associated with an Advisory project. This does not include program expenditure associated with IFC’s Upstream project development activities. 24 IFC 2023 ANNUAL REPORT FINANCIALS Table 10: IFC Advisory Services — Program Expenditures by Business Area PROGRAM EXPENDITURE AS A % OF TOTAL FOR THE YEAR ENDED JUNE 30 (US$ in millions) 2023 2022 2023 2022 Financial Institutions  $ 70  $ 62 27% 25% Regional Advisory 55 52 21% 21% Transaction Advisory 43 35 16% 14% Manufacturing Agribusiness & Services 37 44 14% 18% Infrastructure & Natural Resources 17 23 7% 9% Environment, Social & Governance 14 13 6% 5% Disruptive Technologies & Funds 5 6 2% 2% Other Advisory 19 16 7% 6% Total Program Expenditures $260 $251 100% 100% SECTION IV. FUNDED LIQUIDITY LIQUID ASSETS PORTFOLIO All liquid assets are managed according to an invest- IFC’s primary funding source for liquid assets is mar- ment authority approved by the Board of Directors and ket borrowings. Proceeds of borrowings from market Liquid Asset Investment Directive approved by IFC’s sources not immediately disbursed for loans and Corporate Risk Committee, a subcommittee of IFC’s loan-like debt securities are managed internally by Management Team. IFC against money market benchmarks in the Funded Liquidity Portfolio. Refer to Section V. Funding IFC funds its liquid assets from two sources, borrow- Resources for additional details on borrowings. ings from the market (the market funded liquidity portfolio) and capital (the net worth funded portfolio). Liquid assets are managed in several sub-portfolios related to these sources. NET WORTH IFC generally invests its liquid assets in highly rated FUNDED fixed and floating rate instruments issued by, or uncon- ditionally guaranteed by, governments, government PORTFOLIO agencies and instrumentalities, multilateral organiza- tions, and high quality corporate issuers; these include The second funding source of liquid assets is the por- asset-backed securities (ABS) and mortgage-backed tion of IFC’s net worth not invested in equity and securities (MBS), time deposits, and other uncondi- equity-like investments. These funds comprise the Net tional obligations of banks and financial institutions. Worth Funded Portfolio which is managed internally Diversification across multiple dimensions ensures a by IFC against a U.S. Treasury benchmark. favorable risk return profile. IFC manages the individ- IFC’s liquid assets are accounted for as trading port- ual liquid asset portfolios on an aggregate portfolio folios. The NAV of the liquid asset portfolio was basis against each portfolio’s benchmark within spec- $40.1 billion at June 30, 2023, a decrease of $1.6 billion ified risk parameters. In implementing these portfolio from $41.7  billion at June  30, 2022. The liquid asset management strategies, IFC utilizes derivative instru- portfolio as of June  30, 2023 comprised the market ments, principally currency and interest rate swaps, funded liquidity portfolio of $23.2 billion and the net foreign exchange forward contracts, and futures and worth funded portfolio of $16.9 billion ($25.1 billion and options, and it takes positions in various industry sec- $16.6 billion respectively — June 30, 2022). The decrease tors and countries. was composed of a $1.9  billion decline in the mar- ket funded liquidity portfolio, as outflows from net disbursements to loans exceeded inflows from net borrowings, and a $346  million increase in the net worth funded portfolio. IFC 2023 ANNUAL REPORT FINANCIALS 25 SECTION V. BORROWINGS FUNDING RESOURCES The major source of IFC’s borrowings is the inter- national capital markets. Under the Articles of Agreement, IFC may borrow in the public markets IFC’s funding resources (comprising borrowings, of a member country only with approvals from that paid-in capital and retained earnings) as of June  30, member, together with the member in whose currency 2023 and June 30, 2022 are as follows: the borrowing is denominated. Substantially all borrowings are carried at fair value Figure 12: IFC’s Funding under the Fair Value Option. The change in the fair Resources (US$ in millions) value of these borrowings resulting from changes in instrument-specific credit risk is reported in other Borrowings from market sources comprehensive income, while the remaining change in fair value is reported in “Net unrealized gains and 53,773 losses on non-trading financial instruments accounted 49,923 for at fair value” in the consolidated statements of Retained earnings operations. Changes in the net fair value of IFC’s bor- 11,810 rowings from market, IDA, and associated derivatives, 11,138 include the impact of changes in IFC’s own credit Discount Note Program and other spread when measured against reference rates. IFC’s short-term borrowings policy is to generally match the currency, amount, and 2,967 timing of cash flows on market borrowings with the 2,327 cash flows on the associated derivatives entered into Paid-in capital contemporaneously. 22,596 21,749 The outstanding borrowings (including fair value Borrowings from IDA adjustments) on IFC’s consolidated balance sheets 262 were $52.4 billion at June 30, 2023, up from $48.3 bil- lion at June 30, 2022. At June 30, 2023, this comprised 358 an outstanding balance of $49.4 billion in medium and    FY23    FY22 long-term borrowings ($46.0 billion — June 30, 2022) and $3.0  billion in short-term borrowings under the discount note program ($2.3  billion — June  30, 2022). The increase in outstanding borrowings was mainly due to new issuances, net of maturities and repay- ments, of $4.5 billion shown below: Figure 13: Borrowings Portfolio (US$ in millions) 14,219 640 52,443 48,269 (9,689) (220) (194) (582) June 2022 New Maturities & FV Unrealized FX (Gains) / Net issuance Unamortized June 2023 Issuances Repayments (Gains) / Losses of discount discount / Losses notes premium Market borrowings are generally swapped into float- borrowings were outstanding ($1.2  billion — June  30, ing-rate obligations denominated in U.S. dollars. 2022). As of June  30, 2023, they were denominated IFC uses its borrowings as a tool to promote cap- in Bangladeshi taka, Chinese renminbi, Costa Rican ital markets development in emerging and frontier colon, Georgian lari, Indonesian rupiah, Indian rupee, markets and this can result in raising local currency Kazakhstan tenge, new Azerbaijanian manat, new funds. Borrowings from market sources at June  30, Romanian lei, Philippine peso, Sri Lankan rupee, Turkish 2023 with no associated interest rate or currency swap lira and Ukrainian hryvnia. amounted to 2% of the total borrowings from mar- During FY23, IFC raised $19.8  billion in medium and ket sources (2% — June 30, 2022). As of June 30, 2023, long term market borrowings ($14.1  billion in FY22), $1.0 billion of such non-U.S. dollar denominated market 26 IFC 2023 ANNUAL REPORT FINANCIALS net of derivatives and including discount notes with is taken into consideration, 98% of IFC’s market maturities greater than three months of $5.9  billion borrowings at June 30, 2023 were variable rate U.S. dol- ($4.8 billion in FY22). During FY23, IFC repurchased and lar-denominated (98% — June 30, 2022). The weighted retired $432 million of outstanding debt ($628 million average cost of outstanding market borrowings after in FY22), including debt called and bought back, gen- currency and interest rate swap transactions was 5.2% erating gains on buybacks (from fees and capital gains) at June 30, 2023 (1.3% — June 30, 2022). The increase in of $1 million in FY23 ($4 million in FY22). cost of borrowings compared to the prior year was due to rising interest rates. IFC diversifies its borrowings by currency, country, source, and maturity to provide flexibility and cost-ef- IFC has short-term discount note programs in U.S. fectiveness. In FY23, IFC borrowed in 24 currencies and dollar and Chinese renminbi to provide an additional in final maturities ranging from 3 months to 40 years. funding and liquidity management tool for IFC in sup- Borrowings outstanding have a weighted average port of certain of IFC’s trade finance and supply chain remaining contractual maturity of 5.4 years at June 30, initiatives and to expand the availability of short term 2023 (5.6 years — June 30, 2022). Actual maturities may local currency finance. The discount note programs differ from contractual maturities due to the existence provide for issuances with maturities ranging from of call features in certain of IFC’s borrowings. overnight to one year. The weighted average cost of discount note borrowing was 4.1% in FY23 (0.2% in As of June  30, 2023, IFC had gross payables from FY22). During FY23, IFC issued $11.4 billion of discount borrowing-related currency swaps of $34.3  billion notes ($7.5 billion in FY22) and $3.0 billion were out- ($30.9 billion — June 30, 2022) and from borrowing-re- standing as of June  30, 2023 under the short-term lated interest rate swaps in the notional principal discount note programs ($2.3 billion — June 30, 2022). payable amount of $22.2 billion ($21.3 billion — June 30, 2022). After the effect of these derivative instruments CAPITAL AND RETAINED EARNINGS Table 11: IFC’s Capital FOR THE YEAR ENDED JUNE 30 (US$ in millions) 2023 2022 Capital Authorized capital $25,080 $25,080 Subscribed capital 23,939 23,611 Less: unpaid portion of subscriptions (1,343) (1,862) Paid-in capital 22,596 21,749 Accumulated other comprehensive income (loss) 632 (82) Retained earnings 11,810 11,138 Total Capital $35,038 $32,805 At June 30, 2023 and June 30, 2022, retained earnings comprised the following: Table 12: IFC’s Retained Earnings FOR THE YEAR ENDED JUNE 30 (US$ in millions) 2023 2022 Undesignated Retained Earnings $11,589 $10,840 Designated Retained Earnings: Creating Markets Advisory Window 161 207 Funding Mechanism for Technical Assistance and Advisory Services 48 78 Small and Medium Enterprise (SME) Ventures 12 13 Total Designated Retained Earnings $ 221 $ 298 Total Retained Earnings $11,810 $11,138 IFC 2023 ANNUAL REPORT FINANCIALS 27 Following the Spring Meetings in April 2018, a financing establishes a threshold that no designations of any kind package, comprising: (i) a three-step capital raising can take place if IFC’s CUR is above 88%, and estab- process: Conversion of a portion of retained earn- lishes a framework for prioritizing future designations ings into paid-in capital, a GCI and a SCI that would to Funding Mechanism for Technical Assistance and provide up to $5.5 billion in additional paid-in capital; Advisory Services (FMTAAS) and for transfers to IDA (ii) a planned suspension of grants to IDA after the based on IFC’s CUR and a cushion for FMTAAS. IFC has conclusion of the IDA 18; and (iii) internal measures also created the Creating Markets Advisory Window for increased efficiency was endorsed by the Board (CMAW) in fiscal year 2018 to focus on market creation of Governors. The authorized capital stock at June 30, in eligible IDA countries and FCS. 2023 is 25,079,991 shares of $1,000 par value each (unchanged from June 30, 2022). FY22 Designations The GCI and SCI Resolutions were adopted and became Income available for designations in FY22 (a non-U.S. effective on April 16, 2020. $17 billion of retained earn- GAAP measure) totaled $382  million, calculated as ings were converted into paid-in-capital in April 2020. net income excluding unrealized gains and losses on In April 2023, the subscription deadline for SCI and investments and borrowings and grants to IDA. Based GCI was extended to April 16, 2025 and April 16, 2024, on the Board-approved distribution policy outlined respectively, and the payment deadline for SCI was above, the maximum amount available for designa- extended to April 16, 2025, to be aligned with the GCI tion was $6 million. On August 4, 2022, the Board of payment deadline. As of June 30, 2023, 120 countries Directors approved the entire designation of $6 million have subscribed a total of $4.4 billion (GCI — $3.7 billion of IFC’s retained earnings for FMTAAS. This designation and SCI — $677  million) and payment of $3.0  billion was noted with approval by the Board of Governors on (GCI — $2.4 billion and SCI — $654 million) was received October 14, 2022. from 100 countries. FY23 Designations DESIGNATIONS OF RETAINED EARNINGS Income available for designations in FY23 (a non-U.S. GAAP measure) totaled $681  million, calculated as Amounts available to be designated are determined net income excluding unrealized gains and losses on based on a Board of Directors-approved income-based investments and borrowings and grants to IDA. On formula and on a principles-based Board of Directors- August 3, 2023, the Board of Directors approved a des- approved financial distribution policy, and are approved ignation of $60  million to FMTAAS. This designation by the Board of Directors. is expected to be noted with approval by the Board IFC uses a sliding-scale formula and the methodology of Governors, and subject to the above conditions, for calculating the incremental rate of designation. concluded in FY24. The approach approved by IFC’s Board of Directors 28 IFC 2023 ANNUAL REPORT FINANCIALS SECTION VI. Figure 14: IFC’s Enterprise Risk Management Framework RISK MANAGEMENT RISK MANAGEMENT OBJECTIVES Development Impact, Financial ENTERPRISE RISK RISK MANAGEMENT PRINCIPLES Sustainability, Safeguarding Reputation MANAGEMENT IFC provides investments and advisory services to RISK GOVERNANCE the private sector in emerging markets and is there- fore exposed to a range of potential financial and non-financial impacts. Active monitoring and sound management of evolving risks remain critical pillars in terms of fulfilling IFC’s mission. RISK APPETITE IFC’s enterprise risk management framework (ERM) is designed to enable the prudent management of potential financial and reputational impacts that orig- inate from the Corporation’s business activities. In this RISK CATEGORIZATION context, IFC’s risk management efforts are designed specifically to help align the Corporation’s perfor- mance with its strategic direction. In FY23, IFC updated its ERM framework to reflect IFC’s current risk profile KEY RISK MANAGEMENT OBJECTIVES and emerging risks. The framework defines: IFC has defined three explicit Risk Management • Key risk management objectives for managing risks. Objective Statements at the corporate level which are • A standard classification of roles and responsibilities derived from IFC’s purpose, business scope, strategic for risk management, to differentiate and thereby objectives, and the risks that it faces. clarify how different parts of the Corporation con- tribute towards the overall management of risk • Development Impact — IFC will maximize develop- through a well-defined risk governance mechanism. mental impact by focusing on the World Bank Group’s • A risk appetite component to ascertain the level and twin goals of addressing extreme poverty and boost- type of risk that IFC is able and willing to assume in ing shared prosperity, while maintaining financial its exposure and business activities. sustainability and safeguarding its brand. • An updated risk taxonomy for categorizing risks • Financial Sustainability — IFC will generate and across the organization, to help ensure that risk man- maintain sufficient financial resources, conduct its agement efforts are coordinated and aligned across business and manage risk consistent with standards the distinct parts of the organization that share implied by a triple-A rating. responsibility for managing different aspects of risk. • Safeguarding Reputation — In determining what • Cross-cutting risk management principles to ensure engagements and activities to pursue, IFC will that business decisions are based on a thorough assess whether any potential adverse impact to its understanding of risks and that risks and rewards reputation is in balance with the potential develop- are balanced appropriately. Another principle is that ment impact. IFC will be selective in undertaking activities that could cause significant adverse reputational impact. IFC’s risk culture is central to all aspects of IFC’s risk management efforts. One of the key objectives of the framework is to embed a strong risk culture in the Corporation while ascertaining those tools and capa- bilities are in place to facilitate risk management and decision-making at different levels of the organization. IFC 2023 ANNUAL REPORT FINANCIALS 29 RISK GOVERNANCE STRUCTURE Figure 15: IFC’s Risk Governancea GOVERNING BODIES Board, Management Team and Independent Oversight Bodiesb Accountability to stakeholders for organizational oversight EXTERNAL ASSURANCE PROVIDERS Governing body roles: integrity, leadership, and transparency INTERNAL AUDIT STAFF Independent assurance First line roles: Second line roles: own risk and respon- Third line roles: Provide oversight sible for identifying, Independent and and challenge of recording, reporting objective assurance risk management and managing risks KEY: Accountability, reporting Delegation, Direction, Oversight Alignment, collaboration a. Adapted based on the Institute of Internal Auditors three lines model. b. Oversight Bodies include the Integrity Vice Presidency (INT), the Independent Evaluation Group (IEG), the Compliance Advisor/ Ombudsman (CAO) and the Ethics and Business Conduct (EBC) Department along with the Internal Audit which is listed separately in the picture above due to its role in providing independent oversight of IFC’s risk management practices. IFC’s Enterprise Risk Management follows the • Independent Oversight Bodies: shared-responsibility principle, and IFC’s risk gover- nance structure is built on the “three lines model” as • The WBG Internal Audit Vice Presidency provides independent oversight of IFC’s risk man- defined below: agement practices. • 1st Line — All staff engaged in the business origina- • The Integrity Vice Presidency investigates alle- tion, revenue generating and client facing areas of gations of fraud, corruption, and staff misconduct IFC and all associated support functions including in IFC’s operations and in WBG-financed opera- Investment, Advisory and Treasury staff which are tions impacting IFC. not risk, control or compliance monitoring functions. • The Independent Evaluation Group assesses • 2nd Line — Staff in risk, controllers, legal, compli- the relevance, efficacy and efficiency of IFC’s ance and communication functions independent of operational programs and activities (and their the first line provides oversight and challenge over contributions to development effectiveness). financial and operational risk activities. • The Compliance Advisor/Ombudsman serves as • 3rd Line — Internal Audit provides independent an independent recourse mechanism for stake- oversight. holders in projects supported by IFC. From an organizational standpoint, three distinct • The Ethics and Business Conduct Department promotes the development and application of the groups govern the risks that IFC undertakes during highest ethical standards by WBG staff in the per- its day-to-day business activities: formance of their duties and among other areas, focuses on addressing misconduct by reviewing concerns, recommending actions, and facilitating resolutions. 30 IFC 2023 ANNUAL REPORT FINANCIALS • The Board: IFC’s Articles of Agreement outline the CRC is supported by the Treasury Sub-Committee, composition, roles and responsibilities of IFC’s senior which reviews and makes recommendations to governance body, its Board of Directors. The Audit CRC regarding certain risks that arise within the Committee of the Board of Directors plays a key role Treasury business; acts, under delegated authority in overseeing risk management at IFC. from CRC, as approval authority for Treasury- • Management Team: Under the direction of its related initiatives and new Treasury products; Managing Director (MD), IFC’s Management Team and vets proposals from the Treasury or Risk and (MT) is responsible for the Corporation’s day-to-day Finance VPUs for changes in policies and proce- operations including the management of existing and dures that impact the Treasury business. potential risks. The MT carries out its responsibilities • The Blended Finance and Donor Funds through three Management Committees: Committee (BFC), which is primarily responsible for the terms, proper allocation and utilization of • The Tier III Project Committee (T3PC), which is donor funds, IFC’s blended finance facilities, IDA/ a decision-making body to review new projects PSW funds at Concept and IRM stage and allo- (investment or advisory) that meet certain risk cation and utilization of grants at or above US$ criteria including certain economic capital thresh- 1 million. The BFC also reviews and approves public olds, nominal investment amounts, credit ratings sector/government-facing advisory projects that and/or complex E&S and/or integrity issues. The meet certain criteria. T3PC does not set policy recommendations or directives but can approve exceptions to IFC’s The MT is also supported by the Information and operational directives as appropriate, for individ- Technology Steering Group (ITSG), a largely deliber- ual projects (unless otherwise specified in that ative body which formulates proposals, develops new directive). ideas, considers refinements, promotes coordination, • The Corporate Risk Committee (CRC), which is and makes recommendations regarding IFC’s IT strat- primarily responsible for overseeing risks to IFC egy, investment plans and work programs for approval (including in relation to Shared Services6). The by the MT. MT has delegated to the above Committees the authority to make certain decisions and to grant permitted exceptions to Directives and other instruments. Figure 16 below depicts IFC’s management decision-making governance structure: 6. IFC has service level agreements (SLAs) with IBRD in place for about 20+ shared services. The scope of these services includes HR services, information technology services, accounting services, procurement services, global telecom and client services, knowledge and information services, liability & insurance programs and other specialized support services. These SLAs provide risk management for common risks faced by WBG such as physical safety of staff and information security to ensure cyber resilience. Each SLA has a distinct governance process of its own with representation by both IFC and IBRD. IFC 2023 ANNUAL REPORT FINANCIALS 31 Figure 16: IFC Management Decision Making Governance Management Team MANAGEMENT TEAM (MT) The MT is responsible for Leading the institution overall IFC administration, direction and strategy Management Committees Decide, escalate to MT or MD as needed Tier III Project Corporate Risk Blended Finance Management Committee Committee (CRC) & Donor Funds Committees (T3PC) Institutional risk Committee (BFC) The MT’s three decision- & asset-liability Blended finance making committees Complex or high- review, approve and risk projects management, for Investment exceptions to Services, provide guidance on Mobilization Advisory Services significant operational, Guidelines, new fundraising/ strategic, portfolio and mobilization allocation, complex enterprise risk matters platforms public sector Advisory Services Treasury Sub- Committee Steering Group IT Steering Group Information A deliberative forum Technology with limited delegated Decides within delegated scope, Steering Group decision-making deliberates and recommends to MT (ITSG) authority that formulates (or CRC as appropriate) IT matters proposals, promotes coordination and makes for decisions beyond that scope recommendations on IT matters. Delegated authority to approve Within IFC, (i) all financial risks and operational risks The Corporate Support Vice Presidency supports are consolidated under the Vice President of Risk and alignment and coordination across all IFC Policies & Finance, (ii) non-financial risks are under the Vice Procedures. Strategic stakeholder communication for President & General Counsel for Legal and Compliance managing potential and actual reputational impacts Risk, and (iii) Environment, Social and Corporate are managed by IFC Corporate Support Vice Presidency. Governance (ESG) risks are managed by two depart- Figure 17 depicts IFC’s risk responsibilities structure for ments, the Environment and Social Policy and Risk financial, operational, and other non-financial risks. department reporting directly to IFC’s Managing Director and the ESG Sustainability Advice and Solutions Department reporting to the Vice President, Cross- Cutting Solutions. 32 IFC 2023 ANNUAL REPORT FINANCIALS Figure 17: Risk Responsibility within IFC IFC MANAGING DIRECTORa VP & GENERAL VICE PRESIDENT SENIOR DIRECTOR VICE PRESIDENT COUNSEL RISK AND E&S POLICY CORPORATE LEGAL & FINANCE & RISK SUPPORT COMPLIANCE RISK a. The IFC VPUs listed under the IFC Managing Director include only those Vice Presidencies and Directors that have a second line role in the three lines model adopted by IFC. ENTERPRISE LEVEL RISK APPETITE • Leverage Policy — IFC’s outstanding debt plus guar- antees held must not exceed four times its net worth. IFC’s Risk Appetite is the level and type of risk that IFC • Overall Liquidity Policy — Minimum liquidity (liquid is able and willing to assume in its exposure and busi- assets) must be sufficient at all times to cover at least ness activities. In FY21, IFC’s Corporate Risk Committee 45% of IFC’s estimated net cash requirements for the approved a Risk Appetite (RA) framework for IFC. The next three years. purpose of the RA framework is to: (i) compare and • Matched Funding Policy — Loans are funded with contrast IFC’s risk appetite against its risk exposure; (ii) liabilities that have similar characteristics in terms of communicate the target level of risks to stakeholders; interest rate basis, currency, and maturity, except for (iii) provide context for the risk policies and frame- new products, approved by the Board of Directors, works; (iv) make informed decisions; and (v) report on involving asset-liability mismatches. risks to the Board and management. RISK CATEGORIZATION On the financial risks faced by IFC, one of the ways in which the risk appetite is expressed by key finan- As part of the ERM framework update in FY23, IFC cial policies approved by its Board of Directors as has adopted the following risk taxonomy and risk detailed below: categorizations. Figure 18 below reflects the risk cat- • Capital Adequacy Policy — IFC is required to main- egorization approved in FY23 effective July 1, 2023. It tain a minimum level of total resources (including should be noted that some of the risks in the taxonomy paid-in capital, total loss reserve and retained earn- may be related and as such are not mutually exclusive ings, net of designations) equal to total potential or totally independent of one another. Operational losses for all on- and off-balance sheet exposures Risk Dimensions are further classified into a third level estimated at levels consistent with maintaining a called Risk Drivers. Examples of Risk Drivers include triple-A rating. misconduct, improper business or market practices etc. IFC 2023 ANNUAL REPORT FINANCIALS 33 Figure 18: IFC’s Risk Taxonomy Domains MARKET RISK LIQUIDITY, OTHER Risk CREDIT (Equity, FX Rates, FUNDING AND FINANCIAL RISK Interest Rates, ALM RISK RISKS Commodity Prices) Credit Risk — Market Risk — Liquidity Capital Investment Investment & Funding Risk Dimensions Operations Operations Risk Risk Asset Liability Credit Risk — Market Risk — Pension Management Treasury Treasury Risk Risk Domains STRATEGIC AND Risk OPERATIONAL RISK BUSINESS RISK Environment Corporate Strategic & Social Governance Risk Dimensions Risk Risks Risk Risk Classified into Integrity, External Climate 15 other risk ML/TF & Tax Financing Risk categories Risk Risk Risks due to IFC’s business Domain OPERATIONAL Risk RISK Information Business Data and Cyber Technology Fraud Continuity Management Security Dimensions Physical Staff Health Risk Process Security and and People Model Execution Safety Well-Being Business Legal, Conduct and Regulatory Reporting Vendors Other Operational and COI Compliance 34 IFC 2023 ANNUAL REPORT FINANCIALS CREDIT RISK and nominal limits based on the Credit Rating for the client. IFC defines credit risk as the risk of loss of principal or • Individual Investment Limits are applied at the indi- loss of an expected financial return due to credit events vidual project or client level to prevent excessive such as a default or downgrade in credit ratings or any concentrations. other failure to meet a contractual obligation that • Preferential debt exposure to a country is limited by results in financial loss. IFC is exposed to credit risk in reference to that country’s total medium and long- its loan portfolio and to investment and counterparty term external debt. credit risk in its Treasury portfolio. • IFC’s total equity and quasi-equity exposure (out- standing exposure net of specific reserve) shall not INVESTMENT OPERATIONS exceed IFC’s net worth. IFC’s investment projects are actively supervised after Credit risk in investment projects is actively managed commitment. CRs are reviewed regularly for each throughout the project life cycle. Investment teams project, with frequency depending on the level of CR are responsible for gathering the necessary informa- assigned, and revised if new material information is tion from the client and other relevant stakeholders received. An independent risk management team in to verify the financial viability of each project, and for the Risk and Finance Vice Presidency regularly assesses assigning a credit rating (CR) at defined stages in the IFC’s portfolio, including stress testing of exposure to project approval process. The CR, the investment size, emerging risks. Additionally, the Corporate Portfolio the product type and other project-related risks deter- Management Department, as part of the Industries mine the authority level required for the approval of Vice Presidency, regularly reports on the performance each transaction. All projects are subject to indepen- of the overall debt and equity portfolio and performs dent credit assessment by a credit officer within the deep dives on selected top country and sector expo- independent Risk and Finance Vice Presidency and who sures, along with areas of strategic importance to participates in the project approval process. Projects IFC. When projects show signs of financial distress, are approved with reference to a number of opera- immediate attention is key for improving potential tional and prudential limits approved by the Corporate outcomes. Seasoned “workout” professionals from Risk Committee, including limits related to single proj- IFC’s Department of Special Operations in the Risk and ect or client exposure, single country exposure, and Finance Vice Presidency focus on projects, to imple- sector concentration; these are detailed below: ment the restructuring, or possible recovery, of IFC’s exposure. • IFC’s total exposure to a country, for the purpose of setting exposure limits, is measured as the amount The credit risk of loans is quantified in terms of the of economic capital required to support its invest- probability of default, loss given default and exposure ment portfolio in that country. Exposure limits are at risk. These risk parameters are used in the processes set for each country based on the size of its economy. to determine risk-based returns, project-based capital Sub-limits apply for certain sector exposures within allocation and internal risk management purposes, as a country. well as for establishing allowances against losses on • IFC’s total exposure to a single client or client loans under the new Current Expected Credit Losses group may not exceed stipulated economic capital accounting standard, and exposure limits. Selected indicators of credit risk exposure in IFC’s loan portfolio, together with the five-year trend of non-per- forming loans (NPLs), are given below: Table 13: IFC Loan Portfolio Credit Risk Indicators INDICATOR JUNE 30, 2023 JUNE 30, 2022 CHANGE NPLs as % of the loan portfolio a 2.7 % 3.9% Down 1.2% Principal amount outstanding on NPLs $1.1 billion $1.3 billion Down $205 million Total reserve against losses on loans $1.2 billion $1.2 billion No change Total reserve against losses on loans as % of disbursed loan portfolio 3.7% 4.4% Down 0.7% Total reserve against losses on loans as % of NPLs 107.6% 91.0% Up 16.6% Total reserve against losses on outstanding guarantees $15 million $11 million Up $4 million a. NPL ratio is calculated on loan portfolio inclusive of debt security portfolio. IFC 2023 ANNUAL REPORT FINANCIALS 35 Figure 19: NPLs as MARKET RISK Percentage of Disbursed Market risk is the risk of losses due to movement in Loan Portfolio market prices such as interest rates, credit spreads, equity, foreign exchange or commodity prices. IFC’s US$ in millions 0 200 400 600 800 1,000 1,200 1,400 1,600 1,800 exposure to market risk is mitigated by its matched FY19 funding policy, whereby it uses derivative instruments FY20 to convert loans funded from market borrowings, and FY21 the market borrowings themselves, into floating rate FY22 U.S. dollar assets and liabilities with similar dura- FY23 tion. Similarly, market risk resulting from derivative Percentage . . . . . . . . transactions with clients, to facilitate clients’ risk man-    $ NPLs   Percentage of disbursed loan portfolio agement, is typically mitigated by entering offsetting positions with highly rated market counterparties. Additional details are provided in Section VIII — Results IFC’s exposure to unhedged market risk arises pri- of Operations (Provision for Losses on Loans, Off- marily from its listed and unlisted equity investments balance Sheet Credit Exposures and Other Receivables). in emerging markets, its quasi-equity loans, and its Treasury liquid asset portfolio. TREASURY OPERATIONS LIBOR TRANSITION IFC manages its exposures to investments and coun- terparties in its Treasury operations to mitigate In 2017, the Financial Conduct Authority (FCA), the potential losses from the failure by a counterparty regulator of LIBOR, announced that it would no lon- to fulfill its contractual obligations. Counterparty ger compel panel banks to submit rates required to eligibility criteria are set by Authorizations from the calculate LIBOR after December 31, 2021, with key U.S. Board of Directors and by Directives approved by IFC’s dollar LIBOR settings (O/N, 1M, 3M, 6M &12M) panels Corporate Risk Committee. Eligible investments and ceasing on June 30, 2023 (the Cut-off Date). Therefore, counterparties are predominantly sovereign govern- market participants, including IFC and its borrow- ments, government agencies, banks, and financial ers needed to move to alternative reference rates. In institutions with high quality credit ratings issued by June 2017, the Alternative Reference Rates Committee leading international credit rating agencies. (ARRC), announced it had selected Secured Overnight Details of applicable financial policies and guidelines Financing Rate (SOFR) as its preferred alternative to are given below: USD LIBOR. • Counterparties are selected based on standard eli- In April 2023, the FCA announced its decision to require gibility criteria, with a tenor limit for deposits and the ICE Benchmark Administrator to continue publi- repurchase agreements. cation of 1-, 3- and 6-month US dollar LIBOR settings • Counterparties for derivative instruments are gener- until September  30, 2024 using an unrepresentative ally restricted to banks and financial institutions with "synthetic" methodology (Synthetic USD LIBOR). This high-quality credit ratings from leading international announcement has provided additional time for cer- credit rating agencies; for the sole purpose of funding tain transactions that can continue using Synthetic local currency loans, eligibility is extended to central USD LIBOR, effectively extending the Cut-off Date for banks and select local banks. such projects to September 30, 2024. • Exposures to individual counterparties are subject to IFC has taken necessary steps to facilitate a smooth exposure limits. and orderly transition of its financial instruments • IFC signs collateral agreements with counterparties affected by the regulators’ requirement for use of that require the posting of collateral when net mark- alternative reference rates. In FY21, IFC adopted the to-market exposures exceed certain predetermined International Swaps and Derivatives Association (ISDA) thresholds. 2020 IBOR Fallbacks Protocol (IBOR Protocol) and has • For exchange-traded instruments, credit risk is lim- been hedging the majority of its borrowings to SOFR. ited by restricting transactions to a list of authorized As of June  30, 2023, IFC’s SOFR-based borrowings exchanges, contract types, and dealers. on an after-swap basis totaled $55.7 billion ($11.4 bil- Treasury operations counterparties remain well diver- lion — June 30, 2022). sified by sector and geography. In accordance with its In line with global USD lending markets, IFC ceased the agreements with counterparties, at June 30, 2023, IFC origination of new LIBOR-based financial instruments held $185 million in cash and $1 million in securities as on December 31, 2021 (with certain limited exceptions). collateral for changes in mark-to-market exposures In FY22, IFC started offering Term SOFR and Daily Non- on open trades ($730  million in cash and $2  million Cumulative Compounded SOFR-based loan products in securities — June  30, 2022). In terms of Treasury’s and related Client Risk Management (CRM) products. credit profile, the liquid assets remain concentrated Of the new SOFR-based commitments, approximately in the upper end of the credit spectrum with an aver- 90% are based on Term SOFR. age rating of A+, reflecting IFC’s objective of principal protection and its resulting preference for high-quality IFC has made significant progress with the conversion investments. of its existing LIBOR-based portfolios to SOFR with swap conversions substantially completed. IFC aims to complete the conversion of its remaining LIBOR-based 36 IFC 2023 ANNUAL REPORT FINANCIALS assets and liabilities to SOFR in advance of their respec- funded from its net worth and market borrowings. IFC tive next interest reset dates following the applicable manages the risk of mismatches in foreign exchange Cut-off Date (June 30, 2023 or September 30, 2024). rates, interest rates, and maturity dates between bal- ance sheet assets and liabilities. EQUITY INVESTMENTS LIQUID ASSET PORTFOLIOS The risk of loss in value of IFC’s emerging markets equity investments is mitigated primarily by applying Liquidity risk in the liquid asset portfolios is addressed the same limits framework, decision-making process by liquidity coverage ratios (LCR) and strict invest- and portfolio management methods as described ment eligibility criteria defined in Directives approved above for its lending operations. IFC has a multi-year by the Corporate Risk Committee. LCRs are aligned horizon for its equity investments and accepts short- with Basel liquidity standards for regulated banks, term price volatility of these investments, which can include time horizons between 30 days and 3 years, and be significant. consider both normal and stressed cash flow require- ments. Examples of eligibility criteria include minimum US and European equity markets rose strongly during issuance sizes required for bond investments, limits FY23, despite rapidly rising interest rates, with the on single bond issue concentration, and limits on US market gaining 18% (S&P500) and Europe’s largest the percentage of total bond issuance held by IFC. stocks gaining 27% (Euro Stoxx 50). However, emerging Consequently, a significant portion of the liquid asset market equity returns were subdued at 2% (MSCI EM portfolio is invested in highly liquid securities such total return index) though with substantial gains in as high-quality sovereign, sovereign-guaranteed, and Latin America and Eastern Europe while a significant supranational fixed income instruments. IFC expects decline in Chinese equities. The US dollar strength- to continue to be able to realize these assets as needed ened 5% against a basket of EM currencies (JPMorgan to meet its cash requirements, even in a liquidity crisis. EM currency index). IFC remains focused on strategic and selective additions on the new business front, and On June 30, 2023, IFC’s liquid asset portfolios totaled is actively managing its equity book, utilizing rigor- $40.1 billion ($41.7 billion — June 30, 2022). IFC’s overall ous analysis of macroeconomic trends to inform its Liquidity Coverage Ratios (LCR) as a percentage of management decision-making throughout the project next three years’ estimated net cash needs stood at lifecycle. 104%, above the minimum requirement of 45%. During FY23, IFC raised $19.8  billion in market borrowings, LIQUID ASSET PORTFOLIOS net of derivatives and including discount notes with maturities greater than three months of $5.9  billion Market risk in IFC’s liquid asset portfolios is man- ($14.1 billion in FY22). The outstanding balance under aged according to the risk appetite chosen by IFC the Short-term Discount Note Program at June  30, Management using derivative and other finan- 2023 was $3.0 billion ($2.3 billion — June 30, 2022). cial instruments such as over-the-counter foreign exchange forward agreements, interest rate and FUNDING currency swaps, and exchange-traded interest rate futures. Overall market risk exposure is also subject to IFC’s funding operations ensure that IFC has the funds daily monitoring, based on Directives approved by the required for its lending operations, and that it has suffi- Corporate Risk Committee, which limit interest rate, cient liquidity to safeguard its triple-A rating and fulfill credit spread, and foreign exchange risk. IFC’s counter-cyclical role. IFC can access a variety of funding markets, including the U.S. dollar market, FY23 witnessed continued volatility in interest rate Pounds sterling market and the Australian dollar mar- markets. To manage risks associated with interest rate, ket as well as private placement and retail markets. foreign exchange, and credit spread risks, a system of IFC’s discount note program complements IFC’s tra- limits was employed and closely monitored on a daily ditional funding sources by providing swift access to basis to ensure ongoing compliance throughout the funded liquidity. IFC’s triple-A rating is critical to the fiscal year. Corporation’s ability to maintain its low cost of funds. Regular issuance in a variety of markets serves to sus- tain investor confidence and maintain a diversified LIQUIDITY, FUNDING investor base. In FY23, IFC’s funding costs increased when compared with FY22 predominantly driven by AND ASSET LIABILITY the increase in short-term U.S. dollar interest rates. MANAGEMENT (ALM) RISK ASSET-LIABILITY MANAGEMENT IFC defines liquidity and funding risk as the risk that, over a specific horizon, IFC will be unable to meet the While IFC’s matched-funding policy helps mitigate demand for additional funds to meet the demand for currency and interest rate risk, IFC is still exposed to uses of funds due to either funding or liquidity issues residual market risks in the market borrowings-funded or both. IFC faces liquidity risk in its core development portion of the balance sheet. Residual currency risk finance activities because its investments are predom- arises from factors such as changes in the level of inantly illiquid in nature due to the lack of capital flows, reserve for losses on non-U.S. dollar loans. The aggre- the infrequency of transactions, and the lack of price gate position in each lending currency is monitored transparency in many emerging markets. To offset this and the risk is managed to within the limits estab- risk, IFC maintains appropriate liquid asset portfolios lished for each currency and the total exposure for all IFC 2023 ANNUAL REPORT FINANCIALS 37 currencies. Residual interest rate risk may arise from Pension Finance Administrator; and (ii) The Pension differing interest rate reset dates on assets and liabili- Benefits Administration Committee (PBAC), which is ties or from assets that may become mismatched with responsible for the administration of the benefits of hedges over time due to write-downs, prepayments, the Plans. or rescheduling. The residual interest rate risk is man- The key policies underpinning the financial manage- aged by measuring the sensitivity of the present value ment of the Plans, including the determination of WBG of assets and liabilities in each currency to a one basis contributions and the investment of Plan assets, are point change in interest rates and managing exposures the funding and investment policies. The objective of to within the established limits for each currency and these policies is to ensure that the Plans have sufficient the total exposure for all currencies. assets to meet benefit payments over the long term. The funding policy, as approved by the PFC, establishes the rules that determine the WBG’s contributions. OTHER FINANCIAL RISKS In FY23, the WBG’s rate for contributions to the Plans was 14.61% of net salaries. More details about WBG’s IFC includes Capital Risk and Pension risk as the two pension plan can be found in Section XI: Pension and Other other financial risks that it faces. Capital risk is the risk Post-retirement Benefits of IBRD’s MD&A statement. to IFC’s triple-A rating resulting from a low capital ade- quacy position, in which available capital falls below the level of capital required to support IFC’s activi- ties. Pension Risk is the risk that IFC’s defined-benefit OPERATIONAL RISK pension plan is underfunded, leading to the need for additional financial support by IFC. MANAGEMENT Consistent with the Basel Framework, IFC defines CAPITAL RISK operational risk as the risk of loss resulting from inade- quate or failed internal processes, people and systems, From a financial sustainability perspective, the capital or from external events, and holds economic capital required to maintain a triple-A rating is assessed using against such risks. Given IFC’s business model, both an economic capital framework, which is the founda- financial and non-financial potential impacts are con- tion of financial risk management at IFC. Economic sidered in assessment of risks. capital acts as a “common currency of risk” across the organization, providing IFC with an objective, IFC’s Operational Risk Management (ORM) program quantifiable measure of risk that can be applied con- conforms to a Directive approved by the Corporate sistently across business lines, products, regions, and Risk Committee (CRC), which defines the management sectors. IFC holds economic capital for credit, market, of, and roles and responsibilities for, operational risk and operational risks. The economic capital frame- management in the Corporation. work covers IFC’s entire balance sheet — debt, equity, IFC identifies, assesses, monitors and reports oper- and Treasury assets- and economic capital is used for ational risks across the following key value chains/ limit-setting, pricing, and risk-adjusted performance business functions, also known as operational risk measurement. The primary measure of capital ade- areas: Debt, Equity, Treasury, Advisory Services, Third quacy is IFC’s Capital Utilization Ratio (CUR), which is Party Responsibilities, Business Support Functions, the ratio of Capital Required for the current portfolio to Corporate Functions, and Shared Services. the Capital Available to support future commitments. During FY23, IFC continued to expand its operational Throughout FY23, IFC’s CUR was well within the risk program by implementing enhanced method- established threshold of < 88%. ologies to identify, assess, mitigate, and monitor material operational risks in its key activities. The main PENSION RISK ORM tools that IFC utilizes include Risk and Control Self-Assessments (RCSA), recording and analysis of IFC participates, along with IBRD and MIGA, in pen- operational risk events, and monitoring of Key Risk sion and post-retirement benefit plans. The Staff Indicators (KRIs). IFC’s ORM approach in FY23 focused Retirement Plan (SRP), Retired Staff Benefits Plan on key RCSAs, as well as enhancing risk event report- (RSBP), and Post-Employment Benefit Plan (PEBP) (col- ing, and upgrading its quarterly report to the CRC and lectively called the “Plans”) are defined benefit plans the Audit Committee. Also, during FY23, IFC started and cover substantially all WBG employees, retirees developing risk appetite statements for operational and their beneficiaries. Costs, assets, and liabilities risk and started assessing the methodology to con- associated with the Plans are allocated among IBRD, duct focused control assessments. Finally, during IFC, and MIGA, based on their employees’ respective FY23, through various learning and knowledge sharing participation in the Plans. Pension Risk is defined as the events, and training initiatives, there was a notice- risk that IFC’s defined-benefit pension plan is under- able improvement in awareness and understanding of funded, leading to the need for additional financial operational risks in IFC. support by IFC. IFC utilizes risk transfer mechanisms, including insur- There are two committees that govern the Plans. From ance, at both the project and the institutional levels a governance standpoint, both committees are inde- for mitigation of low probability/frequency and high pendent of IFC and the Board: (i) The Pension Finance impact operational risks. IFC insures its corporate Committee (PFC), which is responsible for the financial assets and operations against catastrophic losses and management of the Plans and is supported by the cyber- related risks where commercially viable. 38 IFC 2023 ANNUAL REPORT FINANCIALS IFC also continues to focus on its preparedness to react • Project outcomes — These refer to a project’s direct to significant events that could disrupt its normal oper- effects on stakeholders (including employees, cus- ations through the Business Continuity Management tomers, suppliers, and the community); the direct, program, which covers critical business processes indirect, and induced effects on the economy and across all IFC offices. society overall; and the effects on the environment and social sustainability. On a quarterly basis, IFC’s corporate ORM function provides a consolidated ORM report to the CRC and a • Market outcomes — These refer to a project’s potential for generating systemic, sector-wide summarized version to the Audit Committee. changes that enhance market competitiveness, resil- ience, integration, inclusiveness, and sustainability. CYBERSECURITY RISK MANAGEMENT The AIMM system is now fully integrated into IFC’s IFC’s operations rely on the secure processing, storage operations, allowing development impact consid- and transmission of confidential and other information erations to be weighed against a range of strategic in computer systems and networks. As is the case objectives, including volume, financial return, risk, and for financial institutions generally, cybersecurity risk thematic priorities. continues to be significant for IFC due to the evolv- ing sophistication and complexity of the cyber threat ENVIRONMENT, SOCIAL AND GOVERNANCE landscape. These risks are unavoidable and IFC seeks (ESG) RISK to manage them on a cost-effective basis consistent with its risk appetite. Environment and Social (E&S) risk is the risk that IFC does not effectively engage with and influence clients To protect the security of its computer systems, soft- to fulfill the requirements of IFC’s E&S Performance ware, networks and other technology assets, IFC has Standards, potentially causing harm to people or the developed its cybersecurity risk management pro- environment. Corporate governance risk is the risk that gram, consisting of cybersecurity policies, procedures, IFC’s clients have inefficient or ineffective corporate compliance, and awareness programs. IFC deploys a governance practices, leading to adverse reputational multi-layered approach for cybersecurity risk man- or financial impacts on IFC. agement to help prevent and detect malicious activity, both from within the organization and from external Two departments support IFC’s ESG work: sources. In managing emerging cyber threats such as malware including ransomware, denial of service • The E&S Policy and Risk Department (CES) serves as a regulatory function of IFC’s E&S risk management and phishing attacks, IFC strives to adapt its technical and ensures systems, procedures, and capacity are in and process-level controls and raise the level of user place. CES also acts as custodian of IFC’s Sustainability awareness to mitigate the risk. Framework, reviews E&S aspects of all projects at IFC periodically assesses the maturity and effective- origination and provides oversight, guidance, and ness of its cyber defenses through risk mitigation support on E&S for high-risk projects in all stages of techniques, including but not limited to, targeted test- the project cycle. ing, internal and external audits, incident response • The ESG Sustainability, Advice and Solutions tabletop exercises and industry benchmarking. Department (CEG) works closely with investment, advisory, and upstream teams and clients to identify, evaluate, and manage ESG risks and opportunities, leveraging IFC’s expertise and experience in emerging STRATEGIC AND markets regarding the adoption of ESG standards. BUSINESS RISK Together these departments advise IFC management on significant ESG risks in its projects, support IFC These are risks that are specific to IFC given its mission clients in strengthening their ESG performance, and and strategy and include Strategic Risk, Environment & enable accountability to stakeholders. Social Risk, Climate Risk, Corporate Governance Risk, Integrity Risk, Anti-Money Laundering/ Combating the In addition to promoting ESG standards and cli- Financing of Terrorism (AML/CFT) Risk and External mate disclosure across emerging markets, IFC builds Financing Risk. internal and external capacity to identify, assess and mitigate ESG risks. IFC continuously strengthens its STRATEGIC RISK ESG approach by improving its internal ESG systems and procedures; enhancing project-level grievance IFC defines strategic risk as the risk associated with mechanisms; clarifying the application of IFC’s E&S initial strategy selection, execution, or modification requirements for clients, including financial interme- over time, resulting in a lack of achievement of overall diaries; and mainstreaming climate ESG risk, gender, objectives. and contextual risk assessment in due diligence and supervision. IFC supports its clients in mitigating ESG IFC uses the Anticipated Impact Measurement and risks across all regions through rolling out new tools Monitoring (AIMM) system as an ex-ante assess- and knowledge products to support ESG specialists ment tool to enable IFC staff to measure and monitor and clients and updating its approach to due diligence the anticipated development impact of investment and supervision program. and advisory projects. The AIMM system evaluates a project’s development impact along two dimen- sions — project outcomes and market outcomes. IFC 2023 ANNUAL REPORT FINANCIALS 39 ENVIRONMENT AND SOCIAL (E&S) RISK Figure 20: ESRR Distribution IFC’s ESG approach is anchored in its Sustainability FY16–FY23 Framework which articulates the Corporation’s stra- FY16 tegic commitment to sustainable development and is comprised of: 7% 74% • The Policy on E&S Sustainability, describing IFC’s 17% commitments, roles, and responsibilities in relation 2% to environmental and social sustainability. FY17 • The E&S Performance Standards, guiding clients on 6% sustainable business practices, including continually identifying and managing risks through analytical 76% work such as environmental and social assessments; 16% stakeholder engagement; and client disclosure obli- 2% gations in relation to project-level activities. FY18 • IFC’s Access to Information Policy, reflects the 6% Corporation’s commitment to transparency and 78% good governance and outlines institutional disclo- 15% sure obligations. 1% IFC uses E&S Risk Rating (ESRR) system to evaluate FY19 a client’s performance in managing E&S risks includ- 6% ing avoidance, mitigation and control of risks and 79% adverse impacts. ESRR scale includes: 1) Excellent, 14% 2) Satisfactory, 3) Partly Unsatisfactory, and 4) 1% Unsatisfactory. The score is calculated at appraisal as FY20 a baseline and is then updated after each supervision 4% activity. 82% Focused supervision efforts in the last eight fiscal years 13% have improved the E&S risk profile of IFC’s investment 1% portfolio by reducing the number of poorly performing FY21 projects, defined as a historical ESRR scale of 3 and 4% 4. In FY23, CEG reformed its approach to its supervi- 83% sion program, prioritizing in-person site supervision 12% of higher-risk projects (in coordination with CES), and drawing on master framework agreements with E&S 1% consulting firms. The supervision program is closely FY22 monitored, and helped maintain a substantively 4% healthy E&S portfolio performance. Figure 20 below 84% presents the ESRR distribution of IFC’s investment 11% portfolio from FY16 to FY23. 1% FY23 3% 86% 10% 1% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% ESRR distribution scale: Excellent Satisfactory Partly Unsatisfactory Unsatisfactory CLIENT CORPORATE GOVERNANCE RISK IFC manages corporate governance risk primarily by conducting a structured evaluation of every new investment project, covering the following six areas: • Effectiveness of the Board of Directors; • Sufficiency of internal controls, audit, risk manage- ment and compliance; • Adequacy of financial and non-financial disclosures, including ESG/sustainability reporting; • Adequacy of shareholders’ rights; • Adequacy of governance of stakeholder engage- ment; and 40 IFC 2023 ANNUAL REPORT FINANCIALS • Demonstration of the client’s commitment to imple- in developing countries. As part of this plan, IFC has ment high quality corporate governance policies and committed to increase its direct climate financing to practices. at least 35 percent of total commitments on average over the five-year period. IFC is also committed to The findings from these assessments are considered in aligning its financial flows with the objectives of the the decision on whether to proceed with the project. Paris Agreement. Starting July 1, 2023, 85 percent of Board approved operations are expected to be aligned CLIMATE RISK with the Paris Agreement’s goals, and 100 percent of these are expected to be aligned starting July 1, 2025. Climate risk is the risk that IFC’s clients may directly or indirectly experience potential adverse impacts from INTEGRITY, MONEY LAUNDERING AND climate change such as extreme weather, floods or TERRORIST FINANCING, AND TAX RISK droughts, and sea level rise, leading to reputational or financial risk. Group of interrelated risks that IFC’s Clients may have IFC has a dedicated Climate Business Department are ineffective governance structures and/or controls integrated with IFC’s Operations that provides to manage exposure to integrity risk, money launder- in-house expertise on climate. The Climate Business ing and terrorist financing (ML/TF) risk and tax risk. Department helps set corporate climate strategy, Integrity risks are the risks of engaging with external engages with stakeholders, supports investment institutions or persons whose background or activities, teams to identify decarbonization and climate invest- may have adverse reputational and, often, financial ment opportunities, and manages climate risk using impact on IFC. ML/TF risks are the associated risks tools such as carbon pricing and has started the arising from inadequate controls and processes to assessment of transition and physical climate risk in manage money laundering or financing of terrorism investment projects as part of the Paris Alignment when IFC invests with financial institutions or pri- process for all new projects. vate equity funds. Tax risk is the risk that IFC’s clients or projects may be structured so as to evade taxes Climate risk is integrated into IFC’s operations through or allow the adoption of aggressive tax strategies or its commitment under the capital increase and more practices. recently to align with the goals of the Paris Agreement. As part of its efforts to align with the Adaptation & IFC works with a wide range of clients and partners Climate Resilience component of the Paris Agreement, in Investment Operations, Upstream and Advisory IFC screens its projects for exposure to physical climate Services activities, from multi-national to small risk and potential impacts on the project’s financial, companies, and from government institutions to environmental, and social performance during project non-governmental organizations. Thus, each trans- appraisal. IFC has developed tools, methodologies and action or service opportunity presents unique integrity approaches to help industry, E&S, and climate spe- risks, affected by different factors, including the type cialists to conduct these assessments. Similarly, the of engagement, financial instrument, structure, geog- Mitigation component of Paris Alignment assessments raphy and duration of the engagement. IFC conducts screens projects for exposure to stranded asset risk integrity due diligence on clients and partners to and carbon lock-in risk. manage these risks and to mitigate them where it reasonably can, both before engagement and on an Highlights of climate risk management measures in ongoing basis during the engagement. FY23 include: ML/TF Risk is the risk that IFC’s financial intermedi- • Development of counterparty approach for Paris ary clients may have ineffective controls to manage Alignment for real and financial sector projects with exposure to money laundering and terrorist financing undefined use of proceeds. risk, subjecting IFC to potential integrity, reputational, • Testing of Paris Alignment methodology for physical or financial risk. IFC conducts Anti-Money Laundering climate risk for financial sector projects with defined (AML) / Combating the Financing of Terrorism (CFT) use of proceeds. due diligence on financial institution clients and funds • Development of sector-specific tools and methodol- in addition to its integrity due diligence to deter- ogies for physical climate risk assessment of projects mine whether: in multiple sectors that will enable mainstreaming of climate risk assessments in these sectors. 1. the client’s AML/CFT procedures and controls • Publication of IFC’s fifth consecutive disclosure are structured to comply with relevant AML/CFT along the guidelines of the Task Force for Climate- standards; Related Financial Disclosures (TCFD) and conducting 2. the AML/CFT procedures and controls are appro- of benchmarking exercise at the completion of the priate for the client’s business and operating 5-year milestone. environments; • Creation of cross-cutting interdepartmental Climate Risk Working Group and hiring of consultants to IFC has been strengthening its AML capacity, through explore ways to integrate climate into overall risk in-house trainings of its business teams and roll out of management at IFC. technical capacity building programs (e.g., to promote the countering of trade-based money laundering for The WBG’s Climate Change Action Plan for FY21 to financial institutions in developing markets). FY25, aims to increase support to deliver climate results, with a focus on reducing the trajectory of Tax risk is the risk that IFC’s clients or projects may emissions and strengthening adaptation and resilience be structured so as to evade taxes or to allow the IFC 2023 ANNUAL REPORT FINANCIALS 41 adoption of aggressive tax strategies or practices. The World Bank Group Intermediate Jurisdiction and Tax SECTION VII. Policy, which went into effect on January 23, 2023, reflects significant changes in the international tax CRITICAL ACCOUNTING landscape and the current global focus on tax trans- parency and responsible tax practices and applies tax POLICIES due diligence to investment projects involving inter- mediate jurisdictions and material cross-border related IFC’s accounting policies, as well as estimates made party transactions. IFC has been raising awareness by Management, are integral to its financial reporting. regarding the Policy and the corresponding processes Some of these accounting policies require Management through targeted trainings for regional and industry to make highly difficult, complex, and subjective judg- teams. ments as these relate to matters inherently uncertain and susceptible to change. Note A to IFC’s FY23 con- EXTERNAL FINANCING RISK solidated financial statements contains a summary of IFC’s significant accounting policies, including a As well as using its own resources to invest in and pro- discussion of recently adopted accounting standards vide advice to clients, IFC raises additional funds from and accounting and financial reporting developments. public and private sector institutional investors, lend- Certain of these policies are considered to be “criti- ers, and donors through several different mechanisms. cal” to the portrayal of IFC’s financial condition and External financing risk is the risk that when entrusted results of operations, since they require Management with oversight of such funds, IFC does not meet its to make difficult, complex or subjective judgments, contractual obligations to the third parties involved. some of which may relate to matters that are inher- To mitigate this risk, IFC works within agreed frame- ently uncertain. works which establish IFC’s responsibilities and These policies include: obligations with respect to the third parties. For example, where financing to clients is mobilized • Determining the fair value of equity investments, through B Loans or MCPP, the specialized Syndications debt securities, loans, liquid assets, borrowings and Department follows defined processes to identify derivatives; co-financiers, advise on structuring, and monitor • Determining the level of reserve against losses in the compliance with investment agreements. In some loan portfolio; cases, financing from third parties, including donors, • Determining the level and nature of impairment for is administered through trust funds. IFC follows pre- debt securities carried at fair value with changes in defined procedures for clearing all IFC trust fund fair value being reported in other comprehensive proposals and agreements and overseeing IFC’s trust income (OCI); and fund portfolio. Finally, AMC has an independent gov- • Determining the future pension and post-retirement ernance process to make decisions for the benefit of benefit costs and obligations using actuarial assump- investors in AMC-managed funds and AMC compliance tions based on financial market interest rates, past matters are subject to oversight by the Business Risk experience, and best estimate of future benefit cost and Compliance Department (CBR). changes and economic conditions. Many of IFC’s financial instruments are classified in accordance with the fair value hierarchy established by accounting standards for fair value measurements and disclosures which permit the fair value and/or impair- ment to be estimated based on internally developed models or methodologies utilizing significant inputs that are unobservable. VALUATION OF FINANCIAL INSTRUMENTS IFC reports at fair value all of its derivative instruments, liquid asset trading securities, equity investments, investments in debt securities and certain borrowings, and loans. In addition, various investment agreements contain embedded or stand-alone derivatives that, for accounting purposes, are separately accounted for as derivative assets or liabilities. IFC classifies all financial instruments accounted for at fair value based on the fair value hierarchy established by accounting stan- dards for fair value measurements and disclosures as described in more detail in Notes A and R to IFC’s FY23 consolidated financial statements. 42 IFC 2023 ANNUAL REPORT FINANCIALS IFC’s regional and industry departments are primarily loans on the balance sheet. IFC uses a credit loss meth- responsible for fair valuing IFC’s investment portfolio odology that reflects an estimate of expected credit (equity investments, debt securities, loan investments losses over the remaining contractual life of a loan, and related derivatives). The Investment Valuation Unit considering forward-looking information. The process in IFC’s Corporate Risk Management 7 department in for determining the reserve against credit losses is dis- the Risk and Finance Vice Presidency provides over- cussed in Note A to IFC’s FY23 consolidated financial sight over the fair valuation process by monitoring and statements. reviewing the fair values of IFC’s investment portfolio. The determination of reserve against credit losses IFC’s borrowings are fair valued by the Quantitative is based on complex inputs and assumptions, which Analysis department in IFC’s Treasury and Syndications require a high degree of judgment. In particular, the Vice Presidency. Third party independent vendor prices forecast of key economic variables relevant to the are used to price the vast majority of IFC’s liquid assets. loan portfolio is one of the critical assumptions to The vendor prices are evaluated by IFC’s independent IFC’s estimation of expected credit losses. Information middle office in Treasury department who maintains and events, with respect to the borrower and/or the oversight for the pricing of liquid assets. All of IFC’s economic and political environment in which it oper- financial instruments in its liquid assets portfolios ates, that are considered in determining a loss reserve are managed according to an investment authority include, but are not limited to, the borrower’s financial approved by the Board of Directors and investment difficulties, assessing the risk of breach of contract, guidelines approved by IFC’s Corporate Risk Committee, bankruptcy/reorganization, credit rating downgrade a subcommittee of IFC’s Management Team. as well as geopolitical conflict, financial/economic crisis, commodity price decline, adverse local govern- The change in fair value of borrowings carried at fair ment action and natural disaster. The risks inherent value resulting from changes in instrument-specific in the portfolio that are considered in determining credit risk is reported in OCI, while the remaining the portfolio reserve are those proven to exist by past change in fair value is reported in Net Income. experience and include: country systemic risk; the risk Many of IFC’s financial instruments accounted for of correlation or contagion of losses between mar- at fair value are valued based on unadjusted quoted kets; uninsured and uninsurable risks; nonperformance market prices or using models where the significant under guarantees and support agreements; and opac- assumptions and inputs are market-observable. The ity of, or misrepresentation in a borrower’s financial fair values of financial instruments valued using mod- statements. els where the significant assumptions and inputs are IFC recognizes a reserve against credit losses on not market-observable are generally estimated using off-balance sheet credit exposures for guarantees that complex pricing models of the net present value of are not measured at fair value and other off-balance estimated future cash flows. Management makes sheet arrangements. Methodologies for estimating numerous assumptions in developing pricing mod- the reserve for credit losses on off-balance sheet els, including an assessment about the counterparty’s credit exposures, including loans committed but not financial position and prospects, the appropriate dis- disbursed, are generally consistent with methodolo- count rates, interest rates, and related volatility and gies for estimating the reserve for credit losses for the expected movement in foreign currency exchange disbursed loan portfolio. rates. Changes in assumptions could have a signifi- cant impact on the amounts reported as assets and IFC periodically reviews these variables and reassesses liabilities and the related unrealized gains and losses the adequacy of the reserve against credit losses reported in the income statement and OCI. The fair accordingly. Actual losses may differ from expected value computations affect both the Investment ser- losses owing to unforeseen changes in any of the vices and Treasury segments of IFC (see Note S to variables affecting the creditworthiness or estimates the FY23 consolidated financial statements for further inherent in the exposure measurements. discussion of IFC’s business segments). IFC’s regional and industry departments are primarily responsible for individual loss reserve and for credit risk and facility ratings which are used for portfolio RESERVE AGAINST LOSSES loss reserve. A critical component of portfolio loss reserve calculations are the quarterly and annual ON LOANS AND OFF- reevaluation of current expected credit loss (CECL) BALANCE SHEET CREDIT assumptions, which are a collective effort of the Investment & Credit Risk department, Corporate Risk ARRANGEMENTS Management department, Global Macro and Market Research unit, and Controllers department. The CECL In accordance with Accounting Standards Update 2016- Steering Committee is the final approving authority 13, Measurement of Credit Losses on Financial Instruments for these assumptions. The Portfolio Review unit in and related amendments, which is incorporated in ASC IFC’s Controllers department provides oversight over Topic 326, Financial Instruments-Credit Losses (ASC the individual loss reserve process by monitoring and 326), IFC recognizes a reserve for credit losses that is reviewing the individual loss reserve of IFC’s debt port- deducted from the amortized cost basis of loans to folio, and collates inputs and runs the portfolio loss present the net amount expected to be collected on reserve calculations. 7. Effective July 1, 2023, the Investment Valuation Unit moved to IFC’s Investment and Credit Risk department. IFC 2023 ANNUAL REPORT FINANCIALS 43 IMPAIRMENT OF DEBT PENSION AND OTHER POST- SECURITIES RETIREMENT BENEFITS For all debt security investments classified as avail- IFC participates, along with IBRD and MIGA, in pension able-for-sale, IFC assesses impairment each quarter. In and post-retirement benefit plans that cover sub- accordance with ASC 326, IFC established an impair- stantially all of their staff members. The underlying ment model to determine whether all or a portion of actuarial assumptions used to determine the projected the unrealized loss is a credit loss, and recognizes a benefit obligations, accumulated benefit obligations, reserve for credit losses. When impairment is identi- and the funded status associated with these plans are fied, the entire impairment is recognized in net income based on financial market interest rates, past expe- if certain conditions are met (as detailed in Note A rience, and management’s best estimate of future to IFC’s FY23 consolidated financial statements). benefit cost changes and economic conditions. All IFC considers all relevant information including the costs, assets and liabilities associated with the Plans extent to which fair value has been less than amortized are allocated between IBRD, IFC and MIGA based upon cost, whether IFC intends to sell the debt security their employees’ respective participation in the Plans. or whether it is more likely than not that IFC will be IFC reimburses IBRD for their proportionate share required to sell the debt security, the payment struc- of any contributions made to these plans by IBRD. ture of the obligation and the ability of the issuer to Contributions to the Plans are calculated as a percent- make scheduled interest or principal payments, any age of salary. For further details, please refer to Note V changes to the ratings of a security, and relevant to the FY23 consolidated financial statements. adverse conditions specifically related to the security, an industry or geographic sector. 44 IFC 2023 ANNUAL REPORT FINANCIALS SECTION VIII. RESULTS OF OPERATIONS OVERVIEW The overall market environment has a significant influence on IFC’s financial performance. The main elements of IFC’s net income and other comprehensive income, and influences on the level and variability of net income and other comprehensive income from year to year are: Table 14: Main Elements of Net Income and Other Comprehensive Income ELEMENTS SIGNIFICANT INFLUENCES Net income: Yield on interest earning assets Market conditions including spread levels and degree of competition. (principally loans) 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, in particular the portion of the liquid asset portfolio funded by net worth, 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 Global climate for emerging markets equities, fluctuations in currency portfolio markets and company-specific performance for equity investments. Overall performance of the equity portfolio. Provision for losses on loans, Risk assessment of borrowers, probability of default, loss given default, and guarantees, and available-for-sale expected balance at default considering prepayment and disbursement debt securities assumption estimates as well as expected utilization rates. Other income and expenses Level of advisory services provided by IFC to its clients, the level of expense from the staff retirement and other benefits plans, the approved and actual administrative expenses, and other budget resources. Gains and losses on other non- Principally, differences between changes in fair values of borrowings, trading financial instruments excluding IFC’s credit spread and associated derivative instruments and accounted for at fair value unrealized gains or losses associated with the investment portfolio including puts, warrants, and stock options, which in part are dependent on the global climate for emerging markets. These securities may be valued using internally developed models or methodologies, utilizing inputs that may be observable or non-observable. Other comprehensive income: Unrealized gains and losses on Global climate for emerging markets, fluctuations in currency and commodity debt securities accounted for as markets and company-specific performance, and consideration of the extent available-for-sale to which unrealized losses are considered a credit loss. Debt securities may be valued using internally developed models or methodologies, utilizing inputs that may be observable or non-observable. Unrealized gains and losses Fluctuations in IFC’s own credit spread measured against reference rate, attributable to instrument-specific resulting from changes over time in market pricing of credit risk. As credit credit risk on borrowings at fair value spreads widen, unrealized gains are recorded, and when credit spreads under the Fair Value Option narrow, unrealized losses are recorded. Unrecognized net actuarial gains and Returns on pension plan assets and the key assumptions that underlay losses and unrecognized prior service projected benefit obligations, including financial market interest rates, staff costs on benefit plans expenses, past experience, and management’s best estimate of future benefit cost changes and economic conditions. IFC 2023 ANNUAL REPORT FINANCIALS 45 IFC’s net income or loss for the past three fiscal years ended June 30, 2023 are presented below: Figure 21: IFC’s Net Income (Loss) FY21–FY23 (US$ in millions) Fiscal year ended June 30, 2021 4,209 2022 (464) 2023 672 -2,000 -1,000 0 1,000 2,000 3,000 4,000 5,000 The following paragraphs detail significant variances between FY23 and FY22 covering the periods included in IFC FY23 consolidated financial statements. The $1.1 billion increase in net income was principally a result of the following: Figure 22: Change in Net Income FY23 vs FY22 (US$ in millions) 762 56 1,136 (25) (106) 298 483 111 57 (500) Total Income Loss URG(L)* on Equity URG(L)* on Net Administrative URG(L)* on Others*** Change in from Loans Provision Loans Income Equity Treasury Expenses & Borrowings Net Income and Debt and Debt Investments Income** Pensions Securities** Securities * Unrealized gains (losses). ** Total income from loans and debt securities and net treasury income are net of allocated charges on borrowings. *** Others mainly represents foreign exchange gains/losses, service fees, and net advisory service expenses. A more detailed analysis of the components of IFC’s $1.2 billion, primarily attributed to higher interest rates net income follows. and portfolio growth. INCOME FROM LOANS AND GUARANTEES, NON-PERFORMING LOANS (NPLS) INCLUDING REALIZED GAINS AND LOSSES ON LOANS AND ASSOCIATED DERIVATIVES NPLs decreased by $205  million, from $1.3  billion at June  30, 2022 to $1.1  billion8 at June  30, 2023. The Income from loans and guarantees, including realized decrease is largely due to positive developments of gains and losses on loans and associated derivatives $375 million, partially offset by additions of $177 million. for FY23 amounted to $2.3  billion. This represents a Included in FY23 additions were four loans individually significant increase of $1.1 billion from FY22’s income of equal to $10 million or more with a total of $142 million. 8. Includes $59 million reported as debt securities and $137 million reported as loans under Fair Value Option on the Balance Sheet as of June 30, 2023 ($60 million Debt securities and $197 million Fair Value Option loans — June 30, 2022). 46 IFC 2023 ANNUAL REPORT FINANCIALS Figure 23: Non-performing Loans (US$ in millions) 177 1,329 18 1,124 (375) (25) June 2022 Increase in NPL Positive Write-offs and Others* June 2023 Balance Developments losses on sale net of recoveries * Mainly represents balance changes due to deferrals, restructuring, disbursements, interest capitalization, conversions and foreign exchange gains/losses. PROVISION FOR LOSSES ON LOANS, OFF-BALANCE SHEET CREDIT EXPOSURES AND OTHER RECEIVABLES IFC recorded a net provision for losses on loans, off-balance sheet credit exposures and other receivables of $22 million in FY23 (provision of $126 million in FY22) analyzed as follows: Table 15: Individual and Portfolio Provision (Release of Provision) FOR THE YEAR ENDED JUNE 30 (US$ in millions) 2023 2022 Portfolio provision on disbursed loans $ 91 $ 41 Individual (release of provision) provision on disbursed loans (76) 52 Portfolio (release of provision) provision on undisbursed loans (3) 33 Release of individual provision on undisbursed loans — (1) Provision on off-balance sheet credit exposures and other receivables 10 1 Total $ 22 $126 Total portfolio provision in FY23 was mainly due to new commitments and disbursements while individual portfolio release was driven by positive developments. Total reserve against losses on loans disbursed and loans committed but not disbursed remained stable at $1.4 billion as of June 30, 2023 analyzed as follows: Figure 24: Reserve against Losses for Disbursed and Undisbursed Loans (US$ in millions) 1,381 88 5 1,379 (19) (76) June 2022 Individual Portfolio Write-offs net Others* June 2023 Provision Provision of recoveries * Mainly represents reserve against capitalized interest and foreign currency transaction adjustments. At June 30, 2023, reserve against losses on disbursed Reserve against losses on undisbursed loans totaled loans was $1.2 billion or 3.9% of the carrying value of $170 million or 2.5% of loans committed but not dis- disbursed loans at amortized cost, largely unchanged bursed ($172 million or 2.1% — June 30, 2022), a decrease from June 30, 2022 ($1.2 billion or 4.6% — June 30, 2022). of $2 million. IFC 2023 ANNUAL REPORT FINANCIALS 47 Reserve against losses as of June  30, 2023 reflected INCOME FROM DEBT SECURITIES AND credit risk assessments as of that date. The assessment REALIZED GAINS AND LOSSES ON DEBT of the level of reserve against losses carried a height- SECURITIES, AND ASSOCIATED DERIVATIVES ened degree of uncertainty and judgment particularly in light of the impact of Russia’s invasion of Ukraine. As Income from debt securities and associated derivatives discussed in the Executive Summary section, a quali- increased by $104 million from $414 million in FY22 to tative overlay related to the invasion and its spillover $518 million in FY23. The increase was primarily due to macroeconomic impact remained at $135  million at higher interest income which increased by $145 million, June 30, 2023, unchanged from June 30, 2022. largely driven by higher outstanding balances. Individual reserve against losses on disbursed loans at INCOME (LOSS) FROM LIQUID ASSETS June 30, 2023 of $366 million ($461 million — June 30, TRADING ACTIVITIES 2022) were held against impaired disbursed loans of $1.2 billion ($1.5 billion — June 30, 2022), a coverage ratio Liquid assets trading activities, gross of funding costs, of 30.2% (31.5% — June 30, 2022). generated an income of $1.5 billion in FY23, comprising Individual reserve against losses on undisbursed loans income of $1.4 billion from the market funded liquidity at June  30, 2023 of $1  million ($1  million — June  30, portfolio, and income of $32 million from the net worth 2022) were held against undisbursed impaired loans funded portfolio. of $46 million ($14 million — June 30, 2022), a coverage Liquid assets trading activities, net of allocated fund- ratio of 2% (7% — June 30, 2022). ing costs, generated an income of $241 million in FY23 In FY23, the top ten largest individual provisions and ($521 million loss in FY22), which comprises: (i) income top ten largest individual releases of provision account of $209 million from the market funded liquidity port- for 74% and 76% of the total individual provisions and folio ($34  million income in FY22) reflecting mainly total individual releases of provision respectively. gains from favorable movements in credit and foreign exchange basis spread movements, and (ii) income INCOME FROM EQUITY INVESTMENTS AND of $32  million from the net worth funded portfolio ASSOCIATED DERIVATIVES ($555  million loss in FY22 when U.S. Treasury yields rose rapidly). IFC sells equity investments where IFC’s developmental role is complete, where pre-determined sales trigger CHARGES ON BORROWINGS levels have been met, and where applicable, lock-ups have expired. Gains and losses on equity investments IFC’s charges on borrowings increased by $2.3 billion, and associated derivatives comprises of both realized from $302 million in FY22 to $2.6 billion in FY23, pri- and unrealized gains. marily due to increases in reference rates (both SOFR and LIBOR) in FY23 compared to FY22. Income from equity investment and associated deriv- atives (consisting of dividends, and net realized and The weighted average cost of IFC’s outstanding bor- unrealized gains and losses), decreased by $17  mil- rowings from market sources, after the effects of lion from $208 million income in FY22 to $191 million borrowing-related derivatives, and excluding short- in FY23. term borrowings from market and other sources, was 5.2% at June 30, 2023, an increase from 1.3% at June 30, IFC recognized realized net gains on equity invest- 2022. The increase in cost of borrowings was pre- ments and associated derivatives of $161  million in dominantly due to rising interest rates. The size of the FY23, as compared to net gains of $642 million in FY22, borrowings portfolio (excluding short-term borrow- a decrease of $481  million. Realized gains on equity ings), net of borrowing-related derivatives and before investments and associated derivatives were con- unamortized discounts and fair value adjustments, centrated in a small number of investments. In FY23, increased by $3.6 billion during FY23 from $53.1 billion six investments generated individual realized capital at June 30, 2022, to $56.7 billion at June 30, 2023. gains of $20 million or more totaling $177 million, and five investments generated individual realized capital OTHER INCOME losses of $20 million or more totaling $129 million. In comparison, thirteen investments generated individual Other income increased by $99 million, from $419 mil- realized capital gains of $20 million or more totaling lion in FY22 to $518  million in FY23 mainly driven by $668 million, and five investment generated individual higher investment returns on Post-Employment realized capital losses of $20 million or more totaling Benefit Plan assets ($55  million in FY23 compared $169 million in FY22. Dividend income in FY23 totaled to loss of $17  million in FY22) and Post-retirement $162 million, as compared with $180 million in FY22. Contributions Reserve Fund (PCRF) income ($15 mil- Net unrealized losses on equity investments and lion in FY23 compared to $1 million in FY22). associated derivatives were $134  million in FY23 compared to net unrealized losses of $617  million in OTHER EXPENSES FY22. The unrealized losses in FY23 were mainly due to lower valuations, while FY22 unrealized losses Administrative and pension expenses increased by reflected reclassifying gains from unrealized to real- $25  million, from $1.36  billion in FY22 to $1.39  billion ized upon sales. in FY23. The increase in administrative expenses by $73 million was partially offset by the decrease in pen- sion expenses by $48 million. Administrative expenses increased due to higher staff costs and travel expenses. 48 IFC 2023 ANNUAL REPORT FINANCIALS The decrease in pension expenses was driven by an accounted for as available-for-sale, foreign currency increase in accretion of unrecognized actuarial gains transaction gains or losses are recorded in other com- as well as an increase in expected return on assets in prehensive income, while foreign currency transaction Staff Retirement Plan (SRP) and Retired Staff Benefits gains and losses on the derivatives economically hedg- Plan (RSBP) based on assumptions established at ing such debt securities are reported in net income. June 30, 2022. NET UNREALIZED GAINS AND LOSSES ON NON- FOREIGN CURRENCY TRANSACTION GAINS TRADING FINANCIAL INSTRUMENTS AND LOSSES ON NON-TRADING ACTIVITIES IFC accounts for certain financial instruments at fair In FY23, IFC recorded foreign exchange related gains of value with unrealized gains and losses on such financial $25 million (losses of $64 million in FY22), comprised of instruments being reported in net income, namely: losses of $86 million (gains of $76 million in FY22) that (i) market borrowings with associated currency or were reported in net income, and gains of $111 million interest rate swaps; (ii) unrealized gains and losses on (losses of $140  million in FY22) that were reported certain loans, debt securities and associated deriva- in other comprehensive income. For debt securities tives; and (iii) borrowings from IDA. Table 16: Net Unrealized Gains (Losses) on Non-Trading Financial Instruments FOR THE YEAR ENDED JUNE 30 (US$ in millions) 2023 2022 Unrealized losses on the loan and debt securities portfolio carried at fair value $ (46) $ (627) Unrealized gains on associated derivatives 221 504 Unrealized gains (losses) on loans, debt securities and associated derivatives 175 (123) Unrealized gains on borrowings from market and IDA 270 3,822 Unrealized losses on associated derivatives (320) (3,928) Unrealized losses on borrowings from market, IDA and associated derivatives (50) (106) Net unrealized gains (losses) on non-trading financial instruments accounted for at fair value $ 125 $ (229) IFC reported $175 million of unrealized gains on loans, IFC reported $50  million of unrealized losses on debt securities, net of associated derivatives in FY23. borrowings from market sources and IDA, net of asso- Unrealized losses from loans and debt securities was ciated derivatives in FY23. This comprised $270 million $46 million in FY23 ($627 million in FY22). Included in unrealized gains mainly related to market borrowings FY22 unrealized losses was one investment reclassified and IDA in the rising interest rate environment, and from debt security to equity investment which resulted unrealized losses of $320  million on borrowing-re- in a reversal of unrealized gains on debt security of lated derivatives. The net after-swap unrealized losses $197 million. The unrealized gains on associated deriv- in FY23 were driven mainly by losses on Euro, and atives of $221 million in FY23 included $69 million gains Australian dollars portfolios, offset in part by valuation on lending related currency and interest rate swaps gains on the Russian ruble portfolio. due to higher swaps rates in U.S. dollar and Euro, offset by losses on Brazilian real swaps where interest rates fell in FY23, and $113 million gains on client risk man- agement swaps mainly on larger Euro and U.S. dollar interest rate swaps. IFC 2023 ANNUAL REPORT FINANCIALS 49 OTHER COMPREHENSIVE INCOME UNREALIZED GAINS AND LOSSES ON DEBT SECURITIES AND BORROWINGS Table 17: Other Comprehensive Income — Unrealized Gains and Losses on Debt Securities and Borrowings FOR THE YEAR ENDED JUNE 30 (US$ in millions) 2023 2022 Net unrealized gains and losses on debt securities arising during the period: $ 275 $ 178 Unrealized gains (155) (432) Unrealized losses (58) (24) Net unrealized gains (losses) on debt securities $ 62 (278) Net unrealized gains and losses attributable to instrument-specific credit risk on borrowings at fair value under the Fair Value Option: Unrealized gains 474 672 Unrealized losses (536) (433) Reclassification adjustment for realized gains included in net income upon derecognition of borrowings 12 1 Net unrealized (losses) gains on borrowings (50) 240 Total unrealized losses on debt securities and borrowings $ 12 $ (38) Net unrealized gains on debt securities totaled actual results differ from expected results in deter- $62 million in FY23 (net unrealized losses of $278 mil- mining the funded status of the pension plans. Since lion in FY22) which included foreign currency gains of the pension plans are long term, changes in asset $111 million on debt securities accounted for as avail- returns and discount rates cause volatility in compre- able-for-sale. This was partially offset by a reversal hensive income. Given its long-term planning horizon of $49  million unrealized gains for one debt security for pension plans, Management is focused mainly on sold in FY23, which was reclassified to realized gains ensuring that contributions to pension plans appro- in net income upon sale. In FY22, the unrealized losses priately reflect long term assumptions about asset were primarily comprised of foreign currency losses on returns and discount rates. debt securities held in Euro ($83 million), Turkish lira During FY23, IFC recorded a gain of $702  million ($88 million), and Indian rupee ($39 million). ($697 million of unrecognized net actuarial gains and a Net unrealized losses on borrowings of $50 million was $5 million reduction of prior service cost). The decrease recognized through other comprehensive income in in the underfunded status of the portion of the pension FY23 (net unrealized gains of $240 million in FY22). This plans, net of PEBP assets, was primarily due to the was driven by losses in Russian ruble and Mexican peso actuarial gains in the projected benefit obligations as a bond portfolios due to market price movements and result of the increase in the real discount rates. As the in U.S. dollars due to narrowing in IFC credit spreads, Plans are managed with a long-term horizon, results offset in part by gains on Australian dollar and Euro over shorter time periods may be impacted positively issuance due to wider IFC credit spreads in those or negatively by market fluctuations. currencies. For discussion of IFC’s financial results for the year ended June 30, 2022 as compared to the year ended UNRECOGNIZED NET ACTUARIAL GAINS AND June  30, 2021, see Section VIII Results of Operations LOSSES AND UNRECOGNIZED PRIOR SERVICE in IFC’s Management’s Discussion and Analysis and COSTS ON BENEFITS PLANS Consolidated Financial Statements for the year ended June 30, 2022. Unrecognized pension adjustments largely represent the unrecognized net actuarial gains and losses on benefit plans. Actuarial gains and losses occur when 50 IFC 2023 ANNUAL REPORT FINANCIALS SECTION IX. GOVERNANCE AND CONTROL SENIOR MANAGEMENT AND CHANGES The following is a list of the principal officers of IFC as of June 30, 2023: President Ajay Bangad Managing Director Makhtar Diop Regional Vice President, Africa Sérgio Pimenta Regional Vice President, Latin America and the Caribbean, and Europe Alfonso García Mora Regional Vice President, Middle East, Central Asia, Türkiye, Pakistan, and Afghanistan Hela Cheikh Rouhou Regional Vice President, Asia and the Pacific Riccardo Pulitic Vice President, Cross-Cutting Solutions Emmanuel Nyirinkindi Vice President, Corporate Support Elena Bourganskaia Vice President, Economics and Private Sector Development Susan M. Lund Vice President and General Counsel, Legal and Compliance Risk Ramit Nagpala Vice President, Industries Mohamed Gouledb Vice President, Risk and Finance Federico Galiziab Vice President, Treasury & Mobilizationc John Gandolfo a. On July 21, 2022, Christopher Stephens was appointed as World Bank Group Senior Vice President and General Counsel effective September 16, 2022. Leslie Sturtevant assumed the role as the acting Vice President and General Counsel, Legal and Compliance Risk, effective September 16, 2022. On October 31, 2022, Ramit Nagpal was appointed as the Vice President and General Counsel, Legal and Compliance Risk effective January 16, 2023. b. On July 8, 2022, IFC announced the creation of a new Vice President, Industries to oversee all Global Industry Departments, as well as the Corporate Portfolio and Operations Management Departments. Mohamed Gouled was appointed as the Vice President, Industries effective July 18, 2022. Tarek S. Himmo assumed the role as the acting Vice President, Risk and Finance, effective July 18, 2022. On October 31, 2022, Federico Galizia was appointed as the Vice President, Risk and Finance effective December 23, 2022. c. On July 8, 2022, IFC announced the remapping of AMC to the Treasury & Syndications VPU and renaming it the Treasury & Mobilization VPU, effective August 1, 2022. Ruth Horowitz was appointed as the Regional Vice President for Asia and the Pacific effective August 1, 2022. On December 6, 2022, Riccardo Puliti was appointed as the Regional Vice President for Asia and the Pacific effective February 1, 2023. d. Effective June 1, 2023, David Malpass resigned as World Bank Group President. Ajay Banga was appointed as President of the World Bank Group effective June 2, 2023. The FY23 consolidated financial statements reflect the organization structure at June 30, 2023. Figure 25: Governance Structure BOARD OF GOVERNORS Audit Committee BOARD OF Committee on DIRECTORS Development Effectiveness Budget Committee Committee on Governance and Executive Human Resources Committee PRESIDENT Directors’ Administrative Matters IFC 2023 ANNUAL REPORT FINANCIALS 51 BUSINESS CONDUCT The committees are made up of eight members and function under their respective stipulated terms of The WBG promotes a positive work environment reference. These committees are as follows: in which staff members understand their ethi- • Audit Committee — assists the Board in overseeing cal obligations to the institutions. In support of this IFC’s finances, accounting, risk management and commitment, the institutions have in place a Code of internal controls (see further explanation below). Conduct. The WBG has both an Ethics Help Line and • Budget Committee — assists the Board in approving a Fraud and Corruption hotline. A third-party service IFC’s budget and in overseeing the preparation and offers many methods of worldwide communication. execution of IFC’s strategy and business outlook. The Reporting channels include telephone, mail, email, or committee provides guidance to management on confidential submission through a website. strategic directions. IFC has procedures in place for receiving, retaining, • Committee on Development Effectiveness — sup- and handling recommendations and concerns relating ports the Board in assessing IFC’s development to business conduct identified during the accounting, effectiveness, providing guidance on strategic direc- internal control and auditing processes. tions, and monitoring the quality and results of operations. WBG staff rules clarify and codify the staff’s obliga- • Committee on Governance and Executive Directors’ tions in reporting suspected fraud, corruption, or other Administrative Matters — assists the Board on issues misconduct that may threaten the operations or gov- related to governance, the Board’s own effective- ernance of the WBG. These rules also offer protection ness, and the administrative policy applicable to from retaliation. Directors’ offices. • Human Resources Committee — strengthens the effi- ciency and effectiveness of the Board in discharging its oversight responsibility on IFC’s human resources GENERAL GOVERNANCE strategy, policies and practices, and their alignment with the business needs of the organization. IFC’s decision-making structure consists of the Board of Governors, the Board of Directors (Board of Directors or Board), the President, the Managing Director, Management and staff. The Board of Governors is AUDIT COMMITTEE the highest decision-making authority. Governors are appointed by their member governments for a five- year term, which is renewable. The Board of Governors MEMBERSHIP may delegate authority to the Board of Directors to exercise any of its powers, except those reserved to the The Audit Committee consists of eight Directors. Board of Governors under IFC’s Articles of Agreement. Membership in the Committee is determined by the Board, based on nominations by the Chairman of the Board, following informal consultation with Directors. BOARD OF DIRECTORS KEY RESPONSIBILITIES In accordance with IFC’s Articles of Agreement, The Audit Committee is appointed by the Board for the Directors are appointed or elected every two years primary purpose of assisting the Board in overseeing by their member governments. The Board currently IFC’s finances, accounting, risk management, internal has 25 Directors who represent all member coun- controls and institutional integrity, specific responsi- tries. Directors are neither officers nor staff of IFC. bilities include: The President is the only member of the Board from management, and he serves as a non-voting member • Oversight of the integrity of IFC’s financial statements. and as Chairman of the Board. • Appointment, qualifications, independence and per- formance of the External Auditor. The Board is required to consider proposals made by • Performance of the Group Internal Audit Department. the President on the use of IFC’s net income: retained • Adequacy and effectiveness of financial and account- earnings and designation of retained earnings and on ing policies and internal controls and the mechanisms other policies that affect its general operations. The to deter, prevent and penalize fraud and corruption in Board is also responsible for presenting to the Board of IFC operations and corporate procurement. Governors, at the Annual Meetings, audited accounts, • Effective management of financial, fiduciary, and an administrative budget, and an annual report on compliance risks in IFC. operations and policies and on other matters. • Oversight of the institutional arrangements and pro- cesses for risk management across IFC. The Board and its committees are in continuous ses- sion based in Washington DC, as business requires. In carrying out its role, the Audit Committee discusses Each committee’s terms of reference establish its financial issues and policies that affect IFC’s finan- respective roles and responsibilities. As committees cial position and capital adequacy with Management, do not vote on issues, their role is primarily to serve external auditors, and internal auditors. It recommends the Board in discharging its responsibilities. the annual audited financial statements for approval to the Board. The Audit Committee monitors and reviews developments in corporate governance and its own role on an ongoing basis. 52 IFC 2023 ANNUAL REPORT FINANCIALS EXECUTIVE SESSIONS EXTERNAL AUDITORS Under the Audit Committee’s terms of reference, it The external auditor is appointed to a five-year term, may convene in executive session at any time, without with a limit of two consecutive terms, and is subject to Management’s presence. The Audit Committee meets annual reappointment based on the recommendation separately in executive session with the external and of the Audit Committee and approval of a resolution internal auditors. by the Board. ACCESS TO RESOURCES AND TO In May 2022, IFC’s Directors approved Deloitte & MANAGEMENT Touche LLP as IFC’s external auditor for a second five- year term commencing in FY24. Throughout the year, the Audit Committee receives a large volume of information to enable it to carry out its duties, and meets both formally and informally throughout the year to discuss relevant matters. It INTERNAL CONTROL has complete access to Management, and reviews and discusses with Management topics considered in its INTERNAL CONTROL OVER FINANCIAL terms of reference. REPORTING The Audit Committee has the authority to seek advice Each fiscal year, Management evaluates the inter- and assistance from outside legal, accounting, or other nal controls over financial reporting to determine advisors as it deems necessary. whether any changes made in these controls during the fiscal year materially affect, or would be reason- ably likely to materially affect IFC’s internal control AUDITOR INDEPENDENCE over financial reporting. The internal control frame- work promulgated by the Committee of Sponsoring The appointment of the external auditor for IFC is Organizations of the Treadway Commission (COSO), governed by a set of Board-approved principles. “Internal Control — Integrated Framework (2013)” These include: provides guidance for designing, implementing and conducting internal control and assessing its effec- • Limits on the external auditor’s provision of non-au- tiveness. IFC uses the 2013 COSO framework to dit-related services assess the effectiveness of the internal control over • Requiring all audit-related services to be pre-ap- financial reporting. As of June 30, 2023, management proved on a case-by-case basis by the Board, upon maintained effective internal control over financial recommendation of the Audit Committee, and reporting. See “Management’s report regarding effec- • Renewal of the external audit contract every five tiveness of Internal Control over Financial Reporting” years, with a limit of two consecutive terms and for additional information. mandatory rotation thereafter. IFC’s internal control over financial reporting was The external auditor may provide non-prohibited, audited by Deloitte & Touche, LLP and their report non-audit related services subject to monetary lim- expresses an unqualified opinion on the effectiveness its. Broadly, the list of prohibited non-audit services of IFC’s internal control over financial reporting as of include those that would put the external auditor in June 30, 2023. See “Independent Auditor’s Report” for the roles typically performed by management or in a additional information. position of auditing their own work, such as account- ing services, internal audit services, and provision of DISCLOSURE CONTROLS AND PROCEDURES investment advice. The total non-audit services fees over the term of the relevant external audit contract Disclosure controls and procedures are designed to shall not exceed 70 percent of the audit fees over the ensure that information required to be disclosed is same period. gathered and communicated to Management as Communication between the external auditor and appropriate, to allow timely decisions regarding the Audit Committee is ongoing and carried out as required disclosure by IFC. Management conducted often as deemed necessary by either party. The Audit an evaluation of the effectiveness of such controls and Committee meets periodically with the external procedures and the President, the Managing Director auditor and individual committee members have inde- and Executive Vice President, the Vice President, Risk pendent access to the external auditor. IFC’s external and Finance and the Controller have concluded that auditors also follow the communication requirements these controls and procedures were effective as of with the Audit Committees as set out under generally June 30, 2023. accepted auditing standards in the United States. IFC 2023 ANNUAL REPORT FINANCIALS 53 SECTION X. Fast Track COVID-19 Facility (COVID Facility, or FTCF): World Bank Group package to support coun- try and private sector clients with the health and APPENDIX economic impacts of COVID-19. IFC Management has allocated 40 percent of its contribution to projects in IDA/FCS countries. IDA18: IDA’s Eighteenth Replenishment of Resources. GLOSSARY OF TERMS IDA19: IDA’s Nineteenth Replenishment of Resources. AMC Funds: IFC Asset Management Company (AMC), IDA20: IDA’s Twentieth Replenishment of Resources a division of IFC effective January 31, 2020, invests IDA-eligible countries: Countries eligible to borrow third-party capital and IFC capital, enabling out- from IDA on concessional terms. side investors to invest alongside IFC in developing markets. Investors in funds managed by AMC have IFC 3.0: Creating Markets and Mobilizing Private included sovereign wealth funds, national pension Capital is long-term strategy that is re-orienting IFC funds, multilateral and bilateral development institu- to a more deliberate and systematic approach to mar- tions, national development agencies and international ket development, particularly in IDA-eligible countries financial institutions (IFIs). These funds collectively are and Fragile and Conflict-affected Situations, and to referred to as the AMC Funds. more proactively marshal new sources of institutional capital to support private sector solutions in pursuit of Articles: IFC’s Articles of Agreement. the Twin Goals. Board: The Board of Directors as established by IFC’s Income Available for Designations: Income Available Articles of Agreement. for Designations (a non-U.S. GAAP measure) is used as Base of the Pyramid (BOP): Market segment com- a basis for designations of retained earnings. Beginning prised of all people with income below $8 per day in in FY20, IFC uses “income excluding unrealized gains purchasing power parity or who lack access to basic and losses on investments and borrowings” as the goods and services. metric for Income Available for Designations. Capital Adequacy: A measure of IFC’s ability to with- Paris Agreement: The Paris Agreement is the univer- stand unexpected shocks as IFC is required to maintain sal, legally binding global climate change agreement, a minimum level of capital available (Balance Sheet adopted at the Paris climate conference in December Capital less Designated Retained Earnings) equal to 2015. It sets out a global framework to avoid dangerous total potential losses for all on- and off-balance sheet climate change by limiting global warming and aims to exposures estimated at levels consistent with main- strengthen countries’ ability to deal with the impacts taining IFC’s AAA rating. of climate change and support them in their efforts. Capital Available: Under IFC’s economic capital Spring Meetings: The Spring Meetings of the framework, resources available to absorb potential International Monetary Fund and the Boards of losses, calculated as: Balance Sheet Capital less Governors of the World Bank Group is a gather- Designated Retained Earnings. ing that features the Development Committee and International Monetary and Financial Committee ple- Capital Required: Aggregate minimum Economic nary session to discuss work of the institutions. Capital required to maintain IFC’s AAA rating. Upstream: Upstream activities aim to unlock and/or Core Mobilization: Non-IFC financing or risk sharing create new, additional investment opportunities for arranged on commercial terms due to the active and which IFC is both willing and likely to be a financial direct involvement of IFC for the benefit of a Client. A partner. Upstream activities comprise IFC engagements Client is a legal entity to which IFC provides Advisory which aim to (i) Support the creation and realization of Services (AS) or Investment Services (IS). specific projects, for which IFC is a likely finance partner Capital Utilization Ratio (CUR): A ratio to measure (Transaction Upstream); and/or have a wider market or IFC’s capital adequacy expressed as Capital Required sectoral impact to facilitate private sector investment, divided by Capital Available. for which in turn IFC could be a potential financing partner (Creating Markets Upstream). Credit spread: A credit spread is the difference in yield between two bonds of similar maturity but different U.S. GAAP: Accounting principles generally accepted credit quality. in the United States of America. Economic Capital (EC): Minimum USD amount of UN: United Nations. capital required to meet expected and unexpected World Bank: The World Bank comprises IBRD and IDA. losses. For Financial Product(s), calculated as Exposure at Risk (EAR) multiplied by Economic Capital Ratio for World Bank Group (WBG): The World Bank Group relevant product/sub-product. consists of IBRD, IDA, IFC, MIGA, and ICSID. 54 IFC 2023 ANNUAL REPORT FINANCIALS ABBREVIATIONS AND ACRONYMS ABS Asset-Backed Securities IDA-PSW IDA Private Sector Window AIMM Anticipated Impact Measurement IEG Independent Evaluation Group and Monitoring IFC or the ALM Asset Liability Management Corporation International Finance Corporation AML/CFT Anti-Money Laundering/ IFIs International Financial Institutions Combating the Financing INT Integrity Vice Presidency of Terrorism ISDA International Swaps and ARRC Alternative Reference Rates Derivatives Association Committee ITSG Information and Technology BFC Blended Finance and Donor Funds Steering Group Committee KRIs Key Risk Indicators CAO Compliance Advisory/Ombudsman LCR Liquidity Coverage Ratios CBR Business Risk and Compliance Department LTF Long-Term Finance CECL Current Expected Credit Loss MBS Mortgage-Backed Securities CEG Sustainability and Gender Solutions MD Managing Director Department MD&A Management’s Discussion and CES Environmental and Social Policy Analysis and Risk Department MIGA Multilateral Investment Guarantee CMAW Creating Markets Advisory Window Agency COSO Committee of Sponsoring ML/TF Money Laundering And Organizations of the Treadway Terrorist Financing Commission MT IFC’s Management Team COVID-19 Coronavirus Disease 2019 NAV Net Asset Value CR Credit Rating NPLs Non-performing Loans CRC Corporate Risk Committee ORM IFC’s Operational Risk CRM Client Risk Management Management CUR Capital Utilization Ratio PBAC Pension Benefits Administration Committee E&S Environmental and Social PCRF Post-retirement Contributions EBC Ethics and Business Conduct Reserve Fund ERA Economic Resilience Action PEBP Post-Employment Benefit Plan ERM Enterprise Risk Management PFC Pension Finance Committee Framework PPP Public-Private Partnership ESG Environmental, Social & Governance PRI Political Risk Insurance ESRR E&S Risk Rating PSW Private Sector Window FCA Financial Conduct Authority RA Risk Appetite FCS Fragile and Conflict-Affected RCSA Risk and Control Self-Assessments Situations RSBP Retired Staff Benefits Plan FMTAAS Funding Mechanism for Technical SCI Selective Capital Increase Assistance and Advisory Services SLAs Service Level Agreements GCI General Capital Increase SMEs Small and Medium Enterprise GP General Partner SOFR Secured Overnight Financing Rate GTFP Global Trade Finance Program SRP Staff Retirement Plan IBOR STF Short-Term Finance Protocol ISDA 2020 IBOR Fallbacks Protocol T3PC Tier III Project Committee IBRD International Bank for Reconstruction and Development TCFD Task Force for Climate-Related Financial Disclosures ICSID International Centre for Settlement of Investment Disputes VPU Vice Presidency Unit IDA International Development Association IFC 2023 ANNUAL REPORT FINANCIALS 55 CONSOLIDATED FINANCIAL STATEMENTS AND INTERNAL CONTROL REPORTS 56 IFC 2023 ANNUAL REPORT FINANCIALS Page 61 Management's Report Regarding Effectiveness of Internal Control over Financial Reporting August 4, 2023 The management of the International Finance Corporation (IFC) is responsible for the preparation, integrity, and fair presentation of its published consolidated financial statements. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP) and include amounts based on informed judgments and estimates made by management. The consolidated financial statements have been audited by an independent audit firm, which was given unrestricted access to all financial records and related data, including minutes of all meetings of the Board of Directors and their Committees. Management believes that all representations made to the independent auditors during their audit of IFC's consolidated financial statements and audit of its internal control over financial reporting were valid and appropriate. The independent auditors’ reports accompany the audited consolidated financial statements. Management is responsible for establishing and maintaining effective internal control over financial reporting for financial statement presentations in conformity with US GAAP. Management maintains a comprehensive system of controls intended to ensure that transactions are executed in accordance with management's authorization, assets are safeguarded, and financial records are reliable. The system of internal control contains monitoring mechanisms, and actions are taken to correct deficiencies identified. Management believes that internal control over financial reporting supports the integrity and reliability of the external consolidated financial statements. There are inherent limitations in the effectiveness of any internal control, including the possibility of human error and the circumvention or overriding of controls. Accordingly, even effective internal controls can provide only reasonable assurance with respect to financial statement preparation. Further, because of changes in conditions, the effectiveness of internal controls may vary over time. IFC assessed its internal control over financial reporting for financial statement presentation in conformity with US GAAP as of June 30, 2023. This assessment was based on the criteria for effective internal control over financial reporting described in the Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based upon this assessment, management believes that IFC maintained effective internal control over financial reporting presented in conformity with US GAAP as of June 30, 2023. The independent audit firm that audited the consolidated financial statements has issued an Independent Auditors’ Report which expresses an opinion on IFC’s internal control over financial reporting. The Board of Directors has appointed an Audit Committee responsible for monitoring the accounting practices and internal controls of IFC. The Audit Committee is comprised entirely of Directors who are independent of IFC's management. The Audit Committee is responsible for recommending to the Board of Directors the selection of independent auditors. It meets periodically with management, the independent auditors, and the internal auditors to ensure that they are carrying out their responsibilities. The Audit Committee is responsible for performing an oversight role by reviewing and monitoring the financial, accounting and auditing procedures of IFC in addition to reviewing IFC's financial reports. The independent auditors and the internal auditors have full and free access to the Audit Committee, with or without the presence of management, to discuss the adequacy of internal control over financial reporting and any other matters which they believe should be brought to the attention of the Audit Committee. IFC 2023 ANNUAL REPORT FINANCIALS 57 Page 62 58 IFC 2023 ANNUAL REPORT FINANCIALS Page 63 INDEPENDENT AUDITOR’S REPORT President and Board of Directors International Finance Corporation Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of International Finance Corporation and its consolidated entities ("IFC") as of June 30, 2023, based on the criteria established in the Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, IFC maintained, in all material respects, effective internal control over financial reporting as of June 30, 2023, based on the criteria established in the Internal Control - Integrated Framework (2013) issued by COSO. We also have audited, in accordance with auditing standards generally accepted in the United States of America (GAAS), the consolidated financial statements as of and for the year ended June 30, 2023 of IFC, and our report dated August 4, 2023, expressed an unmodified opinion on those financial statements. Basis for Opinion We conducted our audit in accordance with GAAS. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of Internal Control over Financial Reporting section of our report. We are required to be independent of IFC and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Responsibilities of Management for Internal Control over Financial Reporting Management is responsible for designing, implementing, and maintaining effective internal control over financial reporting, and for its assessment about the effectiveness of internal control over financial reporting, included in the accompanying Management's Report Regarding Effectiveness of Internal Control over Financial Reporting. Auditor’s Responsibilities for the Audit of Internal Control over Financial Reporting Our objectives are to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects and to issue an auditor’s report that includes our opinion on internal control over financial reporting. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit of internal control over financial reporting conducted in accordance with GAAS will always detect a material weakness when it exists. In performing an audit of internal control over financial reporting in accordance with GAAS, we: • Exercise professional judgment and maintain professional skepticism throughout the audit. • Obtain an understanding of internal control over financial reporting, assess the risks that a material weakness exists, and test and evaluate the design and operating effectiveness of internal control over financial reporting based on the assessed risk. Definition and Inherent Limitations of Internal Control over Financial Reporting An entity's internal control over financial reporting is a process effected by those charged with governance, management, and other personnel, designed to provide reasonable assurance regarding the preparation of reliable financial statements in accordance with accounting principles generally accepted in the United States of America. An entity's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the entity; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the entity are being made only in accordance with authorizations of management and those charged with governance; and (3) provide reasonable assurance regarding prevention, or timely detection and correction of unauthorized acquisition, use, or disposition of the entity's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent, or detect and correct, misstatements. Also, projections of any assessment of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. August 4, 2023 IFC 2023 ANNUAL REPORT FINANCIALS 59 INTERNATIONAL FINANCE CORPORATION Page 66 CONSOLIDATED BALANCE SHEETS as of June 30, 2023 and June 30, 2022 (US$ in millions) June 30, 2023 June 30, 2022 Assets Cash and due from banks – Note C $ 1,051 $ 702 Time deposits – Note C 10,215 6,579 Trading securities – Notes C and R 31,020 30,891 (includes $6,446 and $5,517 securities pledged to creditors under repurchase agreements at June 30, 2023 and June 30, 2022 respectively) Securities purchased under resale agreements and receivable for cash collateral pledged – Notes C, R and W 5,192 8,178 Investments – Notes D, E, F, G, R and T Loans (includes $1,506 and $1,374 loans held at fair value at June 30, 2023 and June 30, 2022 respectively; net of reserve against losses of $1,209 and $1,209 at June 30, 2023 and June 30, 2022 respectively) – Notes D, E, R and T 31,414 26,223 Equity investments – Notes B, D, G, R and T 10,778 11,137 Debt securities – Notes D, F, R and T 9,310 6,733 (includes available-for-sale securities of $1,394 and $1,919, with associated amortized cost of $1,632 and $2,219, net of reserve against credit losses of $21 and $14 at June 30, 2023 and June 30, 2022 respectively) Total investments 51,502 44,093 Derivative assets – Notes B, C, Q, R and W 5,722 3,856 Receivables and other assets – Notes B, C, J, T and U 5,845 4,711 Total assets $ 110,547 $ 99,010 Liabilities and capital Liabilities Securities sold under repurchase agreements and payable for cash collateral received – Notes C and W $ 6,631 $ 6,223 Borrowings outstanding – Notes B, K and R From market and other sources at amortized cost 3,327 2,962 From market sources at fair value 48,873 44,963 From International Development Association at fair value 243 344 Total borrowings 52,443 48,269 Derivative liabilities – Notes B, C, Q, R and W 11,195 7,900 Payables and other liabilities – Notes B, C, E, L, T, U and V 5,240 3,813 Total liabilities 75,509 66,205 Capital Authorized capital, shares of $1,000 par value each – Note M (25,079,991 shares at June 30, 2023 and June 30, 2022) Subscribed capital 23,939 23,611 Less: unpaid portion of subscriptions (1,343) (1,862) Paid-in capital 22,596 21,749 Accumulated other comprehensive income (loss) – Note O 632 (82) Retained earnings – Note O 11,810 11,138 Total capital 35,038 32,805 Total liabilities and capital $ 110,547 $ 99,010 The notes to consolidated financial statements are an integral part of these statements. 60 IFC 2023 ANNUAL REPORT FINANCIALS INTERNATIONAL FINANCE CORPORATION Page 67 CONSOLIDATED STATEMENTS OF OPERATIONS for the three years ended June 30, 2023, June 30, 2022 and June 30, 2021 (US$ in millions) 2023 2022 2021 Income from investments Income from loans and guarantees, including realized gains and losses on loans and associated derivatives – Note E $ 2,290 $ 1,156 $ 1,116 (Provision) release of provision for losses on loans, off-balance sheet credit exposures and other receivables – Note E (22) (126) 201 Income from equity investments and associated derivatives – Note G 191 208 3,201 Income from debt securities, including realized gains and losses on debt securities and associated derivatives – Note F 518 414 340 Provision for losses on available-for-sale debt securities – Note F (7) (14) (3) Total income from investments 2,970 1,638 4,855 Income (loss) from liquid asset trading activities – Note C 1,464 (413) 327 Charges on borrowings – Note K (2,598) (302) (326) Income from investments and liquid asset trading activities, after charges on borrowings 1,836 923 4,856 Other income Upstream and Advisory services income – Note U 247 233 237 Service fees 128 142 146 Other – Notes N 143 44 212 Total other income 518 419 595 Other expenses Administrative expenses – Note V (1,430) (1,441) (1,355) Upstream and Advisory services expenses – Note U (317) (287) (277) Other, net – Note V 26 75 (55) Total other expenses (1,721) (1,653) (1,687) Foreign currency transaction (losses) gains on non-trading activities (86) 76 (148) Income (loss) before net unrealized gains and losses on non-trading financial instruments accounted for at fair value and grants to IDA 547 (235) 3,616 Net unrealized gains (losses) on non-trading financial instruments accounted for at fair value – Note P 125 (229) 806 Income (loss) before grants to IDA 672 (464) 4,422 Grants to IDA – Note O — — (213) Net income (loss) – Note S $ 672 $ (464) $ 4,209 The notes to consolidated financial statements are an integral part of these statements. IFC 2023 ANNUAL REPORT FINANCIALS 61 INTERNATIONAL FINANCE CORPORATION Page 68 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME for the three years ended June 30, 2023, June 30, 2022 and June 30, 2021 (US$ in millions) 2023 2022 2021 Net income (loss) – Note S $ 672 $ (464) $ 4,209 Other comprehensive income Unrealized gains and losses on debt securities Net unrealized gains (losses) on available-for-sale debt securities arising during the period 120 (254) 183 Reclassification adjustment for realized gains included in net income (income from debt securities and realized gains and losses on debt securities and associated derivatives) (65) (38) (33) Reclassification adjustment for impairments related to credit loss included in net income (Release of provision for losses on available-for-sale debt securities) 7 14 3 Net unrealized gains (losses) on debt securities 62 (278) 153 Unrealized gains and losses on borrowings Net unrealized (losses) gains arising during the period attributable to instrument-specific credit risk on borrowings at fair value under the Fair Value Option (62) 239 (270) Reclassification adjustment for realized gains included in net income upon derecognition of borrowings (charges on borrowings) 12 1 1 Net unrealized (losses) gains on borrowings (50) 240 (269) Net unrecognized net actuarial gains (losses) and unrecognized prior service credits (cost) on benefit plans – Note V 702 1,074 982 Total other comprehensive income 714 1,036 866 Total comprehensive income $ 1,386 $ 572 $ 5,075 The notes to consolidated financial statements are an integral part of these statements. 62 IFC 2023 ANNUAL REPORT FINANCIALS INTERNATIONAL FINANCE CORPORATION Page 69 CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL for the three years ended June 30, 2023, June 30, 2022 and June 30, 2021 Accumulated other Undesignated Designated Total comprehensive retained retained retained income (loss) – Paid-in Total (US$ in millions) earnings earnings earnings Note O capital capital At June 30, 2020 $ 7,166 $ 433 $ 7,599 $ (1,984) $ 19,567 $ 25,182 Cumulative effect of adoption of ASU 2016-13, effective July 1, 2020 (206) (206) (206) Year ended June 30, 2021 Net income 4,209 4,209 4,209 Other comprehensive income 866 866 Designation of retained earnings – Note O (44) 44 — — Expenditures against designated retained earnings – Note O 270 (270) — — Payments received for subscribed capital 1,193 1,193 At June 30, 2021 $ 11,395 $ 207 $ 11,602 $ (1,118) $ 20,760 $ 31,244 Year ended June 30, 2022 Net loss (464) (464) (464) Other comprehensive income 1,036 1,036 Designations of retained earnings – Note O (161) 161 — — Expenditures against designated retained earnings – Note O 70 (70) — — Payments received for subscribed capital 989 989 At June 30, 2022 $ 10,840 $ 298 $ 11,138 $ (82) $ 21,749 $ 32,805 Year ended June 30, 2023 Net income 672 672 672 Other comprehensive income 714 714 Designations of retained earnings – Note O (6) 6 — — Expenditures against designated retained earnings – Note O 83 (83) — — Payments received for subscribed capital 847 847 At June 30, 2023 $ 11,589 $ 221 $ 11,810 $ 632 $22,596 $ 35,038 The notes to consolidated financial statements are an integral part of these statements. IFC 2023 ANNUAL REPORT FINANCIALS 63 INTERNATIONAL FINANCE CORPORATION Page 70 CONSOLIDATED STATEMENTS OF CASH FLOWS for the three years ended June 30, 2023, June 30, 2022 and June 30, 2021 (US$ in millions) 2023 2022 2021 Cash flows from investing activities Loan disbursements $(13,354) $ (9,719) $ (9,277) Investments in equity securities (1,034) (1,471) (886) Investments in debt securities (3,818) (1,622) (1,117) Loan repayments 8,209 8,286 8,282 Debt securities repayments 1,066 898 717 Proceeds from sales of loans 67 11 89 Proceeds from sales of equity investments 1,405 2,567 2,365 Proceeds from sales of debt securities 81 185 242 Loan origination fees received 65 72 54 Investment in fixed assets (62) (50) (55) Net cash (used in) provided by investing activities (7,375) (843) 414 Cash flows from financing activities Medium and long-term borrowings Issuance 19,167 14,018 18,004 Retirement (14,393) (15,072) (17,329) Change in derivatives associated with borrowings, net (364) (160) (593) Short-term borrowings, net (308) 640 (802) Capital subscriptions 847 1,446 734 Net cash provided by financing activities 4,949 872 14 Cash flows from operating activities Net income (loss) 672 (464) 4,209 Adjustments to reconcile net income or loss to net cash provided by (used in) operating activities: Realized (gains) losses on loans and associated derivatives, net (8) 9 (14) Realized gains on debt securities and associated derivatives, net (75) (112) (57) Gains on equity investments and related derivatives, net (27) (25) (2,981) Net realized gains on extinguishment of borrowings (1) (8) (3) Provision (release of provision) 29 140 (198) Accretion of net discounts, premiums and loan origination fees 47 (54) (63) Depreciation expenses 56 71 60 Foreign currency transaction losses(gains) on non-trading activities 86 (76) 148 Net unrealized (gains) losses on non-trading financial instruments accounted for at fair value (125) 229 (806) Net discounts paid on retirement of borrowings (83) (3) (8) Change in accrued income on loans and debt securities (after swaps), net (287) (49) 69 Change in accrued expenses on borrowings (after swaps), net 498 119 (86) Change in liquid asset trading portfolio 6,539 (9,570) (1,114) Change in derivatives associated with loans and client risk management, net 349 514 211 Change in payables and other liabilities 306 267 350 Change in receivables and other assets (268) (349) (313) Net cash provided by (used in) operating activities 7,708 (9,361) (596) Change in cash and cash equivalents 5,282 (9,332) (168) Effect of exchange rate changes on cash and cash equivalents 195 (368) 436 Net change in cash and cash equivalents 5,477 (9,700) 268 Beginning cash and cash equivalents 3,322 13,022 12,754 Ending cash and cash equivalents $ 8,799 $ 3,322 $ 13,022 Composition of cash and cash equivalents Cash and due from banks 1,051 702 748 Time deposits with maturities under three months 7,748 2,620 12,274 Total cash and cash equivalents $ 8,799 $ 3,322 $ 13,022 The notes to consolidated financial statements are an integral part of these statements. 64 IFC 2023 ANNUAL REPORT FINANCIALS INTERNATIONAL FINANCE CORPORATION Page 71 CONSOLIDATED STATEMENTS OF CASH FLOWS for the three years ended June 30, 2023, June 30, 2022 and June 30, 2021 (US$ in millions) 2023 2022 2021 Supplemental disclosure Change in ending balances resulting from currency exchange rate fluctuations: Loans outstanding $ 114 $ (635) $ 383 Debt securities 15 (454) 106 Loan and debt security-related currency swaps (115) 972 (483) Borrowings 187 3,209 (1,957) Borrowing-related currency swaps (173) (3,156) 1,940 Charges on borrowings paid, net $ 2,183 $ 186 $ 422 Non-cash items: Loan and debt security conversion to equity, net $ 101 $ 54 $ 36 The notes to consolidated financial statements are an integral part of these statements. IFC 2023 ANNUAL REPORT FINANCIALS 65 INTERNATIONAL FINANCE CORPORATION Page 72 SUPPLEMENTAL INFORMATION: CONSOLIDATED STATEMENT OF CAPITAL STOCK AND VOTING POWER as of June 30, 2023 (US$ in 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 1,727 0.01 8,865 0.04 Ecuador 20,256 0.09 27,394 0.11 Albania 11,099 0.05 18,237 0.08 Egypt, Arab Republic of 102,017 0.45 109,155 0.46 Algeria 65,150 0.29 72,288 0.30 El Salvador 702 0.00 7,840 0.03 Angola 14,952 0.07 22,090 0.09 Equatorial Guinea 328 0.00 7,466 0.03 Antigua and Barbuda 99 0.00 7,237 0.03 Eritrea 7,129 0.03 14,267 0.06 Argentina 323,320 1.43 330,458 1.38 Estonia 12,176 0.05 19,314 0.08 Armenia 9,189 0.04 16,327 0.07 Eswatini 5,507 0.02 12,645 0.05 Australia 442,762 1.96 449,900 1.88 Ethiopia 2,036 0.01 9,174 0.04 Austria 182,542 0.81 189,680 0.79 Fiji 3,908 0.02 11,046 0.05 Azerbaijan 20,360 0.09 27,498 0.11 Finland 140,053 0.62 147,191 0.62 Bahamas, The 4,997 0.02 12,135 0.05 France 1,079,738 4.78 1,086,876 4.54 Bahrain 13,313 0.06 20,451 0.09 Gabon 9,668 0.04 16,806 0.07 Bangladesh 83,430 0.37 90,568 0.38 Gambia, The 717 0.00 7,855 0.03 Barbados 2,752 0.01 9,890 0.04 Georgia 12,768 0.06 19,906 0.08 Belarus 42,439 0.19 49,577 0.21 Germany 1,205,926 5.34 1,213,064 5.07 Belgium 451,559 2.00 458,697 1.92 Ghana 42,286 0.19 49,424 0.21 Belize 1,348 0.01 8,486 0.04 Greece 63,374 0.28 70,512 0.29 Benin 1,986 0.01 9,124 0.04 Grenada 1,576 0.01 8,714 0.04 Bhutan 5,490 0.02 12,628 0.05 Guatemala 8,265 0.04 15,403 0.06 Bolivia 14,502 0.06 21,640 0.09 Guinea 2,585 0.01 9,723 0.04 Bosnia and Herzegovina 7,115 0.03 14,253 0.06 Guinea-Bissau 137 0.00 7,275 0.03 Botswana 2,094 0.01 9,232 0.04 Guyana 12,119 0.05 19,257 0.08 Brazil 423,812 1.88 430,950 1.80 Haiti 6,267 0.03 13,405 0.06 Brunei Darussalam 2,503 0.01 9,641 0.04 Honduras 4,407 0.02 11,545 0.05 Bulgaria 56,666 0.25 63,804 0.27 Hungary 117,492 0.52 124,630 0.52 Burkina Faso 8,849 0.04 15,987 0.07 Iceland 2,619 0.01 9,757 0.04 Burundi 1,792 0.01 8,930 0.04 India 918,530 4.07 925,668 3.87 Cabo Verde 114 0.00 7,252 0.03 Indonesia 286,520 1.27 293,658 1.23 Cambodia 3,943 0.02 11,081 0.05 Iran, Islamic Republic of 11,010 0.05 18,148 0.08 Cameroon 6,748 0.03 13,886 0.06 Iraq 4,946 0.02 12,084 0.05 Canada 796,137 3.52 803,275 3.36 Ireland 22,493 0.10 29,631 0.12 Central African Republic 907 0.00 8,045 0.03 Israel 26,000 0.12 33,138 0.14 Chad 10,400 0.05 17,538 0.07 Italy 725,763 3.21 732,901 3.06 Chile 96,428 0.43 103,566 0.43 Jamaica 32,648 0.14 39,786 0.17 China 671,360 2.97 678,498 2.84 Japan 1,800,442 7.97 1,807,580 7.56 Colombia 126,293 0.56 133,431 0.56 Jordan 7,175 0.03 14,313 0.06 Comoros 107 0.00 7,245 0.03 Kazakhstan 35,355 0.16 42,493 0.18 Congo, Democratic Republic of 19,833 0.09 26,971 0.11 Kenya 30,811 0.14 37,949 0.16 Congo, Republic of 999 0.00 8,137 0.03 Kiribati 91 0.00 7,229 0.03 Costa Rica 9,242 0.04 16,380 0.07 Korea, Republic of 294,491 1.30 301,629 1.26 Cote d'Ivoire 39,129 0.17 46,267 0.19 Kosovo 14,231 0.06 21,369 0.09 Croatia 26,204 0.12 33,342 0.14 Kuwait 134,106 0.59 141,244 0.59 Cyprus 20,936 0.09 28,074 0.12 Kyrgyz Republic 13,114 0.06 20,252 0.08 Czechia 90,192 0.40 97,330 0.41 Lao People's Democratic 2,344 0.01 9,482 0.04 Republic Denmark 170,267 0.75 177,405 0.74 Latvia 19,183 0.08 26,321 0.11 Djibouti 160 0.00 7,298 0.03 Lebanon 1,029 0.00 8,167 0.03 Dominica 1,086 0.00 8,224 0.03 Lesotho 1,474 0.01 8,612 0.04 Dominican Republic 9,050 0.04 16,188 0.07 Liberia 633 0.00 7,771 0.03 The notes to consolidated financial statements are an integral part of these statements. 66 IFC 2023 ANNUAL REPORT FINANCIALS INTERNATIONAL FINANCE CORPORATION Page 73 SUPPLEMENTAL INFORMATION: CONSOLIDATED STATEMENT OF CAPITAL STOCK AND VOTING POWER as of June 30, 2023 (US$ in 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 Libya 419 0.00 7,557 0.03 Saudi Arabia 519,298 2.30 526,436 2.20 Lithuania 22,912 0.10 30,050 0.13 Senegal 17,986 0.08 25,124 0.11 Luxembourg 23,835 0.11 30,973 0.13 Serbia 17,306 0.08 24,444 0.10 Madagascar 6,834 0.03 13,972 0.06 Seychelles 206 0.00 7,344 0.03 Malawi 13,892 0.06 21,030 0.09 Sierra Leone 2,730 0.01 9,868 0.04 Malaysia 126,614 0.56 133,752 0.56 Singapore 8,789 0.04 15,927 0.07 Maldives 668 0.00 7,806 0.03 Slovak Republic 44,473 0.20 51,611 0.22 Mali 5,274 0.02 12,412 0.05 Slovenia 16,115 0.07 23,253 0.10 Malta 15,807 0.07 22,945 0.10 Solomon Islands 282 0.00 7,420 0.03 Marshall Islands 5,055 0.02 12,193 0.05 Somalia 633 0.00 7,771 0.03 Mauritania 1,632 0.01 8,770 0.04 South Africa 132,805 0.59 139,943 0.58 Mauritius 16,674 0.07 23,812 0.10 South Sudan 14,334 0.06 21,472 0.09 Mexico 232,794 1.03 239,932 1.00 Spain 384,897 1.70 392,035 1.64 Micronesia, Federated States of 5,673 0.03 12,811 0.05 Sri Lanka 57,116 0.25 64,254 0.27 Moldova 9,089 0.04 16,227 0.07 St. Kitts and Nevis 4,864 0.02 12,002 0.05 Mongolia 1,769 0.01 8,907 0.04 St. Lucia 564 0.00 7,702 0.03 Montenegro 7,891 0.03 15,029 0.06 Sudan 846 0.00 7,984 0.03 Morocco 85,967 0.38 93,105 0.39 Suriname 4,727 0.02 11,865 0.05 Mozambique 2,455 0.01 9,593 0.04 Sweden 234,918 1.04 242,056 1.01 Myanmar 5,078 0.02 12,216 0.05 Switzerland 386,653 1.71 393,791 1.65 Namibia 3,080 0.01 10,218 0.04 Syrian Arab Republic 1,479 0.01 8,617 0.04 Nepal 6,267 0.03 13,405 0.06 Tajikistan 9,241 0.04 16,379 0.07 Netherlands 497,510 2.20 504,648 2.11 Tanzania 8,923 0.04 16,061 0.07 New Zealand 47,437 0.21 54,575 0.23 Thailand 117,536 0.52 124,674 0.52 Nicaragua 6,911 0.03 14,049 0.06 Timor-Leste 5,924 0.03 13,062 0.05 Niger 1,121 0.00 8,259 0.03 Togo 6,161 0.03 13,299 0.06 Nigeria 270,840 1.20 277,978 1.16 Tonga 1,226 0.01 8,364 0.03 North Macedonia 5,932 0.03 13,070 0.05 Trinidad and Tobago 31,352 0.14 38,490 0.16 Norway 153,102 0.68 160,240 0.67 Tunisia 33,486 0.15 40,624 0.17 Oman 11,002 0.05 18,140 0.08 Türkiye 146,063 0.65 153,201 0.64 Pakistan 175,264 0.78 182,402 0.76 Turkmenistan 6,176 0.03 13,314 0.06 Palau 191 0.00 7,329 0.03 Tuvalu 520 0.00 7,658 0.03 Panama 7,678 0.03 14,816 0.06 Uganda 5,604 0.02 12,742 0.05 Papua New Guinea 8,745 0.04 15,883 0.07 Ukraine 77,458 0.34 84,596 0.35 Paraguay 3,324 0.01 10,462 0.04 United Arab Emirates 30,750 0.14 37,888 0.16 Peru 79,537 0.35 86,675 0.36 United Kingdom 1,079,738 4.78 1,086,876 4.54 Philippines 121,863 0.54 129,001 0.54 United States 4,341,278 19.21 4,348,416 18.18 Poland 74,893 0.33 82,031 0.34 Uruguay 27,212 0.12 34,350 0.14 Portugal 63,467 0.28 70,605 0.30 Uzbekistan 35,920 0.16 43,058 0.18 Qatar 12,581 0.06 19,719 0.08 Vanuatu 419 0.00 7,557 0.03 Romania 46,100 0.20 53,238 0.22 Venezuela, Republica Bolivariana de 210,347 0.93 217,485 0.91 Russian Federation 784,211 3.47 791,349 3.31 Vietnam 3,401 0.02 10,539 0.04 Rwanda 2,333 0.01 9,471 0.04 Yemen, Republic of 5,452 0.02 12,590 0.05 Samoa 1,063 0.00 8,201 0.03 Zambia 15,953 0.07 23,091 0.10 Sao Tome and Principe 3,347 0.01 10,485 0.04 Zimbabwe 24,513 0.11 31,651 0.13 * May differ from the sum of individual percentages shown because of rounding Total June 30, 2023 22,595,632 100.00* 23,923,300 100.00* Total June 30, 2022 21,749,150 100.00* 23,027,156 100.00* The notes to consolidated financial statements are an integral part of these statements. IFC 2023 ANNUAL REPORT FINANCIALS 67 INTERNATIONAL FINANCE CORPORATION Page 74 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS PURPOSE The International Finance Corporation (IFC), an international organization, was established in 1956 to further economic development in its member countries by encouraging the growth of private enterprise. IFC is a member of the World Bank Group (WBG), which also comprises the International Bank for Reconstruction and Development (IBRD), the International Development Association (IDA), the Multilateral Investment Guarantee Agency (MIGA), and the International Centre for Settlement of Investment Disputes (ICSID). Each member is legally and financially independent. Transactions with other World Bank Group members are disclosed in the notes that follow. IFC’s activities are closely coordinated with and complement the overall development objectives of the other World Bank Group institutions. IFC, together with private investors, assists in financing the establishment, improvement and expansion of private sector enterprises by making loans, equity investments and investments in debt securities where sufficient private capital is not otherwise available on reasonable terms. IFC’s share capital is provided by its member countries. It raises most of the funds for its investment activities through the issuance of notes, bonds and other debt securities in the international capital markets. IFC also plays a catalytic role in mobilizing additional funding from other investors and lenders through parallel loans, loan participations, partial credit guarantees, securitizations, loan sales, risk sharing facilities, fund investments 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 POLICIES The consolidated financial statements include the financial statements of IFC and its consolidated entities. The accounting and reporting policies of IFC conform with accounting principles generally accepted in the United States of America (U.S. 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 operations in accordance with U.S. GAAP. Consolidated Financial Statements presentation – Certain amounts in prior years have been changed to conform to the current year’s presentation. IFC aligned the presentation of foreign currency gains and losses on borrowings with the foreign currency gains and losses on currency swaps which economically hedge those borrowings in the second quarter of the year ended June 30, 2021. This resulted in a change in classification of foreign currency gains and losses on borrowings from “Foreign currency transaction gains (losses) on non-trading activities,” to “Net unrealized (losses) gains on non-trading financial instruments accounted for at fair value”. As a result of this change in classification, the impact for the year ended June 30, 2021 includes $108 million decrease in the foreign currency loss on borrowings, and an equivalent amount of decrease in the unrealized gain on non-trading financial instruments accounted for at fair value. The change in presentation had no impact on IFC’s net income and was immaterial for prior periods. Functional currency – IFC’s functional currency is the United States dollar (U.S. dollars, US$ 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 off-balance sheet credit exposures; impairment of debt securities; estimated fair values of financial instruments accounted for at fair value (including equity investments, debt securities, loans, trading securities, borrowings and derivative instruments); projected pension 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 credit losses on loans, off-balance sheet credit exposures, and available-for-sale debt securities. IFC undertakes continuous review and analysis of these models with the objective of refining its estimates, consistent with evolving best practices appropriate to its operations. Changes in estimates resulting from refinements in the assumptions and methodologies incorporated in the models are reflected in net income in the period in which the enhanced models are first applied. Consolidation, non-controlling interests and variable interest entities – IFC consolidates: i. entities where IFC holds the majority voting rights, unless noncontrolling shareholders/limited partners have substantive participating rights or other rights that would overcome the presumption of control by the majority owner; ii. limited partnerships in which it is the general partner, unless the presumption of control is overcome by certain management participation or other rights held by noncontrolling shareholders/limited partners; and iii. variable interest entities (VIEs) for which IFC is deemed to be the VIE's primary beneficiary (together, consolidated entities). Significant intercompany accounts and transactions are eliminated in consolidation. The notes to consolidated financial statements are an integral part of these statements. 68 IFC 2023 ANNUAL REPORT FINANCIALS INTERNATIONAL FINANCE CORPORATION Page 75 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) An entity is a VIE if: i. its equity is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties; ii. its equity investors do not have decision-making rights about the entity's operations; or iii. its equity investors do not absorb the expected losses or receive the expected returns of the entity proportionally to their voting rights. A variable interest is a contractual, ownership or other interest whose value changes as the fair value of the VIE's net assets change. IFC's variable interests in VIEs arise from financial instruments, service contracts, guarantees, leases or other monetary interests in those entities. IFC is considered to be the primary beneficiary of a VIE if it has the power to direct the VIE's activities that most significantly impact its economic performance and the obligation to absorb losses of or the right to receive benefits from the VIE that could potentially be significant to the VIE. Fair Value Option – IFC has elected the Fair Value Option under the subsections of ASC Topic 825, Financial Instruments (ASC 825 or the Fair Value Option) for several of its financial assets and financial liabilities. ASC 825 permits, on an instrument-by-instrument basis, the measurement of eligible financial assets, financial liabilities and firm commitments at fair value 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. IFC has elected the Fair Value Option (FVO) for the following financial assets and financial liabilities: i. direct equity investments which give IFC significant influence, which in the absence of FVO, would have to be accounted for under equity method and all other financial interests in the investee (e.g., guarantees, loans) ii. all market borrowings that are economically hedged with financial instruments accounted for at fair value with changes therein reported in income; iii. borrowings from IDA; effective July 1, 2018: iv. substantially all investments in debt securities; and v. substantially all hybrid instruments in the loan investment portfolio; All borrowings for which the FVO has been elected are economically hedged with derivative or other financial instruments accounted for at fair value with changes in fair value reported in earnings as such changes occur. Measuring at fair value those borrowings for which the FVO has been elected mitigates the earnings volatility that would otherwise occur, due to measuring the borrowings and related economic hedges differently, without having to apply ASC Topic 815, Derivatives and Hedging (ASC 815)'s complex hedge accounting requirements. Measuring at fair value those equity investments that would otherwise require equity method accounting simplifies the accounting and renders a carrying amount on the consolidated balance sheet based on a measure (fair value) that IFC considers preferable to equity method accounting. For the investments that otherwise would require equity method accounting for which the FVO is elected, ASC 825 requires the FVO to also be applied to all eligible financial interests in the same entity. IFC has disbursed loans and issued guarantees to some of those investees; therefore, the FVO is also applied to those loans and issued guarantees. The FVO has been elected for substantially all investments in debt securities and hybrid loan instruments recognized after June 30, 2018. Among other things, measuring all investments in debt securities and hybrid loan instruments at fair value eliminates the requirement to bifurcate the host and embedded derivative that may have otherwise applied in certain instances, results in more accounting consistency across IFC’s investment portfolio and results in a measurement method that is consistent with the manner in which the portfolio is managed. Fair Value Measurements IFC adopted FASB Accounting Standards Codification (ASC) Topic 820, Fair Value Measurements and Disclosures (ASC 820). 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. The notes to consolidated financial statements are an integral part of these statements. IFC 2023 ANNUAL REPORT FINANCIALS 69 INTERNATIONAL FINANCE CORPORATION Page 76 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 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 and, 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. ASC 820 establishes a fair value hierarchy which gives the highest priority to unadjusted quoted prices in active markets for identical unrestricted assets and liabilities (Level 1), the next highest priority to observable market-based inputs or unobservable inputs that are corroborated by market data from independent sources (Level 2) and the lowest priority to unobservable inputs that are not corroborated by market data (Level 3). Fair value measurements are required to maximize the use of available observable inputs. Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date. Level 2: Other than quoted prices included in Level 1, inputs that are observable for the asset or liability, either directly or indirectly for substantially the full term of the asset or liability. It includes quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and 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. Level 3: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date. It consists of financial instruments whose fair value is estimated based on internally developed models or methodologies utilizing significant inputs that are unobservable. 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. IFC’s policy is to recognize transfers in and transfers out of levels as of the beginning of the reporting period in which they occur. 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 (ASC 946). If the NAV is not as of IFC’s measurement date, IFC adjusts the most recent NAV, as necessary, to estimate a NAV for the investment that is calculated in a manner consistent with the fair value measurement principles established by ASC 820. Remeasurement of foreign currency transactions – Monetary assets and liabilities not denominated in U.S. dollars, are expressed in U.S. dollars at the exchange rates prevailing at end of each reporting period. 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 FVO as discussed above. Unrealized gains and losses on loans accounted for at fair value under the FVO are reported in Net unrealized gains and losses on non-trading financial instruments accounted for at fair value on the consolidated statement of operations. 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. The notes to consolidated financial statements are an integral part of these statements. 70 IFC 2023 ANNUAL REPORT FINANCIALS INTERNATIONAL FINANCE CORPORATION Page 77 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Revenue recognition on loans – Interest income and commitment fees on loans are recorded as income on an accrual basis. Loan origination fees and direct loan origination costs are deferred and amortized over the estimated life of the originated loan; such amortization is determined using the interest method unless the loan is a revolving credit facility in which case amortization is determined using the straight-line method. Prepayment fees are recorded as income when received. IFC has elected to present interest income separately from other changes in the fair value of loans measured at fair value through earnings under the FVO. IFC applies cost recovery or cash method for recognizing interest income from certain debt securities and beneficial interests accounted for as debt securities whose cash flows cannot be reliably estimated. 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. Accrued interest balances are reported within receivables and other assets on the consolidated balance sheets. IFC elected not to measure expected credit losses for accrued interest receivables related to its loans and the available-for-sale securities portfolio as IFC’s policy is to write-off uncollectible accrued interest receivable balances in a timely manner. Accrued interest is written off by reversing interest income during the quarter the financial asset is moved from an accrual to a nonaccrual status. Reserve against losses on loans and off-balance sheet credit arrangements Effective July 1, 2020, pursuant to Accounting Standards Update 2016-13, Measurement of Credit Losses on Financial Instruments and related amendments, which is incorporated in ASC Topic 326, Financial Instruments-Credit Losses (ASC 326), IFC adopted ASC 326 to replace the incurred loss methodology for recognizing credit losses in place at June 30, 2020. In accordance with ASC 326, IFC recognizes a reserve for credit losses that is deducted from the amortized cost basis of the financial asset to present the net amount expected to be collected on the financial asset on the balance sheet. In developing the estimate of expected credit losses in accordance with ASC 326, IFC introduced a credit loss methodology that reflects an estimate of expected credit losses over the remaining contractual life of a financial asset, considering forward-looking information. IFC considered the relevant inputs and assumptions required to perform the estimate. These included, but are not limited to, historical and current loan portfolio data, data relevant to current economic conditions, and data relevant to reasonable and supportable forecasts of economic conditions. Inputs and assumptions are quantitative or qualitative in nature. In particular, the forecast of key economic variables relevant to the loan portfolio is one of the critical assumptions to IFC’s estimation of expected credit losses. The forecast of economic variables are credit loss drivers that produce a macro-economic response estimate of loss over the 3-year period that IFC deems to be reasonable and supportable. For periods beyond the reasonable and supportable forecast period, expected credit losses are estimated by reverting to historical loss information without adjustment for changes in economic conditions. This reversion is phased in over a one-year period on a straight-line basis. The segmentation process is based on a facility and credit rating, with certain assumptions segmented by industry. The facility rating applies to an individual investment product and provides information on the amount of loss that IFC is likely to incur on that product if the obligor defaults. IFC’s forecast of expected credit losses is based on the probability of a loan defaulting associated with each credit risk rating, the expected loss percentage given a default associated with each facility risk rating, and the expected balance at the estimated date of default. The estimate of the expected balance at the time of default considers a prepayment assumption and, for loans with available credit, a disbursement assumption that estimates expected utilization rates. The reserve against losses on loans are established through a review process undertaken on a quarterly basis and has two main components: (a) a portfolio reserve for expected losses determined from the historical loss rates, adjusted for qualitative factors, and forecasted expected losses on the segments associated with the loan class with similar risk characteristics; and (b) an individual reserve which is a separate reserve representing the reserve assigned to individually evaluated loans that do not share similar risk characteristics with other loans. IFC considers its entire loan portfolio to comprise one portfolio segment and defines the one major category of loans to be the grouping of the loan receivable based on risk characteristics and the method for monitoring and assessing credit risk. The risks inherent in the portfolio that are considered in determining the portfolio reserve 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 a borrower's financial statements. For individual reserve, loans identified as not sharing similar risk characteristics with other assets are individually evaluated for the net amount expected to be collected and reserve is determined for them outside of the portfolio reserve computation. Information and events, with respect to the borrower and/or the economic and political environment in which it operates, that are considered in determining a loss reserve include, but are not limited to, the borrower’s financial difficulties, assessing the risk of 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. Loans modified as troubled debt restructuring, as well as loans placed in nonaccrual status are individually evaluated for the net amount expected to be collected. The notes to consolidated financial statements are an integral part of these statements. IFC 2023 ANNUAL REPORT FINANCIALS 71 INTERNATIONAL FINANCE CORPORATION Page 78 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Individually evaluated loans are measured based on the present value of expected future cash flows to be received, or for loans that are dependent on collateral for repayment, the estimated fair value of the collateral, less the cost to sell. IFC recognizes reserve 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. Loans are written-off along with its reserve against losses when IFC has exhausted all possible means of recovery. The reductions in the reserve are partially offset by recoveries which are considered in the reserving process, if any, associated with previously written-off loans. In accordance with ASC 326, IFC recognizes a reserve for credit losses on off-balance sheet credit exposures for guarantees that are not measured at fair value and other off-balance sheet arrangements, primarily loans committed but not disbursed, based on expected credit losses over the contractual period in which IFC is exposed to credit risk via a present contractual obligation to extend credit, unless that obligation is unconditionally cancellable by IFC. Reserve against losses on off-balance sheet credit exposures are included within Payables and other liabilities on the consolidated balance sheets, with changes recognized through provision for losses on loans in net income. Methodologies for estimating the reserve for credit losses on off-balance sheet credit exposures, including loans committed but not disbursed, are generally consistent with methodologies for estimating the reserve for credit losses for the disbursed loan portfolio, as discussed above as applicable, but is subject to an additional parameter reflecting the likelihood that funding will occur. 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. Pursuant to Accounting Standards Update 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities (ASU 2016-01) and ASC Topic 321, Investments – Equity Securities (ASC 321), effective July 1, 2018, all equity investments are measured at fair value, with unrealized gains and losses reported in net income. IFC’s investments in certain private equity funds in which IFC is deemed to have a controlling financial interest, are consolidated by IFC, as the presumption of control by the fund manager or the general partner has been overcome. Certain equity investments, for which recovery of invested capital is uncertain, are accounted for under the cost recovery method, such that receipts are first applied to recovery of invested capital and then to income from equity investments. The cost recovery method is applied to IFC's investments in its natural resources 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 are reported in income from equity investments and associated derivatives on the consolidated statements of operations. Realized gains on the sale or redemption of equity investments are measured against the average cost of the investments sold. Dividends on listed equity investments are recorded on the ex-dividend date, and dividends on unlisted equity investments are recorded upon receipt of notice of declaration. Realized gains on listed equity investments are recorded on trade date, and realized gains on unlisted equity investments are recorded upon incurring the obligation to deliver the applicable shares. Losses are recognized when incurred. IFC enters into put options, call options and warrant agreements in connection with equity investments; these are accounted for in accordance with ASC 815 to the extent they meet the definition of a derivative. Put options, call options and warrant agreements that do not meet the definition of a derivative are measured at fair value with unrealized gains and losses recognized in earnings in accordance with ASC 321 and included in “Equity investments” on the consolidated balance sheets. Gains and losses on debt conversions and exchanges of equity interests – Loan and debt security conversions to equity interests are based on the fair value of the equity interests received. Transfers of equity interests in exchange for equity interests in other entities and other non-cash transactions are generally accounted for based on the fair value of the asset relinquished unless the fair value of the asset received is more clearly evident in which case the accounting is based on the fair value of the asset received. The difference between the fair value of the asset received and the recorded amount of the asset relinquished is recorded as a gain or loss in the consolidated statements of operations. Debt securities – Debt securities in the investment portfolio classified as available-for-sale are carried at fair value on the consolidated balance sheets with unrealized gains and losses included in accumulated other comprehensive income until realized. IFC has elected to present interest income separately from other changes in the fair value of debt securities measured at fair value through earnings under the FVO. Unrealized gains and losses on debt securities accounted for at fair value under the FVO are reported in “Net unrealized gains and losses on non-trading financial instruments accounted for at fair value” on the consolidated statements of operations. The notes to consolidated financial statements are an integral part of these statements. 72 IFC 2023 ANNUAL REPORT FINANCIALS INTERNATIONAL FINANCE CORPORATION Page 79 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) IFC invests in certain debt securities with conversion features; if the hybrid instrument is not measured at fair value with unrealized gains and losses reported in net income, these features are accounted for in accordance with ASC 815 to the extent they meet the definition of a derivative. Impairment of debt securities IFC adopted the guidance under ASC 326 for available-for-sale debt securities by amending the impairment model to determine whether all or a portion of the unrealized loss on such securities is a credit loss, and recognizing a reserve for credit losses, instead of recording a write-down as required by pre-ASC 326 guidance. In determining whether all or a portion of the unrealized loss on such securities is a credit loss, IFC considers all relevant information including the extent to which fair value has been less than amortized cost, whether IFC intends to sell the debt security or whether it is more likely than not that IFC will be required to sell the debt security, the payment structure of the obligation and the ability of the issuer to make scheduled interest or principal payments, any changes to the ratings of a security, and relevant adverse conditions specifically related to the security, an industry or geographic sector. Debt securities in the investment portfolio classified as available-for-sale are assessed for impairment each quarter. When impairment is identified, the entire impairment is recognized in net income if (1) IFC intends to sell the security, or (2) it is more likely than not that IFC will be required to sell the security before recovery. However, if IFC does not intend to sell the security and it is not more likely than not that IFC will be required to sell the security but the security has a credit loss, the impairment charge is separated into two components: (1) the credit loss component, which is recognized as a reserve for credit losses (through net income), limited to the amount by which the security’s amortized cost basis exceeds the fair value, and reversal of impairment losses are allowed when the credit of the issuer improves, and (2) the noncredit related impairment losses, which are recorded in other comprehensive income. Guarantees – IFC extends financial guarantee facilities to its clients to provide credit enhancement for their debt security issuances and loan obligations. As part of these financial guarantee facilities, IFC offers partial credit guarantees to clients covering, on a risk- sharing basis, client obligations on bonds or loans. Under the terms of IFC's guarantees, IFC agrees to assume responsibility for the client’s financial obligations in the event of default by the client (i.e., failure to pay when payment is due). Guarantees are regarded as issued when IFC commits to the guarantee. Guarantees are regarded as outstanding when the underlying financial obligation of the client is incurred, and this date is considered to be the “inception” of the guarantee. Guarantees are regarded as called when IFC’s obligation under the guarantee has been invoked. There are two liabilities associated with the guarantees: (i) the stand-ready obligation to perform and (ii) the contingent liability. The fair value of the stand-ready obligation to perform is recognized at the inception of the guarantee. For guarantees that are within scope of ASC 326, the expected credit losses (the contingent liability) associated with the financial guarantee is measured and accounted for in addition to and separately from the IFC’s liability recognized for the stand-ready obligation to perform. Guarantee fees are recorded in income as the stand-ready obligation to perform is fulfilled. Commitment fees on guarantees are recorded as income on an accrual basis. All liabilities associated with guarantees are included in payables and other liabilities, and the receivables are included in other assets on the consolidated balance sheet. Designations of retained earnings – IFC establishes funding mechanisms for specific Board-approved purposes through designations of retained earnings. Designations of retained earnings for grants to IDA are recorded as a transfer from undesignated retained earnings to designated retained earnings when the designation is noted with approval 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 approved by the Board of Directors. Expenditures resulting from such designations are recorded as expenses in IFC’s consolidated statement of operations in the year in which they are incurred and reduces the respective designated retained earnings for such purposes. Expenditures are deemed to have been incurred when IFC has ceded control of the funds to the recipient. Liquid assets portfolios – The liquid assets portfolios mainly consists of: time deposits and securities; related derivative instruments; securities purchased under resale agreements and receivable for cash collateral pledged, securities sold under repurchase agreements and payable for cash collateral received; receivables from sales of securities and payables for purchases of securities; and related accrued income and charges. IFC’s liquid funds are invested in government, agency and government-sponsored agency obligations, time deposits and asset-backed, including mortgage-backed, securities. Government and agency obligations include positions in high- quality fixed rate bonds, notes, bills, and other obligations issued or unconditionally guaranteed by governments of countries or other official entities including government agencies and instrumentalities or by multilateral organizations. Asset-backed and mortgage- backed securities include agency and non-agency residential mortgage-backed securities, commercial mortgage-backed securities, consumer, auto and student loan-backed securities, commercial real estate collateralized debt obligations and collateralized loan obligations. Securities and related derivative instruments within IFC’s liquid assets portfolios are classified as trading and, with the exception of cash equivalent securities which are carried at amortized cost, 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. The notes to consolidated financial statements are an integral part of these statements. IFC 2023 ANNUAL REPORT FINANCIALS 73 INTERNATIONAL FINANCE CORPORATION Page 80 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Cash and cash equivalents – IFC classifies cash and due from banks as cash and time deposits with original maturities of three months or less as cash equivalents in the consolidated statement of cash flows (collectively, cash and cash equivalents) because they are generally readily convertible to known amounts of cash within three months of acquisition, generally when the original maturities for such instruments are three months or less, or six months or less when the time deposit is optionally redeemable within three months. Repurchase, resale and securities lending agreements – Repurchase agreements are contracts under which a party sells securities and simultaneously agrees to repurchase the same securities at a specified future date at a fixed price. Resale agreements are contracts under which a party purchases securities and simultaneously agrees to resell the same securities at a specified future date at a fixed price. Securities lending agreements are similar to repurchase agreements except that the securities loaned are securities that IFC has received as collateral under unrelated agreements and allowed by contract to rehypothecate. Amounts due under securities lending agreements are included in securities sold under repurchase agreements and payable for cash collateral received on the consolidated balance sheet. It is IFC’s policy to take possession of securities purchased under resale agreements, which are primarily liquid government securities. The market value of these securities is monitored and, within parameters defined in the agreements, additional collateral is obtained when their value declines. IFC also monitors its exposure with respect to securities sold under repurchase agreements and, in accordance with the terms of the agreements, requests the return of excess securities held by the counterparty when their value increases. Repurchase, resale and securities lending agreements are accounted for as collateralized financing transactions and recorded at the amount at which the securities were acquired or sold plus accrued interest. Borrowings – To diversify its access to funding, and reduce its borrowing costs, IFC borrows in a variety of currencies and uses a number of borrowing structures, including foreign exchange rate-linked, inverse floating rate and zero coupon notes. In managing the currency exposure inherent in borrowing in a variety of currencies, generally, IFC either simultaneously converts such borrowings into variable rate U.S. dollar borrowings through the use of currency and interest rate swap transactions or utilizes liquid asset portfolio or debt investments denominated in the same currency to economically hedge changes in the fair value of certain borrowings. Under certain outstanding borrowing agreements, IFC is not permitted to mortgage or allow a lien to be placed on its assets (other than purchase money security interests) without extending equivalent security to the holders of such borrowings. Interest on borrowings and amortization of premiums and accretion of discounts are reported in charges on borrowings. Substantially all borrowings are carried at fair value under the Fair Value Option. All changes in the fair value of these borrowings resulting from changes in instrument-specific credit risk is reported in “other comprehensive income”, while the remaining change in fair value is reported in Net unrealized gains and losses on non-trading financial instruments accounted for at fair value in the consolidated statement of operations. Risk management and use of derivative instruments – IFC enters into transactions in various derivative instruments primarily for financial risk management purposes in connection with its principal business activities, including lending, investing in debt securities and equity investments, client risk management, borrowing, liquid asset portfolio management and asset and liability management. There are no derivatives designated as accounting hedges. All derivative instruments are recorded on the consolidated balance sheet at fair value as derivative assets or derivative liabilities. Where they are not clearly and closely related to the host contract, certain derivative instruments embedded in loans and debt securities are bifurcated from the host contract and recorded at fair value as derivative assets or liabilities unless the hybrid instrument is accounted for at fair value with any changes in fair value reported in income. The fair value at inception of such bifurcated 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 unrealized gains and losses on non-trading financial instruments accounted for at fair value. The risk management policy for each of IFC’s principal business activities and the accounting policies particular to them are described below. Lending activities IFC’s policy is to closely match the currency, interest rate basis, and maturity of its loans and borrowings. Derivative instruments are used to convert the cash flows from fixed rate U.S. dollar or non-U.S. dollar loans into variable rate U.S. dollars. Changes in fair value of all derivatives associated with these activities are reported in net income in ”Net unrealized gains and losses on non-trading financial instruments accounted for at fair value,” in the consolidated statements of operations. Realized gains and losses associated with these activities are reported in “Income from loans and guarantees, including realized gains and losses on loans and associated derivatives. The notes to consolidated financial statements are an integral part of these statements. 74 IFC 2023 ANNUAL REPORT FINANCIALS INTERNATIONAL FINANCE CORPORATION Page 81 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 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 unrealized gains and losses on non-trading financial instruments accounted for at fair value", in the consolidated statements of operations. Realized gains and losses associated with these activities are reported in “Other Income”, in the consolidated statements of operations. Borrowing activities IFC issues debt securities in various capital markets with the objectives of minimizing its borrowing costs, diversifying funding sources, and developing member countries’ capital markets, sometimes using complex structures. These structures include borrowings payable in multiple currencies, or borrowings with principal and/or interest determined by reference to a specified index such as a stock market index, a reference interest rate, a commodity index, or one or more foreign exchange rates. IFC generally uses derivative instruments with matching terms, primarily currency and interest rate swaps, to convert certain of such borrowings into variable rate U.S. dollar obligations, consistent with IFC’s matched funding policy. IFC elects to carry at fair value, under the FVO, all market borrowings for which a derivative instrument, liquid asset portfolio investment or debt investment is used to create an economic hedge. Changes in the fair value of such borrowings and the associated derivatives are reported in "Net unrealized gains and losses on non-trading financial instruments accounted for at fair value" in the consolidated statements of operations. Realized gains and losses associated with these activities are reported in “Charges on borrowings”, in the consolidated statements of operations. 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 U.S. dollars or by utilizing market borrowings denominated in the same currency to economically hedge changes in the fair value of certain liquid asset portfolio investments. The derivative instruments used include short-term, over-the- counter foreign exchange forwards (covered forwards), interest rate and currency swaps, and exchange-traded interest rate futures and options. As the entire liquid asset portfolio is classified as trading portfolio, all securities (including derivatives) are carried at fair value with changes in fair value reported in "Income from liquid asset trading activities" in the consolidated statements of operations. 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 reschedulings, and residual reset date mismatches is monitored by measuring the sensitivity of the present value of assets and liabilities in each currency to each basis point change in interest rates. IFC monitors the credit risk associated with these activities by careful assessment and monitoring of prospective and actual clients and counterparties. In respect of liquid assets and derivatives transactions, credit risk is managed by establishing exposure limits based on the credit rating and size of the individual counterparty. In addition, IFC has entered into master agreements with its derivative market counterparties governing derivative transactions that contain close-out and netting provisions and collateral arrangements. Under these agreements, if the credit exposure to one of the parties to the agreement, on a mark-to-market basis, exceeds a specified level, that party must post collateral to cover the excess, generally in the form of liquid government securities or cash. IFC does not offset the fair value amounts of derivatives and obligations to return, or rights to receive, cash collateral associated with these master-netting agreements. Changes in fair value of all derivatives associated with these activities are reported in ”Net unrealized gains and losses on non-trading financial instruments accounted for at fair value,” in the consolidated statements of operations. Realized gains and losses associated with these activities are reported in “Other income”, in the consolidated statements of operations. 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; the participated loans are included in loans on IFC’s consolidated balance sheets, with the related secured borrowings included in payables and other liabilities on IFC’s consolidated balance sheets. Advisory services – Funding received for IFC advisory services from governments and other donors are recognized as contribution revenue when the conditions on which they depend are substantially met. Advisory services expenses are recognized in the period incurred. Advisory client fees and administration fees are recognized as income when earned. Pension and other post-retirement benefits – IBRD sponsors a Staff Retirement Plan and Trust (SRP), a Retired Staff Benefits Plan (RSBP) and a Post-Employment Benefits Plan (PEBP) that are defined benefit plans and 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 notes to consolidated financial statements are an integral part of these statements. IFC 2023 ANNUAL REPORT FINANCIALS 75 INTERNATIONAL FINANCE CORPORATION Page 82 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) In accordance with ASU 2017-07, the service cost component of the net periodic benefit costs allocated to IFC is included in “Administrative expenses” in the consolidated statement of operations. The remaining components of the net periodic benefit costs allocated to IFC are included in “Other” in the consolidated statement of operations. IFC includes a receivable from IBRD in receivables and other assets, representing prepaid pension and other post-retirement benefit costs. Recently adopted accounting standards On July 1, 2020, IFC adopted ASU 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and related amendments, which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (CECL) methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments). In addition, ASC 326 made changes to the accounting for available-for-sale debt securities. One such change is to require credit losses to be presented as a reserve rather than as a write-down on available-for-sale debt securities that management does not intend to sell or believes that it is more likely than not they will be required to sell. IFC adopted ASC 326 using the modified retrospective method for financial assets measured at amortized cost and off-balance sheet credit exposures. Results for reporting periods beginning after July 1, 2020 are presented under ASC 326. On July 1, 2020, IFC recorded the impact of adopting ASC 326 by means of a cumulative-effect adjustment to the consolidated balance sheet, and a summary of the impact is listed below: Cumulative effect of adoption of ASU 2016-13, (US$ in millions) effective July 1, 2020 Reserve against Retained Increase (decrease) Losses earnings Total Capital Recognizing reserve against credit losses on disbursed loans $ 58 $ (58) $ (58) (net of release of reserve against credit losses on accrued interest of $10 million) Recognizing reserve against credit losses on guarantees 8 (8) (8) Recognizing reserve against credit losses on loans committed but not disbursed 140 (140) (140) Total $ 206 $ (206) $ (206) Reserve against credit losses on disbursed loans are reported as a contra asset, reserve against losses, to the loan balance on the consolidated balance sheets. Reserve against credit losses on guarantees and loans committed but not disbursed are reported within Payables and other liabilities on the consolidated balance sheets. Retained Earnings is included in the Capital section on the consolidated balance sheets. IFC adopted ASC 326 for available-for-sale debt securities using the prospective transition approach for debt securities for which other-than-temporary impairment had been recognized prior to July 1, 2020. In October 2018, the FASB issued ASU 2018-17, Consolidation: Targeted Improvements to Related Party Guidance for Variable Interest Entities (ASU 2018-17). ASU 2018-17 amends the guidance for how a decision maker or service provider must determine whether its fee is a variable interest in a VIE when a related party also has an interest in the VIE. Under the amendment, the decision maker must consider interests held be its related parties on a proportionate basis when determining if such interests could absorb more than an insignificant amount of the VIE’s variability. Previous guidance required the decision maker to consider such interests in their entirety. IFC adopted ASU 2018-17 effective July 1, 2020 with no material impact on IFC’s financial statements. In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract (ASU 2018-15). ASU 2018-15 amends ASC 350-40 to address a customer’s accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. IFC adopted ASU 2018-15 effective July 1, 2020 with no material impact on IFC’s financial statements. In August 2018, the FASB issued ASU 2018-13, Changes to the Disclosure Requirements for Fair Value Measurement (ASU 2018-13). ASU 2018-13 amends the fair value disclosure requirements to include: (a) the amount of gain or loss for the period included in other comprehensive income attributable to fair value changes in Level 3 assets or liabilities, and (b) for Level 3 fair value measurements, the range and weighted average used to develop significant unobservable inputs and the method of calculating the weighted average. Existing fair value disclosure requirements eliminated by ASU 2018-13 include: (a) the amounts and reasons for transfers between Level 1 and Level 2 fair value measurements, and (b) the policy for determining when transfers between fair value measurement Levels occur. ASU 2018-13 modifies existing fair value disclosure requirements by (a) requiring a narrative description of the uncertainty of fair value measurements from the use of significant unobservable inputs if those inputs reasonably could have been different at reporting date, and (b) requiring disclosure of the estimate of the timing of liquidation events for investments measured using the Net Asset Value practical expedient only if such information has been communicated to the investor or announced publicly by the investee. IFC adopted ASU 2018-13 effective July 1, 2020 with no material impact on IFC’s financial statements. The notes to consolidated financial statements are an integral part of these statements. 76 IFC 2023 ANNUAL REPORT FINANCIALS INTERNATIONAL FINANCE CORPORATION Page 83 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) In August 2018, the FASB issued ASU 2018-14, Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans (ASU 2018-04), which amends disclosure requirements related to defined benefit pension and other post-retirement plans for annual periods. The guidance became effective for IFC’s annual financial statements for the fiscal year ending June 30, 2021. The adoption of this ASU had no material impact on IFC’s financial statements. In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The ASU provides temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burden of the expected market transition from LIBOR and other interbank offered rates. To be eligible for the optional expedients, modifications of contractual terms that change (or have the potential to change) the amount or timing of contractual cash flows must be related to replacement of a reference rate. The amendments in this ASU are effective upon issuance of ASU for all entities and can be implemented any time before December 31, 2022. IFC adopted the standard effective June 30, 2020 and the adoption did not have a material impact on IFC’s financial statements. In January 2021, the FASB issued ASU 2021-01 Reference Rate Reform (Topic 848) to amend the scope of the guidance in Topic 848 on facilitation of the effects of reference rate reform, expected market transition from LIBOR and other interbank offered rates on financial reporting. Specifically, the amendments in ASU 2021-01 clarify that “certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition.” IFC adopted the standard prospectively effective March 31, 2021, as permitted by the ASU, and the adoption did not have a material impact on the financial statements. In January 2020, the FASB issued ASU 2020-01, Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) – Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. The amendments on the interactions between Topic 321 and Topic 323 clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. These amendments do not impact IFC because IFC has elected an FVO for direct equity investments which give IFC significant influence, which in the absence of FVO, would have to be accounted for under equity method. The amendments on the interactions between Topic 323 and Topic 815, clarify that an entity should not consider whether, upon the settlement of a nonderivative forward contract or exercise of a nonderivative purchased option, individually or with existing investments, the underlying securities would be accounted for under the equity method in Topic 323 or the Fair Value Option in accordance with the financial instruments guidance in Topic 825. IFC adopted ASU 2020-01 effective July 1, 2021 with no material impact on IFC’s consolidated financial statements. In October 2020 the FASB issued ASU 2020-08 Codification Improvements to Subtopic 310-20, Receivables—Nonrefundable Fees and Other Costs. The amendments in ASU 2020-08 affect the guidance in ASU 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. ASU 2017-08 had shortened the required amortization period for investments in callable debt securities purchased for a premium to the earliest call date. IFC had adopted ASU 2017-08 effective July 1, 2019 and ASU 2020-08 effective July 1, 2021 with no material impact on IFC’s consolidated financial statements. In November 2021, FASB issued ASU 2021-10 Government Assistance (Topic 832) Disclosures by Business Entities about Government Assistance. ASU 2021-10 requires business entities to provide certain annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy to other accounting guidance (for example, a grant model within IAS 20, Accounting for Government Grants and Disclosure of Government Assistance, or Subtopic 958-605, Not-For-Profit Entities—Revenue Recognition). ASU 2021-10 is effective for financial statements issued for annual periods beginning after December 15, 2021. Early application of the amendments is permitted. IFC adopted ASU 2021-10 effective June 30, 2023, with no material impact on IFC’s consolidated financial statements. In December 2022, FASB issued ASU 2022-06 Reference Rate Reform (Topic 848) Deferral of the Sunset Date of Topic 848. The amendments in this ASU defer the sunset date of ASU 848 Reference Rate Reform from December 31, 2022, to December 31, 2024. ASU 2022-06 is effective immediately. The ASU was effective upon issuance and the adoption did not have a material impact on IFC’s financial statements. The notes to consolidated financial statements are an integral part of these statements. IFC 2023 ANNUAL REPORT FINANCIALS 77 INTERNATIONAL FINANCE CORPORATION Page 84 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Accounting standards and regulations under evaluation In March 2022, the FASB issued ASU 2022-02 Financial Instruments—Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures. The amendments in this ASU eliminate the recognition and measurement guidance for troubled debt restructurings in Subtopic 310-40, Receivables—Troubled Debt Restructurings by Creditors, and require reporting entities to apply the loan refinancing and restructuring guidance to determine whether a modification results in a new loan or a continuation of an existing loan. The ASU requires enhanced disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty. In addition, for public business entities, the amendments in this ASU require that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments—Credit Losses—Measured at Amortized Cost. The ASU is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted. IFC’s adoption of ASU 2022-02, effective July 1, 2023, is not expected to have a material impact on IFC’s consolidated financial statements. In June 2022, FASB issued ASU 2022-03 Fair Value Measurement (Topic 820) Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. The amendments in this ASU clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The amendments also clarify that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. The amendments in this Update also require certain disclosures for equity securities subject to contractual sale restrictions. The ASU is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted. This ASU should be applied prospectively with any adjustments from the adoption of the amendments recognized in earnings and disclosed on the date of adoption. IFC is planning to early adopt ASU 2022-03 effective July 1, 2023. It is not expected to have a material impact on IFC’s consolidated financial statements. The notes to consolidated financial statements are an integral part of these statements. 78 IFC 2023 ANNUAL REPORT FINANCIALS INTERNATIONAL FINANCE CORPORATION Page 85 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE B – RELATED PARTY TRANSACTIONS IFC transacts with related parties including by receiving loans, participating in shared service arrangements, as well as through cost sharing of IBRD’s sponsored pension and other post-retirement plans. IFC's receivables from (payables to) its related parties are presented in the following table: June 30, 2023 June 30, 2022 (US$ in millions) IBRD IDA MIGA Total IBRD IDA MIGA Total Services and Support Receivables (Payables) $ (35) $ — $ 4 $ (31) $ (37) $ — $ 4 $ (33) PSW – Local Currency Facility a — 50 — 50 — 11 — 11 PSW – Blended Finance Facility — (93) — (93) — (54) — (54) Borrowings — (243) — (243) — (344) — (344) Pension and Other Post-retirement Benefits 704 — — 704 640 — — 640 Post-retirement Contribution Reserve Fund b 385 — — 385 260 — — 260 $ 1,054 $ (286) $ 4 $ 772 $ 863 $ (387) $ 4 $ 480 _________ a Includes other payable of $4 million related to unsettled Local Currency Facility trades that is included in other liabilities on the consolidated balance sheet as of June 30, 2023. b Receivable from IBRD for IFC's share of investments associated with Post-Retirement Contribution Reserve Fund (PCRF), which is a fund established to stabilize contributions made to the pension plans. Services 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 IT support services and human resource shared services. IFC makes payments for these services to IBRD based on negotiated fees and chargebacks, and allocated charges. Expenses allocated to IFC for the year ended June 30, 2023, were $168 million ($156 million – year ended June 30, 2022; $144 million – year ended June 30, 2021). Other chargebacks include $28 million for the year ended June 30, 2023 ($26 million – year ended June 30, 2022; $22 million – year ended June 30, 2021). These expenses are included in Administrative expenses on the consolidated statements of operations. The associated payables are included in the Payables and other liabilities on the consolidated balance sheets. Fee Income from MIGA Transactions with MIGA include marketing fees received for referral and due diligence services on jointly-developed guarantee projects. Fee income received from MIGA for the year ended June 30, 2023 were $4 million ($4 million – year ended June 30, 2022; $5 million – year ended June 30, 2021) included in Other Income on the consolidated statements of operations. The associated receivables are included in Receivables and other assets on the consolidated balance sheets. IDA Private Sector Window (IDA-PSW) The Private Sector Window (PSW) was created under IDA18, to mobilize private sector investment in IDA-only countries and IDA- eligible FCS. The PSW continued under IDA’s Twentieth Replenishment of Resources (IDA20), which commenced on July 1, 2022 with an initial allocation of $2.5 billion. Under the fee arrangement for the PSW, IDA receives fee income for transactions executed under this window and reimburses IFC for the related costs incurred in administering these transactions. The notes to consolidated financial statements are an integral part of these statements. IFC 2023 ANNUAL REPORT FINANCIALS 79 INTERNATIONAL FINANCE CORPORATION Page 86 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE B – RELATED PARTY TRANSACTIONS (continued) IDA-PSW Transactions (US$ in millions) June 30, 2023 June 30, 2022 Net Asset/ Net Asset/ Balance Sheet (Liability) (Liability) Facility Description Location USD Notional position USD Notional position Currency swaps with IDA to support Derivative Local currency local currency denominated loans assets/liabilities 233 54 108 11 (US$ in millions) June 30, 2023 June 30, 2022 Balance Sheet Carrying Carrying Facility Description Location Commitments Value Commitments Value Liability for IDA-PSW synthetic Payables and Blended Finance equity investments other liabilities 150 (93) 126 (54) IDA guarantees to support IFC's Guarantee Programs in IDA-PSW Blended Finance eligible countries Not Applicable 1,308 655 Borrowings In September 2014, IFC issued an amortizing, non-interest-bearing promissory note, maturing September 15, 2039, to IDA (the Note) in exchange for $1.2 billion. The Note requires payments totaling $1.3 billion, resulting in an effective interest rate of 1.84%. With IFC’s consent, IDA may redeem the Note after September 2, 2019, upon an adverse change in its financial condition or outlook. The amount due to IDA upon such redemption is equal to the present value of the unpaid amounts discounted at the effective interest rate. IDA may transfer the Note; however, its redemption right is not transferrable. IFC has elected the Fair Value Option for the Note. Please refer to Note K Borrowings from IDA for further details on the Note. IFC has a Local Currency Loan Facility Agreement with IBRD, which is capped at $300 million. As of June 30, 2023 and June 30, 2022, IFC had no borrowings outstanding under this facility. Pension and Other Post-retirement Benefits The receivable from IBRD represents IFC’s net share of prepaid costs for pension and other post-retirement benefit plans and Post- Employment Benefits Plan (PEBP) assets included in Receivables and other assets on the consolidated balance sheets. These will be realized over the lives of the plan participants. The notes to consolidated financial statements are an integral part of these statements. 80 IFC 2023 ANNUAL REPORT FINANCIALS INTERNATIONAL FINANCE CORPORATION Page 87 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE B – RELATED PARTY TRANSACTIONS (continued) IFC managed AMC funds Asset Management Company (AMC), a division of IFC, invests third-party capital and IFC capital, enabling outside investors to invest alongside IFC in developing markets. As of June 30, 2023, AMC managed multiple funds (collectively referred to as the AMC Funds), in its capacity as General Partner (GP) / Manager of these funds, none of which require consolidation by IFC. A management fee is charged for the management services provided to the AMC funds. IFC’s ownership interests in these AMC Funds are shown in the following table: AMC Funds IFC’s ownership interest IFC Capitalization (Equity) Fund, L.P. a 61% IFC Capitalization (Subordinated Debt) Fund, L.P. 13% IFC African, Latin American and Caribbean Fund, LP 20% IFC Catalyst Funds b 18% IFC Global Infrastructure Fund, LP 17% China-Mexico Fund, LP —% IFC Financial Institutions Growth Fund, LP 30% IFC Global Emerging Markets Fund of Funds c 19% IFC Middle East and North Africa Fund, LP 37% Women Entrepreneurs Debt Fund, LP 26% IFC Emerging Asia Fund, LP 22% _________ a By virtue of certain rights granted to non-IFC limited partner interests, IFC does not control or consolidate this fund. b The ownership interest of 18% reflects IFC’s ownership interest taking into consideration the overall commitments for the IFC Catalyst Funds, which comprises IFC Catalyst Fund, LP, IFC Catalyst Fund (UK), LP and IFC Catalyst Fund (Japan), LP (collectively, IFC Catalyst Funds). IFC does not have an ownership interest in either the IFC Catalyst Fund (UK), LP or the IFC Catalyst Fund (Japan), LP. c The ownership interest of 19% reflects IFC’s ownership interest taking into consideration the current committed amounts for the IFC Global Emerging Markets Fund of Funds, which comprises IFC Global Emerging Markets Fund of Funds, LP and IFC Global Emerging Markets Fund of Funds, (Japan Parallel) LP. IFC does not have an ownership interest in the IFC Global Emerging Markets Fund of Funds, (Japan Parallel) LP. As of June 30, 2023, IFC invested $505 million ($531 million – June 30, 2022) as a limited partner in funds managed by AMC. These investments were included in Equity investments on the consolidated balance sheets $23 million of management fee income was recognized in the year ended June 30, 2023 ($29 million – year ended June 30, 2022; $38 million – year ended June 30, 2021), which is included in other income on the consolidated statements of operations. The notes to consolidated financial statements are an integral part of these statements. IFC 2023 ANNUAL REPORT FINANCIALS 81 INTERNATIONAL FINANCE CORPORATION Page 88 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE C – LIQUID ASSET PORTFOLIO Composition of liquid asset portfolio The composition of IFC’s net liquid asset portfolio included in the consolidated balance sheet is as follows: (US$ in millions) June 30, 2023 June 30, 2022 Assets Cash and due from banks a $ 43 $ 38 b Time deposits 10,215 6,579 Trading securities 31,020 30,891 Securities purchased under resale agreements and receivable for cash collateral pledged 5,192 8,178 Derivative assets 433 1,463 Receivables and other assets: Receivables from sales of securities 791 940 Accrued interest income on time deposits and securities 243 102 Accrued income on derivative instruments 248 42 Total assets 48,185 48,233 Liabilities Securities sold under repurchase agreements and payable for cash collateral received 6,631 6,223 Derivative liabilities 241 77 Payables and other liabilities: Payables for purchase of securities 1,002 172 Accrued charges on derivative instruments 191 44 Total liabilities 8,065 6,516 Total net liquid asset portfolio $ 40,120 $ 41,717 _________ a Represents cash and due from banks from the liquid asset portfolio and does not include cash and due from banks from other cash accounts of $1.0 billion and $664 million as of June 30, 2023 and June 30, 2022 respectively. b Includes time deposits with maturities greater than three months of $2.5 billion and $4.0 billion, as of June 30, 2023 and June 30, 2022 respectively. The liquid asset portfolio is denominated primarily in U.S. dollars; investments in other currencies, net of the effect of associated derivative instruments that convert non-U.S. dollar securities into U.S. dollar securities, represent 2.1% of the portfolio at June 30, 2023 (1.0% – June 30, 2022). Income (Loss) from liquid asset trading activities Income (Loss) from liquid asset trading activities for the years ended June 30, 2023, June 30, 2022 and June 30, 2021 comprises: For the year ended June 30, (US$ in millions) 2023 2022 2021 Interest income, net $ 1,364 $ 331 $ 323 Net gains (losses) on asset-backed and mortgage-backed securities 21 (61) 36 Net gains (losses) on other trading securities 79 (683) (32) Net gains (losses) on trading activities (realized and unrealized) 100 (744) 4 Total income (loss) from liquid asset trading activities $ 1,464 $ (413) $ 327 The annualized rate of return on the liquid asset trading portfolio, calculated as total income from the liquid asset trading activities divided by fair value average daily balance of total trading securities, during the year ended June 30, 2023, was 4.5% ((1.2)% – year ended June 30, 2022; 0.9% – year ended June 30, 2021). After the effect of associated derivative instruments, the liquid asset portfolio generally reprices within one year. The notes to consolidated financial statements are an integral part of these statements. 82 IFC 2023 ANNUAL REPORT FINANCIALS INTERNATIONAL FINANCE CORPORATION Page 89 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE C – LIQUID ASSET PORTFOLIO (continued) Trading securities comprises Year ended June 30, 2023 At June 30, 2023 Weighted average Fair value average daily contractual maturity (US$ in millions) balance Fair value (years) Government, agency and government-sponsored agency obligations $ 21,822 $ 21,766 1.9 Asset-backed securities 6,446 5,232 22.1 Corporate securities 3,941 4,022 1.1 Total trading securities $ 32,209 $ 31,020 5.2 Year ended June 30, 2022 At June 30, 2022 Weighted average Fair value average daily contractual maturity (US$ in millions) balance Fair value (years) Government, agency and government-sponsored agency obligations $ 23,948 $ 23,060 1.7 Asset-backed securities 5,049 3,825 17.9 Corporate securities 4,207 4,006 1.1 Total trading securities $ 33,204 $ 30,891 3.6 The expected maturity of the asset-backed securities may be significantly shorter than the contractual maturity, as reported above, due to prepayment features. The notes to consolidated financial statements are an integral part of these statements. IFC 2023 ANNUAL REPORT FINANCIALS 83 INTERNATIONAL FINANCE CORPORATION Page 90 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE D – INVESTMENTS The carrying value of investments at June 30, 2023 and June 30, 2022 comprises: (US$ in millions) June 30, 2023 June 30, 2022 Loans Loans at amortized cost $ 31,117 $ 26,058 Less: Reserve against losses on loans (1,209) (1,209) Loans at amortized cost less reserve against losses 29,908 24,849 Loans accounted for at fair value under the Fair Value Option (amortized cost $1,642 at June 30, 2023, $1,519 at June 30, 2022) 1,506 1,374 Total loans 31,414 26,223 Equity investments Equity investments accounted for at fair value a b (cost $10,331 at June 30, 2023, $10,507 at June 30, 2022) 10,778 11,137 Total equity investments 10,778 11,137 Debt securities Debt securities accounted for at fair value as available-for-sale (amortized cost $1,632 at June 30, 2023, $2,219 at June 30, 2022) 1,394 1,919 Less: Reserve against losses on available-for sale debt securities (21) (14) Debt securities, available-for-sale less reserve against losses 1,373 1,905 Debt securities accounted for at fair value under the Fair Value Option (amortized cost $8,145 at June 30, 2023, $4,981 at June 30, 2022) 7,937 4,828 Total debt securities 9,310 6,733 Total carrying value of investments $ 51,502 $ 44,093 _________ a Equity investments at fair value as of June 30, 2023 are comprised of investments in common or preferred shares of $5.5 billion ($5.8 billion – June 30, 2022), equity interests in private equity funds of $5.2 billion ($5.3 billion – June 30, 2022), and equity-related options and other financial instruments of $36 million ($11 million – June 30, 2022). b Includes $2 million and $1 million for June 30, 2023 and June 30, 2022 of equity investments primarily accounted for under the cost recovery method. As the recovery of invested capital is uncertain, the fair value measurement is not applicable to these investments. The notes to consolidated financial statements are an integral part of these statements. 84 IFC 2023 ANNUAL REPORT FINANCIALS INTERNATIONAL FINANCE CORPORATION Page 91 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE D – INVESTMENTS (continued) The distribution of the investment portfolio by geographical regiona and by industry sector and a reconciliation of total disbursed portfolio to carrying amount of investments is as follows: (US$ in millions) June 30, 2023 June 30, 2022 Equity Debt Equity Debt Sector/Region Loans investments securities Total Loans investments securities Total Africa Manufacturing, agribusiness and services $ 2,153 $ 687 $ 102 $ 2,942 $ 1,595 $ 680 $ 10 $ 2,285 Financial markets 2,771 336 466 3,573 2,313 386 475 3,174 Infrastructure and natural resources 2,067 501 217 2,785 1,893 554 212 2,659 Disruptive technologies and funds 5 833 12 850 4 709 29 742 Total Africa 6,996 2,357 797 10,150 5,805 2,329 726 8,860 Asia and Pacific Manufacturing, agribusiness and services 3,176 1,141 886 5,203 3,449 1,058 764 5,271 Financial markets 4,673 687 2,170 7,530 3,526 861 1,474 5,861 Infrastructure and natural resources 1,773 202 813 2,788 1,573 334 593 2,500 Disruptive technologies and funds 5 1,558 30 1,593 6 1,291 13 1,310 Total Asia and Pacific 9,627 3,588 3,899 17,114 8,554 3,544 2,844 14,942 Latin America and the Caribbean, and Europe Manufacturing, agribusiness and services 3,856 311 244 4,411 2,751 312 198 3,261 Financial markets 4,568 495 2,907 7,970 4,023 579 1,784 6,386 Infrastructure and natural resources 1,906 499 364 2,769 1,748 531 69 2,348 Disruptive technologies and funds 5 834 46 885 — 754 — 754 Total Latin America and the Caribbean, and Europe 10,335 2,139 3,561 16,035 8,522 2,176 2,051 12,749 Middle East, Central Asia, Türkiye, Pakistan, and Afghanistan Manufacturing, agribusiness and services 1,306 330 96 1,732 927 444 75 1,446 Financial markets 1,191 546 695 2,432 714 608 612 1,934 Infrastructure and natural resources 1,430 202 60 1,692 1,446 292 62 1,800 Disruptive technologies and funds — 194 — 194 — 164 2 166 Total Middle East, Central Asia, Türkiye, Pakistan, and Afghanistan 3,927 1,272 851 6,050 3,087 1,508 751 5,346 Other Manufacturing, agribusiness and services 467 25 — 492 723 19 — 742 Financial markets 1,534 386 440 2,360 1,008 461 495 1,964 Infrastructure and natural resources — 21 — 21 — 50 — 50 Disruptive technologies and funds — 583 8 591 — 461 — 461 Total Other 2,001 1,015 448 3,464 1,731 991 495 3,217 Total disbursed investment portfolio $ 32,886 $ 10,371 $ 9,556 $ 52,813 $ 27,699 $ 10,548 $ 6,867 $ 45,114 Reserve against losses on loans and debt securities (1,209) — (21) (1,230) (1,209) — (14) (1,223) Unamortized deferred loan origination fees, net and other (127) — — (127) (122) — — (122) Disbursed amount allocated to a related financial instrument reported separately in other assets or derivative assets — (36) — (36) — (37) — (37) Adjustments to disbursed investment portfolio — — — — — — — — Unrealized losses on equity investments held by consolidated VIEs — (4) — (4) — (4) — (4) Unrealized gains on investments accounted for at fair value as available-for-sale — — (17) (17) — — 33 33 Unrealized (losses) gains on investments accounted for under the Fair Value Option (136) 447 (208) 103 (145) 630 (153) 332 Carrying value of investments $ 31,414 $ 10,778 $ 9,310 $ 51,502 $ 26,223 $ 11,137 $ 6,733 $ 44,093 a - Geographical regions used herein the FY23 consolidated financial statements are based on regional classifications as of June 30, 2023. The notes to consolidated financial statements are an integral part of these statements. IFC 2023 ANNUAL REPORT FINANCIALS 85 INTERNATIONAL FINANCE CORPORATION Page 92 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE E – LOANS AND GUARANTEES Loans Income from loans and guarantees, including realized gains and losses on loans and associated derivatives for the years ended June 30, 2023, June 30, 2022 and June 30, 2021 comprise the following: For the year ended June 30, (US$ in millions) 2023 2022 2021 Interest income $ 2,131 $ 999 $ 988 Commitment fees 56 50 40 Other financial fees 95 116 74 Realized gains (losses) on loans, guarantees and associated derivatives a 8 (9) 14 Income from loans and guarantees, including realized gains and losses on loans and associated derivatives $ 2,290 $ 1,156 $ 1,116 ___________ a Includes realized gains and losses on loans under the Fair Value Option, $8 million realized gains for the year ended June 30, 2023; $0 and $2 million realized losses for the years ended June 30, 2022 and June 30, 2021, respectively. The currency composition and weighted average contractual rate of the disbursed loan portfolio are summarized below: June 30, 2023 June 30, 2022 Weighted Weighted average average contractual contractual (US$ in millions, except for rates) Amount rate (%) Amount rate (%) U.S. dollar $ 22,859 7.8 $ 20,530 4.8 Euro 4,134 5.4 2,612 3.0 Chinese renminbi 1,429 4.6 1,389 4.8 Brazilian real 1,081 14.9 548 13.4 Indonesian rupiah 837 7.3 537 7.4 Colombian peso 523 9.2 374 7.6 South African rand 406 11.1 260 9.2 Indian rupee 284 9.2 362 8.4 Mexican peso 265 13.5 324 9.3 Thai baht 156 2.3 57 2.1 Other currencies OECD currencies 81 13.2 80 17.4 Non-OECD currencies 831 11.5 626 11.2 Total disbursed loan portfolio $ 32,886 7.8 $ 27,699 5.2 After the effect of interest rate swaps and currency swaps, IFC’s loans are principally denominated in variable rate U.S. dollars. As of June 30, 2023, loans in all currencies repayable during the years ending June 30, 2024 through June 30, 2028 and thereafter, are as follows: (US$ in millions) 2024 2025 2026 2027 2028 Thereafter Total Fixed rate loans $ 1,472 $ 1,908 $ 1,580 $ 737 $ 665 $ 1,571 $ 7,933 Variable rate loans 4,586 4,836 3,924 3,430 2,919 5,258 24,953 Total disbursed loan portfolio $ 6,058 $ 6,744 $ 5,504 $ 4,167 $ 3,584 $ 6,829 $ 32,886 The notes to consolidated financial statements are an integral part of these statements. 86 IFC 2023 ANNUAL REPORT FINANCIALS INTERNATIONAL FINANCE CORPORATION Page 93 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE E – LOANS AND GUARANTEES (continued) As of June 30, 2022, loans in all currencies repayable during the years ending June 30, 2023 through June 30, 2027 and thereafter, are as follows: (US$ in millions) 2023 2024 2025 2026 2027 Thereafter Total Fixed rate loans $ 1,247 $ 927 $ 1,599 $ 899 $ 531 $ 1,666 $ 6,869 Variable rate loans 4,246 3,491 4,034 2,623 1,861 4,575 20,830 Total disbursed loan portfolio $ 5,493 $ 4,418 $ 5,633 $ 3,522 $ 2,392 $ 6,241 $ 27,699 At June 30, 2023, 24% of the disbursed loan portfolio are fixed rate loans (25% – June 30, 2022), while the remainder are at variable rates. At June 30, 2023, the disbursed loan portfolio includes $74 million of loans serving as collateral under secured borrowing arrangements ($80 million – June 30, 2022). IFC’s disbursed variable rate loans generally reprice within one year. Reserve against losses on loans and provision for losses on loans Reserve against losses on loans as of June 30, 2023 reflects credit risk assessments as of that date. The assessment of the level of reserve against losses carried a heightened degree of judgment particularly in light of Russia's invasion of Ukraine. The impact of the invasion has been largely incorporated through IFC's rating system that classifies its loans according to creditworthiness and risk, however, as the situation is still evolving, IFC expects further impacts from the factors that have not yet been reflected in the model calculated reserve and cannot be directly attributed to any individual borrowers. As such, a qualitative overlay of $135 million, including $1 million on off-balance sheet guarantee exposures, was applied for estimated losses due to the invasion and its spillover macroeconomic impact in March 2022, which remained unchanged as of June 30, 2023 and June 30, 2022. The previous qualitative overlay of $40 million related to COVID-19 was released in the year ended June 30, 2022 as IFC considered the impacts of COVID-19 were properly captured individually through its rating system. Changes in the reserve against losses on loans disbursed and loans committed but not disbursed for the years ended June 30, 2023, June 30, 2022 and June 30, 2021 as well as the related loans at amortized cost evaluated for impairment individually and on a pool basis (portfolio reserve) respectively, are summarized below: For the year ended June 30, 2023 Loans Committed but not Loans Disbursed Disbursed Individual Portfolio Total Individual Portfolio Total (US$ in millions) reserve reserve reserve reserve reserve reserve Beginning balance $ 461 $ 748 $ 1,209 $ 1 $ 171 $ 172 (Release of provision) provision for losses (76) 91 15 — (3) (3) Write-offs (37) — (37) — — — Recoveries of previously written-off loans 18 — 18 — — — Foreign currency transaction adjustments (1) 6 5 — 1 1 Other adjustments a 1 (2) (1) — — — Ending balance $ 366 $ 843 $ 1,209 $ 1 $ 169 $ 170 Total disbursed loans at June 30, 2023 $ 1,212 $ 30,032 $ 31,244 Loans committed but not disbursed at June 30, 2023 $ 46 $ 6,795 $ 6,842 Unamortized deferred loan origination fees, net and other (127) Loans at amortized cost $ 31,117 ___________ a Other adjustments comprise reserve against interest capitalized. The notes to consolidated financial statements are an integral part of these statements. IFC 2023 ANNUAL REPORT FINANCIALS 87 INTERNATIONAL FINANCE CORPORATION Page 94 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE E – LOANS AND GUARANTEES (continued) For the year ended June 30, 2022 Loans Committed but not Loans Disbursed Disbursed Individual Portfolio Total Individual Portfolio Total (US$ in millions) reserve reserve reserve reserve reserve reserve Beginning balance $ 598 $ 726 $ 1,324 $ 2 $ 141 $ 143 Provision (release of provision) for losses 52 41 93 (1) 33 32 Write-offs (200) — (200) — — — Recoveries of previously written-off loans 3 — 3 — — — Foreign currency transaction adjustments (8) (17) (25) — (3) (3) Other adjustments a 16 (2) 14 — — — Ending balance $ 461 $ 748 $ 1,209 $ 1 $ 171 $ 172 Total disbursed loans at Jun 30, 2022 $ 1,464 $ 24,716 $ 26,180 Loans committed but not disbursed at June 30, 2022 $ 14 $ 8,158 $ 8,172 Unamortized deferred loan origination fees, net and other $ (122) Loans at amortized cost $ 26,058 ___________ a Other adjustments comprise reserve against interest capitalized. For the year ended June 30, 2021 Loans Committed but not Loans Disbursed Disbursed Individual Portfolio Total Individual Portfolio Total (US$ in millions) reserve reserve reserve reserve reserve reserve Beginning balance $ 804 $ 844 $ 1,648 $ — $ — $ — Cumulative effect of adopting ASC 326 — 68 68 3 137 140 (Release of provision) provision for losses on loans, net (2) (193) (195) (1) 3 2 Write-offs (225) (5) (230) — — — Foreign currency transaction adjustments 9 9 18 — 1 1 Other adjustmentsa 12 3 15 — — — Ending balance $ 598 $ 726 $ 1,324 $ 2 $ 141 $ 143 Total disbursed loans at Jun 30, 2021 $ 2,242 $ 23,510 $ 25,752 Loans committed but not disbursed at June 30, 2021 $ 46 $ 8,466 $ 8,512 Unamortized deferred loan origination fees, net and other $ (114) Loans at amortized cost $ 25,638 ___________ a Other adjustments comprise reserve against interest capitalized. The notes to consolidated financial statements are an integral part of these statements. 88 IFC 2023 ANNUAL REPORT FINANCIALS INTERNATIONAL FINANCE CORPORATION Page 95 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE E – LOANS AND GUARANTEES (continued) Reserve for losses and provision for losses on off-balance sheet guarantee exposures and other receivables Changes in the reserve against losses (liability) on off-balance sheet guarantee exposures for the years ended June 30, 2023, June 30, 2022 and June 30, 2021 are summarized below : For the year ended June 30, 2023 2022 2021 Outstanding Issued Outstanding Issued Outstanding Issued (US$ in millions) Guarantees a Guarantees a Guarantees a Guarantees a Guarantees a Guarantees a Beginning balance $ 11 $ 7 $ 11 $ 6 $ 29 $ — Cumulative effect of adopting ASC 326 — — — — — 8 Provision (Release of provision) for losses on off-balance sheet credit exposure 4 7 — 1 — (3) Guarantee claims paid — — — — (18) — Foreign currency transaction adjustments — (1) — — — — Other adjustments — — — — 1 Ending balance $ 15 $ 13 $ 11 $ 7 $ 11 $ 6 ___________ a Guarantees are considered issued when IFC commits to the guarantee obligation. Guarantees are considered outstanding when the underlying financial obligation of the client is incurred. Changes in the reserve against losses on accrued interest and other receivables for the years ended June 30, 2021, are summarized below a: For the year ended (US$ in millions) June 30, 2021 Beginning balance $ 15 Cumulative effect of adopting ASC 326 (10) Release of provision for losses on other receivables (5) Ending balance $ — _________ a The outstanding balance of other receivables is $21 million at June 30, 2021. There are no changes to the reserve against losses on accrued interest and other receivables for the years ended June 30, 2023 and June 30, 2022. Accrued interest The accrued interest balances are $524 million and $292 million, as of June 30, 2023 and June 30, 2022 respectively, and are reported within receivables and other assets on the consolidated balance sheets. Accrued interest is written off by reversing interest income during the quarter the financial asset is moved from an accrual to a nonaccrual status. The amount of accrued interest receivables written off by reversing interest income is $5 million and $4 million for the years ended June 30, 2023 and June 30, 2022, respectively. Accrued interest receivable is excluded from the amortized cost basis for disclosure purposes. Nonaccruing loans Loans at nonaccrual status without a reserve against losses at June 30, 2023 and June 30, 2022 are considered insignificant. Loans on which the accrual of interest has been discontinued amounted to $1.1 billion at June 30, 2023 ($1.3 billion – June 30, 2022). The interest income on such loans for the years ended June 30, 2023, June 30, 2022 and June 30, 2021 are summarized as follows: For the year ended June 30, (US$ in millions) 2023 2022 2021 Interest income not recognized on nonaccruing loans $ 139 $ 92 $ 188 Interest income recognized on loans in nonaccrual status related to current and prior years, on cash basis 78 65 50 The notes to consolidated financial statements are an integral part of these statements. IFC 2023 ANNUAL REPORT FINANCIALS 89 INTERNATIONAL FINANCE CORPORATION Page 96 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE E – LOANS AND GUARANTEES (continued) The amortized cost in nonaccruing loans at June 30, 2023 and June 30, 2022 is summarized by geographic region and industry sector as follows: June 30, 2023 Total non- Manufacturing, Infrastructure Disruptive accruing loans agribusiness Financial and natural technologies at amortized (US$ in millions) and services markets resources and funds cost a Africa $ 196 $ — $ 161 $ 5 $ 362 Asia and Pacific 118 7 19 — 144 Latin America and the Caribbean, and Europe 159 12 151 1 323 Middle East, Central Asia, Türkiye, Pakistan, and Afghanistan 91 74 130 — 295 b Total disbursed loans $ 564 $ 93 $ 461 $ 6 $ 1,124 June 30, 2022 Total non- Manufacturing, Infrastructure Disruptive accruing loans agribusiness Financial and natural technologies at amortized (US$ in millions) and services markets resources and funds cost a Africa $ 221 $ — $ 80 $ 4 $ 305 Asia and Pacific 143 10 44 — 197 Latin America and the Caribbean, and Europe 217 12 202 — 431 Middle East, Central Asia, Türkiye, Pakistan, and Afghanistan 102 74 220 — 396 b Total disbursed loans $ 683 $ 96 $ 546 $ 4 $ 1,329 _________ a Includes all components of amortized cost except unamortized fees which are considered insignificant. b Includes $59 million reported as debt securities and $137 million reported as loans under Fair Value Option on the Balance Sheet as of June 30, 2023 ($60 million Debt securities and $197 million Fair Value Option loans – June 30, 2022). The notes to consolidated financial statements are an integral part of these statements. 90 IFC 2023 ANNUAL REPORT FINANCIALS INTERNATIONAL FINANCE CORPORATION Page 97 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE E – LOANS AND GUARANTEES (continued) Past due loans IFC considers a loan past due when payments are more than 30 days past the contractual due date. An age analysis, based on contractual terms, of IFC’s loans at amortized cost by geographic region and industry sector follows: June 30, 2023 Greater than 90 31-60 days 61-90 days days past Total past (US$ in millions) past due past due due due Current Total loans Africa Manufacturing, agribusiness and services $ — $ 10 $ 90 $ 100 $ 1,918 $ 2,018 Financial markets — 1 — 1 2,736 2,737 Infrastructure and natural resources — — 109 109 1,710 1,819 Disruptive technologies and funds — — 4 4 — 4 Total Africa — 11 203 214 6,364 6,578 Asia and Pacific Manufacturing, agribusiness and services — — 18 18 3,088 3,106 Financial markets — — 5 5 4,553 4,558 Infrastructure and natural resources — — 6 6 1,706 1,712 Total Asia and Pacific — — 29 29 9,347 9,376 Latin America and the Caribbean, and Europe Manufacturing, agribusiness and services 25 — 94 119 3,736 3,855 Financial markets — — 6 6 3,987 3,993 Infrastructure and natural resources — — 26 26 1,749 1,775 Total Latin America and the Caribbean, and Europe 25 — 126 151 9,472 9,623 Middle East, Central Asia, Türkiye, Pakistan, and Afghanistan Manufacturing, agribusiness and services — — 12 12 1,286 1,298 Financial markets — 23 33 56 1,019 1,075 Infrastructure and natural resources — — — — 1,305 1,305 Total Middle East, Central Asia, Türkiye, Pakistan, and Afghanistan — 23 45 68 3,610 3,678 Other Manufacturing, agribusiness and services — — — — 455 455 Financial markets — — — — 1,534 1,534 Total Other — — — — 1,989 1,989 Total disbursed loans $ 25 $ 34 $ 403 $ 462 $ 30,782 $ 31,244 Unamortized deferred loan origination fees, net and other (127) Loans at amortized cost $ 31,117 _________ At June 30, 2023, loans 90 days or greater past due still accruing were insignificant. The notes to consolidated financial statements are an integral part of these statements. IFC 2023 ANNUAL REPORT FINANCIALS 91 INTERNATIONAL FINANCE CORPORATION Page 98 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE E – LOANS AND GUARANTEES (continued) June 30, 2022 Greater than 90 31-60 days 61-90 days days past Total past (US$ in millions) past due past due due due Current Total loans Africa Manufacturing, agribusiness and services $ — $ 18 $ 69 $ 87 $ 1,358 $ 1,445 Financial markets — — — — 2,284 2,284 Infrastructure and natural resources — — 5 5 1,664 1,669 Disruptive technologies and funds — — 4 4 — 4 Total Africa — 18 78 96 5,306 5,402 Asia and Pacific Manufacturing, agribusiness and services 2 — 31 33 3,335 3,368 Financial markets — — 10 10 3,468 3,478 Infrastructure and natural resources — — 17 17 1,471 1,488 Total Asia and Pacific 2 — 58 60 8,274 8,334 Latin America and the Caribbean, and Europe Manufacturing, agribusiness and services 5 — 98 103 2,648 2,751 Financial markets — — — — 3,505 3,505 Infrastructure and natural resources — — 13 13 1,588 1,601 Total Latin America and the Caribbean, and Europe 5 — 111 116 7,741 7,857 Middle East, Central Asia, Türkiye, Pakistan, and Afghanistan Manufacturing, agribusiness and services — — 18 18 901 919 Financial markets — — 33 33 642 675 Infrastructure and natural resources — — 52 52 1,257 1,309 Total Middle East, Central Asia, Türkiye, Pakistan, and Afghanistan — — 103 103 2,800 2,903 Other Manufacturing, agribusiness and services — — — — 707 707 Financial markets — — — — 977 977 Infrastructure and natural resources — — — — — — Total Other — — — — 1,684 1,684 Total disbursed loans $ 7 $ 18 $ 350 $ 375 $ 25,805 $ 26,180 Unamortized deferred loan origination fees, net and other (122) Loans at amortized cost $ 26,058 _________ At June 30, 2022, loans 90 days or greater past due still accruing were insignificant. The notes to consolidated financial statements are an integral part of these statements. 92 IFC 2023 ANNUAL REPORT FINANCIALS INTERNATIONAL FINANCE CORPORATION Page 99 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE E – LOANS AND GUARANTEES (continued) Loan Credit Quality Indicators IFC utilizes a rating system to classify loans according to credit worthiness and risk. A description of each credit rating and categorization in terms of the attributes of the borrower, the business environment in which the borrower operates or the loan itself under the rating system follows: Credit Indicative Risk External Rating Rating Category Description AAA, AA+, Very Strong An obligor rated CR-1 is the highest rating assigned by IFC. The obligor's ability to meet its CR-1 AA, AA- financial obligations is very strong. An obligor rated CR-2 is slightly more susceptible to the negative effects of changes in CR-2 A+, A, A- Strong circumstances and economic conditions than obligors rated CR-1. The obligor's ability to meet its financial obligations remains strong. An obligor rated CR-3 exhibits an adequate financial profile, even though at a weaker level than CR-3 BBB+ "CR-1" and "CR-2”. An obligor rated CR-4 exhibits an adequate financial profile. However, adverse economic CR-4 BBB conditions or changing circumstances are more likely to lead to a deterioration of the obligor’s Adequate ability to meet its financial obligations. An obligor rated CR-5, as the lowest of the investment grade ratings, exhibits an adequate CR-5 BBB- financial profile. However, adverse economic conditions and/or changing circumstances are more likely to lead to a weaker financial profile and a deterioration of the obligor’s ability to meet its financial obligations. An obligor rated CR-6, as the first non-investment grade rating, is less vulnerable to default than CR-6 BB+ other non-investment obligors. An obligor rated CR-7 can face major uncertainties. Exposure to negative business, financial, or CR-7 BB economic conditions could lead to the obligor's insufficient financial profile and a deterioration of Moderate the obligor’s ability to meet its financial obligations. An obligor rated CR-8 faces major ongoing uncertainties. Exposure to negative business, CR-8 BB- financial, or economic conditions could lead to the obligor's insufficient financial profile and a deterioration of the obligor’s ability to meet its financial obligations. An obligor rated CR-9 is less vulnerable to default than obligors rated 'CR-10’ or ‘CR-11'. CR-9 B+ Significantly negative business, financial, or economic conditions will likely weaken the obligor's financial profile and ability to meet its financial obligations. An obligor rated CR-10 is more vulnerable to default than obligors rated 'CR-9’ but the obligor still CR-10 B has the capacity to meet its financial obligations. Negative business, financial, or economic Weak conditions will likely weaken the obligor's financial profile and ability to meet its financial obligations. An obligor rated CR-11 is more vulnerable to default than obligors rated 'CR-9’ or ‘CR-10’. The obligor still has the capacity to meet its obligations but slightly negative business, financial, or CR-11 B- economic conditions are more likely to weaken the obligor's financial profile and ability to meet its financial obligations than a company rated CR-10. An obligor rated CR-12 faces significant challenges. While such obligors will likely have some Very Weak/ positive characteristics, these may be outweighed by large uncertainties or major exposures to CR-12 CCC+ Special adverse conditions. The obligor is dependent upon favorable business, financial, and economic Attention conditions to meet its financial obligations. An obligor rated CR-13 is currently vulnerable to default, and is dependent upon significantly Very Weak/ favorable business, financial, and economic conditions to meet its financial obligations. In the CR-13 CCC Substandard event of negative business, financial, or economic conditions, the obligor is not likely to meet its financial obligations and rescheduling and/or restructuring is likely to be required. An obligor rated CR-14 is highly vulnerable to default. It is highly likely that a rescheduling and/or Extremely restructuring are required without which a default under IFC’s accounting definition would ensue. CR-14 CCC- Weak/ In some cases, even though default has not occurred yet, cash flow may be insufficient to service Doubtful debt in full. CR-15 Worse Imminent An obligor rated CR-15 is currently extremely vulnerable to nonpayment and there are indications than CCC- Default that the next payment will not be made before meeting IFC’s accounting definition of default. and D /Default D An obligor rated D is in payment default according to IFC’s definition of default. The notes to consolidated financial statements are an integral part of these statements. IFC 2023 ANNUAL REPORT FINANCIALS 93 INTERNATIONAL FINANCE CORPORATION Page 100 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE E – LOANS AND GUARANTEES (continued) The following tables present the loans disbursed by credit quality indicator based on risk rating and origination year at June 30, 2023 and June 30, 2022. The origination year is based on the commitment date that represents the date that the decision was made to extend credit and IFC entered into a legally binding agreement with the borrower. All subsequent loan disbursements, as well as loan modifications, extensions, and renewals for an associated loan commitment are reported based on the original commitment date: June 30, 2023 (US$ in millions) Loans at Amortized cost basis by Risk class Very Weak/ Extremely Imminent Very Special Very Weak/ Weak/ Default/ Total Origination year Strong Strong Adequate Moderate Weak Attention Substandard Doubtful Default Contracts FY23 $ — $ 590 $ 1,525 $ 2,475 $ 1,559 $ 72 $ 20 $ 4 $ — $ 6,245 FY22 — 470 1,186 2,255 1,471 143 — 62 — 5,587 FY21 — 66 1,456 2,608 1,409 145 21 — 10 5,715 FY20 69 — 1,129 1,196 586 257 59 91 6 3,393 FY19 — 127 295 832 782 182 18 52 52 2,340 Prior 40 222 885 1,454 2,241 427 166 189 643 6,267 Total $ 109 $ 1,475 $ 6,476 $ 10,820 $ 8,048 $ 1,226 $ 284 $ 398 $ 711 $ 29,547 Revolving loans — — — 1,569 86 — 25 — — 1,680 Revolving contracts converted to Term contracts — — 7 10 — — — — — 17 Total disbursed loans $ 109 $ 1,475 $ 6,483 $ 12,399 $ 8,134 $ 1,226 $ 309 $ 398 $ 711 $ 31,244 Unamortized deferred loan origination fees, net and other (127) Loans at amortized cost $ 31,117 June 30, 2022 (US$ in millions) Loans at Amortized cost basis by Risk class Very Weak/ Extremely Imminent Very Special Very Weak/ Weak/ Default/ Total Origination year Strong Strong Adequate Moderate Weak Attention Substandard Doubtful Default Contracts FY22 $ — $ 88 $ 939 $ 1,020 $ 439 $ 31 $ — $ — $ 4 $ 2,521 FY21 — 199 1,473 2,619 1,761 174 — 2 6 6,234 FY20 74 150 1,069 1,500 1,109 111 61 85 6 4,165 FY19 — 140 483 968 1,319 144 29 61 44 3,188 FY18 — 34 627 1,133 1,013 279 — 34 58 3,178 Prior 50 359 664 928 2,053 397 265 204 670 5,590 Total $ 124 $ 970 $ 5,255 $ 8,168 $ 7,694 $ 1,136 $ 355 $ 386 $ 788 $ 24,876 Revolving loans — — 7 1,123 160 — — — — 1,290 Revolving contracts converted to Term contracts — — — 14 — — — — — 14 Total disbursed loans $ 124 $ 970 $ 5,262 $ 9,305 $ 7,854 $ 1,136 $ 355 $ 386 $ 788 $ 26,180 Unamortized deferred loan origination fees, net and other (122) Loans at amortized cost $ 26,058 The notes to consolidated financial statements are an integral part of these statements. 94 IFC 2023 ANNUAL REPORT FINANCIALS INTERNATIONAL FINANCE CORPORATION Page 101 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE E – LOANS AND GUARANTEES (continued) Following is a summary of IFC’s loans at amortized cost by credit quality indicator, geographic region, and industry sector, effective June 30, 2023 and June 30, 2022 respectively: June 30, 2023 Very Weak/ Extremely Imminent Very Special Very Weak/ Weak/ Default/ (US$ in millions) Strong Strong Adequate Moderate Weak Attention Substandard Doubtful Default Total Geographic Region Africa $ — $ 25 $ 394 $ 1,992 $ 3,303 $ 313 $ 205 $ 137 $ 209 $ 6,578 Asia and Pacific 69 460 3,284 3,250 2,019 192 6 18 78 9,376 Latin America and the Caribbean, and Europe — 517 2,515 4,255 1,497 356 98 215 170 9,623 Middle East, Central Asia, Türkiye, Pakistan, and Afghanistan — — 179 1,537 1,315 365 — 28 254 3,678 Other 40 473 111 1,365 — — — — — 1,989 Total geographic region $ 109 $ 1,475 $ 6,483 $ 12,399 $ 8,134 $ 1,226 $ 309 $ 398 $ 711 $31,244 Unamortized deferred loan origination fees, net and other (127) Loans at amortized cost $31,117 June 30, 2023 Very Weak/ Extremely Imminent Very Special Very Weak/ Weak/ Default/ (US$ in millions) Strong Strong Adequate Moderate Weak Attention Substandard Doubtful Default Total Industry Sector Manufacturing, agribusiness and services $ 109 $ 770 $ 2,992 $ 4,147 $ 1,685 $ 339 $ 223 $ 145 $ 322 $10,732 Financial markets — 638 2,626 6,676 3,686 155 28 36 52 13,897 Infrastructure and natural resources — 67 865 1,576 2,763 732 58 217 333 6,611 Disruptive technologies and funds — — — — — — — — 4 4 Total industry sector $ 109 $1,475 $ 6,483 $ 12,399 $ 8,134 $ 1,226 $ 309 $ 398 $ 711 $31,244 Unamortized deferred loan origination fees, net and other (127) Loans at amortized cost $31,117 The notes to consolidated financial statements are an integral part of these statements. IFC 2023 ANNUAL REPORT FINANCIALS 95 INTERNATIONAL FINANCE CORPORATION Page 102 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE E – LOANS AND GUARANTEES (continued) June 30, 2022 Very Weak/ Extremely Imminent Very Special Very Weak/ Weak/ Default/ (US$ in millions) Strong Strong Adequate Moderate Weak Attention Substandard Doubtful Default Total Geographic Region Africa $ — $ 52 $ 119 $ 1,671 $2,884 $ 208 $ 211 $ 73 $ 184 $ 5,402 Asia and Pacific 75 382 3,068 2,434 2,004 140 34 118 79 8,334 Latin America and the Caribbean, and Europe — 471 1,622 3,057 1,732 529 74 128 244 7,857 Middle East, Central Asia, Türkiye, Pakistan, and Afghanistan — — 175 851 1,234 259 36 67 281 2,903 Other 49 65 278 1,292 — — — — — 1,684 Total geographic region $ 124 $ 970 $ 5,262 $ 9,305 $7,854 $ 1,136 $ 355 $ 386 $ 788 $26,180 Unamortized deferred loan origination fees, net and other (122) Loans at amortized cost $26,058 June 30, 2022 Very Weak/ Extremely Imminent Very Special Very Weak/ Weak/ Default/ (US$ in millions) Strong Strong Adequate Moderate Weak Attention Substandard Doubtful Default Total Industry Sector Manufacturing, agribusiness and services $ 124 $ 775 $ 2,514 $ 2,998 $ 1,865 $ 283 $ 116 $ 94 $ 421 $ 9,190 Financial markets — 0 2,092 5,596 2,869 215 15 116 16 10,919 Infrastructure and natural resources — 195 656 711 3,120 638 224 176 347 6,067 Disruptive technologies and funds — — — — — — — — 4 4 Total industry sector $ 124 $ 970 $ 5,262 $ 9,305 $ 7,854 $ 1,136 $ 355 $ 386 $ 788 $26,180 Unamortized deferred loan origination fees, net and other (122) Loans at amortized cost $26,058 The notes to consolidated financial statements are an integral part of these statements. 96 IFC 2023 ANNUAL REPORT FINANCIALS INTERNATIONAL FINANCE CORPORATION Page 103 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE E – LOANS AND GUARANTEES (continued) Loans are modified through changes in interest rates, repayment schedules, and maturity date, in addition to reductions of loan principal and waiver of accrued interest. The following table presents information related to loan modifications, including past due amounts capitalized and written off, during the years ended June 30, 2023, June 30, 2022 and June 30, 2021 that are considered Troubled Debt Restructurings (TDRs): For the year ended June 30, 2023 2022 2021 Number of Number of Number of (US$ in millions) TDRs Amount TDRs Amount TDRs Amount Loans modified as TDRs 20 $ 568 31 $ 792 46 $ 741 Loan at amortized cost modifications considered TDRs during the years ended June 30, 2023, June 30, 2022 and June 30, 2021 is summarized by geographic region and industry sector as follows: For the year ended June 30, 2023 Manufacturing, Infrastructure Total Loan agribusiness Financial and natural modifications (US$ in millions) and services markets resources considered TDRs a Geographic Region Africa $ 151 $ — $ — $ 151 Asia and Pacific 70 9 14 93 Middle East, Central Asia, Türkiye, Pakistan, and Afghanistan — — 160 160 Latin America and the Caribbean, and Europe — 5 159 164 Total geographic region $ 221 $ 14 $ 333 $ 568 For the year ended June 30, 2022 Manufacturing, Infrastructure Total Loan agribusiness Financial and natural modifications (US$ in millions) and services markets resources considered TDRs a Geographic Region Africa $ 112 $ — $ 53 $ 165 Asia and Pacific 106 — 24 130 Middle East, Central Asia, Türkiye, Pakistan, and Afghanistan — 46 240 286 Latin America and the Caribbean, and Europe 98 21 92 211 Total geographic region $ 316 $ 67 $ 409 $ 792 For the year ended June 30, 2021 Manufacturing, Infrastructure agribusiness Financial and natural Loan modifications (US$ in millions) and services markets resources considered TDRs a Geographic Region Africa $ 152 $ — $ 227 $ 379 Asia and Pacific 158 31 — 189 Middle East, Central Asia, Türkiye, Pakistan, and Afghanistan 69 — 61 130 Latin America and the Caribbean, and Europe 36 7 — 43 Total geographic region $ 415 $ 38 $ 288 $ 741 ___________ a Includes all components of amortized cost except unamortized fees which are considered insignificant. The notes to consolidated financial statements are an integral part of these statements. IFC 2023 ANNUAL REPORT FINANCIALS 97 INTERNATIONAL FINANCE CORPORATION Page 104 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE E – LOANS AND GUARANTEES (continued) Following is a summary of loans that defaulted during the years ended June 30, 2023, June 30, 2022 and June 30, 2021 that had been modified in a troubled debt restructuring within 12 months prior to the date of default: For the year ended June 30, (US$ in millions, except for number of loans) 2023 2022 2021 Loan amount $ 137 $ 43 $ 70 Number of Loans 12 7 4 Collateral-Dependent Loans A loan is considered collateral-dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. The following tables summarize the amortized cost of collateral dependent loansa by collateral type, geographic region and industry sector as of June 30, 2023 and June 30, 2022 respectively: June 30, 2023 June 30,2022 Property, Land Property, Land and and (US$ in millions) Equipment Others Total Equipment Others Total Geographic Region Africa $ 2 $ — $ 2 $ 2 — $ 2 Asia and Pacific — — — 14 — 14 Latin America and the Caribbean, and Europe 3 6 9 44 — 44 Total $ 5 $ 6 $ 11 $ 60 $ — $ 60 June 30, 2023 June 30,2022 Property, Land Property, Land and and (US$ in millions) Equipment Others Total Equipment Others Total Industry Sector Manufacturing, agribusiness and services $ 3 $ — $ 3 $ 8 — $ 8 Financial markets — 6 6 — — — Infrastructure and natural resources 2 — 2 52 — 52 Total $ 5 $ 6 $ 11 $ 60 $ — $ 60 ___________ a Includes all components of amortized cost except unamortized fees which are considered insignificant. 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 as of June 30, 2023 totaled $5.1 billion ($4.9 billion – June 30, 2022). Guarantees of $4.4 billion that were outstanding (i.e., not called) at June 30, 2023 ($4.2 billion – June 30, 2022), were not included in loans on IFC’s consolidated balance sheet. The outstanding amount represents the maximum amount of undiscounted future payments that IFC could be required to make under these guarantees. The notes to consolidated financial statements are an integral part of these statements. 98 IFC 2023 ANNUAL REPORT FINANCIALS INTERNATIONAL FINANCE CORPORATION Page 105 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE F – DEBT SECURITIES Income from debt securities, including realized gains on debt securities and associated derivatives for the years ended June 30, 2023, June 30, 2022 and June 30, 2021 comprise the following: For the year ended June 30, June 30, June 30, (US$ in millions) 2023 2022 2021 Interest income $ 442 $ 297 $ 282 Dividends 1 5 1 Realized gains on debt securities and associated derivatives a 75 112 57 Total income from debt securities, including realized gains on debt securities and associated derivatives $ 518 $ 414 $ 340 _________ a Includes realized gains on debt securities under the Fair Value Option. $4 million, $74 million, and $24 million gains for the years ended June 30, 2023, June 30, 2022, and June 30, 2021, respectively. Debt securities accounted for as available-for-sale at June 30, 2023 and June 30, 2022 comprise: June 30, 2023 Amortized Unrealized Unrealized Reserve for (US$ in millions) cost gains a losses a credit losses Fair value Corporate debt securities $ 1,304 $ 16 $ (194) $ (13) $ 1,113 Preferred shares 28 1 (1) (8) 20 Asset-backed securities 300 2 (62) — 240 Total $ 1,632 $ 19 $ (257) $ (21) $ 1,373 _________ a Includes net foreign exchange losses of $221 million as of June 30, 2023. June 30, 2022 Amortized Unrealized Unrealized Reserve for (US$ in millions) cost gains a losses a credit losses Fair value Corporate debt securities $ 1,722 $ 6 $ (293) $ (11) $ 1,424 Preferred shares 31 54 (1) (3) 81 Asset-backed securities 466 13 (79) — 400 Total $ 2,219 $ 73 $ (373) $ (14) $ 1,905 _________ a Includes net foreign exchange losses of $332 million as of June 30, 2022. Due to non-credit related factors, reserve for credit losses were not recorded for the following available-for-sale debt securities in an unrealized loss position: June 30, 2023 (US$ in millions) Amortized Costs Unrealized Losses a Fair value Corporate debt securities $ 857 $ (194) $ 663 Preferred shares 9 (1) 8 Asset-backed securities 225 (62) 163 Total $ 1,091 $ (257) $ 834 _________ a Includes net foreign exchange losses of $217 million as of June 30, 2023. The notes to consolidated financial statements are an integral part of these statements. IFC 2023 ANNUAL REPORT FINANCIALS 99 INTERNATIONAL FINANCE CORPORATION Page 106 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE F – DEBT SECURITIES (continued) June 30, 2022 (US$ in millions) Amortized Costs Unrealized Losses a Fair value Corporate debt securities $ 1,470 $ (293) $ 1,177 Preferred shares 3 (1) 2 Asset-backed securities 466 (79) 387 Total $ 1,939 $ (373) $ 1,566 _________ a Includes net foreign exchange losses of $323 million as of June 30, 2022. The following table shows the unrealized losses and fair value of debt securities at June 30, 2023 and June 30, 2022 by length of time that individual securities had been in a continuous loss position where the fair value of securities declined below their cost basis: June 30, 2023 Less than 12 months 12 months or greater Total Fair Unrealized Fair Unrealized Fair Unrealized (US$ in millions) value losses value losses value losses Corporate debt securities $ — $ — $ 663 $ (194) $ 663 $ (194) Preferred shares 7 — 1 (1) 8 (1) Asset-backed securities — — 163 (62) 163 (62) Total $ 7 $ — $ 827 $ (257) $ 834 $ (257) June 30, 2022 Less than 12 months 12 months or greater Total Fair Unrealized Fair Unrealized Fair Unrealized (US$ in millions) value losses value losses value losses Corporate debt securities $ 400 $ (46) $ 777 $ (247) $ 1,177 $ (293) Preferred shares 2 (1) — — 2 (1) Asset-backed securities 350 (7) 37 (72) 387 (79) Total $ 752 $ (54) $ 814 $ (319) $ 1,566 $ (373) Corporate debt securities comprise investments in bonds and notes. Fair value associated with corporate debt securities is primarily attributable to movements in the credit default swap spread curve applicable to the issuer, and also impacted by movements in the risk- free rates and foreign exchange rates. Based upon IFC's assessment of expected credit losses, a reserve for credit losses is made for securities where the issuer is not expected to make all contractual principal and interest payments. 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 expected credit losses, a reserve for credit losses is made for securities where IFC does not expect to recover the cost basis of these securities. Asset-backed securities comprise investments in bonds and notes that are collateralized by self-liquidating financial assets that allows IFC to receive payments that depend primarily on cash flow from those assets. The notes to consolidated financial statements are an integral part of these statements. 100 IFC 2023 ANNUAL REPORT FINANCIALS INTERNATIONAL FINANCE CORPORATION Page 107 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE F – DEBT SECURITIES (continued) The tables below present a roll-forward by major security type for the years ended June 30, 2023 and June 30, 2022 of the reserve for credit losses on debt securities held at the period end: For the year ended (US$ in millions) June 30, 2023 June 30, 2022 June 30, 2021 Corporate Corporate Corporate Debt Preferred Debt Preferred Debt Preferred Securities shares Total Securities shares Total Securities shares Total Beginning balance $ 11 $ 3 $ 14 $ — $ 3 $ 3 $ — $ — $ — Provision for losses 2 5 7 11 3 14 — 3 3 Write-offs — — — — (3) (3) — — — Ending balance $ 13 $ 8 $ 21 $ 11 $ 3 $ 14 $ — $ 3 $ 3 As of June 30, 2023, debt securities with contractual maturities that are accounted for as available-for-sale have contractual maturities during the years ending June 30, 2024 through June 30, 2028 and thereafter, as follows: (US$ in millions) 2024 2025 2026 2027 2028 Thereafter Total Corporate debt securities $ 288 $ 395 $ 63 $ 255 $ 133 $ 11 $ 1,145 Asset-backed securities 144 58 21 15 — — 238 Total disbursed portfolio of debt securities with contractual maturities $ 432 $ 453 $ 84 $ 270 $ 133 $ 11 $ 1,383 As of June 30, 2022, debt securities with contractual maturities that are accounted for as available-for-sale have contractual maturities during the years ending June 30, 2023 through June 30, 2027 and thereafter, as follows: (US$ in millions) 2023 2024 2025 2026 2027 Thereafter Total Corporate debt securities $ 370 $ 270 $ 399 $ 64 $ 251 $ 141 $ 1,495 Asset-backed securities 110 155 58 22 15 — 360 Total disbursed portfolio of debt securities with contractual maturities $ 480 $ 425 $ 457 $ 86 $ 266 $ 141 $ 1,855 The expected maturity of asset-backed securities may differ from the contractual maturity, as reported above, due to prepayment features. In addition, IFC has $28 million of redeemable preferred shares and other debt securities with undefined maturities ($31 million – June 30, 2022). The currency composition and weighted average contractual rate of debt securities with contractual maturities that are accounted for as available-for-sale are summarized below: June 30, 2023 June 30, 2022 Weighted Weighted average average contractual contractual (US$ in millions, except for ratios) Amount rate (%) Amount rate (%) U.S. dollar $ 457 7.8 $ 572 4.7 Euro 417 5.9 400 3.1 Indian rupee 275 8.0 584 7.7 Colombian peso 187 14.5 195 8.6 South African rand 22 11.3 28 11.3 Türkish lira 21 14.7 64 15.0 C.F.A. Francs BCEAO 4 6.0 5 6.0 Chilean peso — — 7 7.6 Total disbursed portfolio of debt securities with contractual maturities $ 1,383 8.3 $ 1,855 6.2 The notes to consolidated financial statements are an integral part of these statements. IFC 2023 ANNUAL REPORT FINANCIALS 101 INTERNATIONAL FINANCE CORPORATION Page 108 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE F – DEBT SECURITIES (continued) After the effect of interest rate swaps and currency swaps, IFC’s debt securities that are accounted for as available-for-sale are primarily denominated in variable rate U.S. dollars. Nonaccruing debt securities Debt securities on which the accrual of interest has been discontinued amounted to $59 million at June 30, 2023 ($60 million – June 30, 2022). The interest income on such debt securities for the year ended June 30, 2023, June 30, 2022 and June 30, 2021 is summarized as follows: For the year ended (US$ in millions) June 30, 2023 June 30, 2022 June 30, 2021 Interest income not recognized on nonaccruing debt securities $ 1 $ 3 $ 12 Interest income recognized on debt securities in nonaccrual status related to current and prior years, on a cash basis — 1 3 NOTE G – EQUITY INVESTMENTS AND ASSOCIATED DERIVATIVES Income from equity investments and associated derivatives for the years ended June 30, 2023, June 30, 2022 and June 30, 2021 comprises the following: For the year ended (US$ in millions) June 30, 2023 June 30, 2022 June 30, 2021 a Unrealized (losses) gains on equity investments and associated derivatives $ (134) $ (617) $ 2,550 Realized gains on equity investments and associated derivatives, net 161 642 431 b Gains (losses) on equity investments and associated derivatives, net 27 25 2,981 Dividends 162 180 218 Custody, fees and other 2 3 2 Total income (loss) from equity investments and associated derivatives $ 191 $ 208 $ 3,201 _________ a Including unrealized gains and losses related to equity securities still held at June 30, 2023 – net gains of $115 million for the year ended June 30, 2023 (net losses of $42 million - June 30, 2022 and net gains of $2.7 billion - June 30, 2021). b Includes gains of $119 million for the year ended June 30, 2023 (gains of $234 million – June 30, 2022 and $1.9 billion – June 30, 2021) from equity investments for which IFC has elected a Fair Value Option. 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. The fair values of these funds have been determined using the net asset value of IFC’s ownership interest in partners’ capital as a practical expedient and totaled $5.2 billion as of June 30, 2023 ($5.3 billion – June 30, 2022). These investments cannot be redeemed. Distributions will be received from these funds as the underlying assets are liquidated or distributed, the timing of which is uncertain. As of June 30, 2023, the maximum unfunded commitments subject to capital calls for these funds are $1.6 billion ($1.9 billion – June 30, 2022). As of June 30, 2023, IFC invested $505 million ($531 million – June 30, 2022) as a limited partner in funds managed by AMC. Amounts previously distributed by the AMC Funds may be callable through the life of the respective fund. The sale of IFC’s limited partner interests in these funds needs prior consent from the other limited partners. The notes to consolidated financial statements are an integral part of these statements. 102 IFC 2023 ANNUAL REPORT FINANCIALS INTERNATIONAL FINANCE CORPORATION Page 109 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE H – INVESTMENT TRANSACTIONS COMMITTED BUT NOT DISBURSED OR UTILIZED Loan, equity and debt security commitments signed but not yet disbursed, and guarantee and client risk management facilities signed but not yet utilized are summarized below: (US$ in millions) June 30, 2023 June 30, 2022 Investment transactions committed but not disbursed: Loans, equity investments and debt securities $ 11,090 $ 12,643 Investment transactions committed but not utilized: Guarantees 747 724 Client risk management facilities 202 177 Total investment transactions committed but not disbursed or utilized $ 12,039 $ 13,544 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$ in millions) June 30, 2023 June 30, 2022 Loan participations signed as commitments but not disbursed $ 785 $ 1,314 Loan participations disbursed and outstanding which are serviced by IFC 7,784 7,297 NOTE J – RECEIVABLES AND OTHER ASSETS Receivables and other assets are summarized below: (US$ in millions) June 30, 2023 June 30, 2022 Accrued income on derivative instruments $ 1,131 $ 535 Receivables from sales of securities 791 940 Pension and other post-retirement benefits receivable from IBRD 704 640 Accrued interest income on loans 524 292 Post-retirement contribution reserve fund 385 260 Assets under retirement benefit plans 246 106 Accrued interest income on time deposits and securities 243 102 Fixed assets 1,346 1,287 Less: Accumulated depreciation (819) (766) Fixed assets, net 527 521 Deferred charges and other assets 1,294 1,315 Total receivables and other assets $ 5,845 $ 4,711 The notes to consolidated financial statements are an integral part of these statements. IFC 2023 ANNUAL REPORT FINANCIALS 103 INTERNATIONAL FINANCE CORPORATION Page 110 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, 2023 Interest rate swaps notional Currency swaps payable principal payable Market borrowings (receivable) (receivable) Net currency obligation Weighted Weighted Weighted Weighted Principal average rate Notional average rate Notional average rate Notional average rate (US$ in millions, except for ratios) amount (%) amount (%) amount (%) amount (%) U.S. dollar $ 21,639 2.4 $ 33,864 5.2 $ 21,935 5.1 $ 55,684 5.2 (21,754) 2.4 Australian dollar 10,434 3.0 (10,434) 3.7 — — — — Pounds sterling 5,703 1.5 (5,703) 1.5 — — — — Mexican peso 5,221 7.8 (5,221) 7.9 — — — — New Zealand dollar 2,549 2.4 (2,549) 2.5 — — — — Canadian dollar 2,073 1.9 (2,073) 1.9 — — — — Swedish kronor 1,496 1.4 (1,496) 1.4 — — — — Euro 1,196 1.8 (1,196) 1.8 — — — — Brazilian real 1,064 3.1 (1,064) 2.6 — — — — Hong Kong dollar 855 3.0 (855) 3.0 — — — — Indian rupee 675 6.5 (231) 6.4 — — 444 6.6 Chinese renminbi 658 2.5 (611) 2.5 — — 47 2.8 South African rand 618 6.1 (618) 5.5 — — — — Norwegian kroner 488 2.0 (488) 2.0 — — — — Japanese yen 347 4.6 (347) 3.1 — — — — New Turkish lira 308 10.9 (304) 13.6 — — 4 10.5 Hungarian forint 298 6.6 (298) 6.6 — — — — New Romanian lei 271 5.7 (56) 5.4 — — 215 5.8 Colombian peso 243 4.5 (243) 4.1 — — — — Uzbekistan sum 191 12.9 (191) 12.9 — — — — Georgian lari 143 8.5 (67) 7.5 — — 76 9.5 Indonesian rupiah 133 8.0 — — — — 133 8.0 Chilean peso 119 3.2 (119) 3.2 — — — — Russian ruble 117 5.3 (117) 5.8 — — — — Philippine peso 60 6.3 — — — — 60 6.3 Peso uruguayo 60 6.4 (60) 6.4 — — — — Kazakhstan tenge 58 10.1 (49) 10.4 — — 9 8.4 Korean won 44 2.7 (44) 2.7 — — — — Peruvian soles nuevo 43 1.5 (43) 1.5 — — — — New Azerbaijanian manat 35 6.0 (17) 6.0 — — 18 6.0 Dominican peso 23 7.0 (23) 7.0 — — — — Jamaican dollar 15 7.5 (15) 7.5 — — — — Czech koruna 11 4.4 (11) 4.4 — — — — Bangladeshi taka 7 7.1 — — — — 7 7.1 New Serbian dinar 4 0.7 (4) 0.7 — — — — Sri Lanka rupee 3 8.0 — — — — 3 8.0 Ukraine hrivnya 3 13.6 — — — — 3 13.6 Costa Rican colon 1 8.4 — — — — 1 8.4 Principal at face value $ 57,206 $ (683) $ 181 $ 56,704 5.2 Short-term borrowings from market and 2,967 other sources 60,173 Unamortized discounts, net (3,433) Total market borrowings 56,740 Fair value adjustments (4,540) Carrying amount of market borrowings $ 52,200 The notes to consolidated financial statements are an integral part of these statements. 104 IFC 2023 ANNUAL REPORT FINANCIALS INTERNATIONAL FINANCE CORPORATION Page 111 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE K – BORROWINGS (continued) June 30, 2022 Interest rate swaps notional Currency swaps payable principal payable Market borrowings (receivable) (receivable) Net currency obligation Weighted Weighted Weighted Weighted Principal average rate Notional average rate Notional average rate Notional average rate (US$ in millions, except for ratios) amount (%) amount (%) amount (%) amount (%) U.S. dollar $ 21,264 1.6 $ 30,497 1.3 $ 20,978 1.1 $ 51,911 1.2 (20,828) 1.6 Australian dollar 8,726 2.7 (8,726) 2.7 — — — — Pounds sterling 4,310 1.0 (4,310) 1.0 — — — — Mexican peso 4,243 7.6 (4,243) 7.6 — — — — New Zealand dollar 1,999 1.7 (1,999) 1.7 — — — — Canadian dollar 1,742 1.5 (1,742) 1.5 — — — — Swedish kronor 1,280 0.7 (1,280) 0.7 — — — — Brazilian real 1,211 3.3 (1,211) 3.3 — — — — Euro 1,121 1.8 (1,121) 1.8 — — — — Japanese yen 1,059 2.4 (1,059) 1.9 — — — — Indian rupee 954 6.3 (151) 6.3 — — 803 6.3 Chinese renminbi 817 2.6 (817) 2.6 — — — — South African rand 699 6.1 (699) 7.0 — — — — Turkish lira 572 11.1 (566) 11.3 — — 6 (3.1) Russian ruble 514 5.5 (514) 5.4 — — — — Kazakhstan tenge 254 8.2 (243) 8.2 — — 11 8.3 Norwegian kroner 226 0.9 (226) 0.9 — — — — Colombian peso 176 4.3 (176) 4.3 — — — — New Romanian lei 172 2.8 (93) 3.1 — — 79 2.4 Hong Kong dollar 166 1.5 (166) 1.5 — — — — Georgian lari 143 8.4 (75) 7.5 — — 68 9.5 Indonesian rupiah 133 8.0 — — — — 133 8.0 Hungarian forints 131 2.7 (131) 2.7 — — — — Uzbekistan sum 112 10.5 (112) 10.5 — — — — Chilean peso 92 2.4 (92) 2.4 — — — — Uruguayan peso 76 6.2 (76) 6.2 — — — — Philippine peso 66 6.3 — — — — 66 6.3 Peruvian soles nuevo 41 1.5 (41) 1.5 — — — — Ukrainian hryvnia 41 13.5 (35) 13.4 — — 6 13.6 New Azerbaijanian manat 35 6.0 (35) 6.0 — — — — New Ghanaian cedi 23 13.4 (23) 13.4 — — — — Bangladeshi taka 17 6.7 — — — — 17 6.7 Czech koruna 11 4.4 (11) 4.4 — — — — Costa Rican colon 6 7.2 (2) 5.5 — — 4 8.1 Dominican peso 6 6.7 (5) 6.3 — — 1 8.6 Nigerian naira 5 9.4 (5) 9.4 — — — — New Serbian dinar 4 0.7 (4) 0.7 — — — — Sri Lankan rupee 3 8.0 — — — — 3 8.0 Principal at face value $ 52,450 $ 508 $ 150 $ 53,108 1.3 Short-term borrowings from market and other sources 2,327 54,777 Unamortized discounts, net (2,527) Total market borrowings 52,250 Fair value adjustments (4,325) Carrying amount of market borrowings $ 47,925 The notes to consolidated financial statements are an integral part of these statements. IFC 2023 ANNUAL REPORT FINANCIALS 105 INTERNATIONAL FINANCE CORPORATION Page 112 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE K – BORROWINGS (continued) The net currency obligations not fully hedged by borrowings related swaps have generally been invested and/or on-lent to clients in such currencies. The weighted average remaining maturity of IFC’s borrowings from market sources was 5.4 years at June 30, 2023 (5.6 years – June 30, 2022). Charges on borrowings for the year ended June 30, 2023 include $6 million of interest expense on secured borrowings ($4 million – year ended June 30, 2022 and $7 million – year ended June 30, 2021) and is net of $1 million of gains on buybacks of market borrowings ($4 million – year ended June 30, 2022; $3 million – year ended June 30, 2021). The net nominal amount receivable from currency swaps of $683 million and the net notional amount payable from interest rate swaps of $181 million at June 30, 2023 (payable of $508 million from currency swaps and payable of $150 million from interest rate swaps – June 30, 2022), shown in the above table, are represented by currency and interest rate swap assets at fair value of $2.8 billion and currency and interest rate swap liabilities at fair value of $10.0 billion ($128 million and $7.3 billion – June 30, 2022), 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, 2023 is $3.0 billion ($2.3 billion – June 30, 2022). Charges on borrowings for the year ended June 30, 2023, include $109 million in respect of this program ($5 million – June 30, 2022 and $5 million – June 30, 2021). Borrowings from IDA Borrowings outstanding from IDA are summarized below: June 30, 2023 Interest rate swap notional principal IDA Borrowings payable (receivable) Net currency obligation Weighted Weighted Weighted Principal average Notional average Notional average (US$ in millions, except for ratios) amount cost (%) amount cost (%) amount cost (%) U.S. dollar $ 262 1.8 $ 262 5.5 $ 262 5.5 (262) (-1.8) Total IDA borrowings outstanding $ 262 $ — $ 262 5.5 Fair value adjustments (19) Carrying amount of IDA borrowings $ 243 June 30, 2022 Interest rate swap notional principal IDA Borrowings payable (receivable) Net currency obligation Weighted Weighted Weighted Principal average Notional average Notional average (US$ in millions, except for ratios) amount cost (%) amount cost (%) amount cost (%) U.S. dollar $ 358 1.8 $ 358 1.8 $ 358 1.8 (358) (1.8) Total IDA borrowings outstanding $ 358 $ — $ 358 1.8 Fair value adjustments (14) Carrying amount of IDA borrowings $ 344 The weighted average remaining maturity of borrowings from IDA was 3.39 years at June 30, 2023 (3.3 years – June 30, 2022). Charges on borrowings for the year ended June 30, 2023, includes $6 million ($8 million – year ended June 30, 2022; $10 million – year ended June 30, 2021) in respect of borrowings from IDA. The notes to consolidated financial statements are an integral part of these statements. 106 IFC 2023 ANNUAL REPORT FINANCIALS INTERNATIONAL FINANCE CORPORATION Page 113 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE K – BORROWINGS (continued) Maturity of borrowings As of June 30, 2023, the principal amounts repayable on borrowings outstanding in all currencies during the years ending June 30, 2024, through June 30, 2028, and thereafter are summarized below: (US$ in millions) 2024 2025 2026 2027 2028 Thereafter Total Borrowings from market sources $ 9,042 $ 9,706 $ 12,543 $ 7,016 $ 5,248 $ 13,652 $ 57,207 Short-term borrowings from market and other sources 2,967 — — — — — 2,967 Borrowings from IDA 77 61 34 12 11 67 262 Total borrowings, gross $ 12,086 $ 9,767 $ 12,577 $ 7,028 $ 5,259 $ 13,719 $ 60,436 Unamortized discounts, net (3,433) Fair value adjustments (4,560) Carrying amount of borrowings $ 52,443 As of June 30, 2022, the principal amounts repayable on borrowings outstanding in all currencies during the years ending June 30, 2023, through June 30, 2027, and thereafter are summarized below: (US$ in millions) 2023 2024 2025 2026 2027 Thereafter Total Borrowings from market sources $ 9,226 $ 7,627 $ 9,025 $ 6,621 $ 5,198 $ 14,753 $ 52,450 Short-term borrowings from market and other sources 2,327 — — — — — 2,327 Borrowings from IDA 96 77 61 34 12 78 358 Total borrowings, gross $ 11,649 $ 7,704 $ 9,086 $ 6,655 $ 5,210 $ 14,831 $ 55,135 Unamortized discounts, net (2,527) Fair value adjustments (4,339) Carrying amount of borrowings $ 48,269 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$ in millions) June 30, 2023 June 30, 2022 Accounts payable, accrued expenses and other liabilities $ 1,378 $ 1,318 Accrued charges on derivative instruments 1,089 303 Payables for unsettled security trades 1,002 172 Accrued charges on borrowings 785 598 Liabilities under post employment benefit plan 710 739 Liabilities under retirement benefit plans 112 500 Deferred income 91 103 Secured borrowings and short sold securities 73 80 Total payables and other liabilities $ 5,240 $ 3,813 The notes to consolidated financial statements are an integral part of these statements. IFC 2023 ANNUAL REPORT FINANCIALS 107 INTERNATIONAL FINANCE CORPORATION Page 114 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE M – CAPITAL TRANSACTIONS Following the Spring Meetings in April 2018, a financing package was endorsed by the Board of Governors that included a three-step capital raising process: conversion of a portion of retained earnings into paid-in capital, a Selective Capital Increase (SCI) and General Capital Increase (GCI) that would provide up to $5.5 billion in additional paid-in capital. The SCI and GCI Resolutions were adopted and became effective on April 16, 2020. In April 2023, the subscription deadline for SCI and GCI was extended to April 16, 2025 and April 16, 2024, respectively, and the payment deadline for SCI was extended to April 16, 2025, to be aligned with the GCI payment deadline. The authorized capital stock was increased by the creation of 16,999,998 additional shares each having a par value of $1,000 after converting a portion of the retained earnings into paid-in capital. The authorized capital stock was increased by 919,998 and 4,579,995 shares of capital stock each having a par value of $1,000 as per the SCI and GCI respectively. The authorized capital stock as on June 30, 2023 consists of 25,079,991 shares of $1,000 par value each (25,079,991 shares – June 30, 2022). During the year ended June 30, 2023, 42 countries subscribed a total of $328 million (GCI of $228 million and SCI of $100 million) and payment of $847 million has been received from 82 countries. Subsequent to June 30, 2023, subscription of $11 million was received from three countries and total payment of $9 million was received from three countries. For the year ended June 30, 2022 and June 30, 2021, $803 million and $2.4 billion was subscribed and $987 million and $1.2 billion payment was received, respectively. Under IFC’s Articles of Agreement, in the event a member withdraws from IFC, IFC and the member may negotiate on the repurchase of the member’s capital stock on such terms as may be appropriate under the circumstances. Such agreement may provide, among other things, for a final settlement of all obligations of the member to IFC. If such an agreement is not made within six months after the member withdraws or such other time as IFC and the member may agree, the repurchase price of the member’s capital stock shall be the value thereof shown by the books of IFC on the day when the member withdraws. The repurchase of capital stock is subject to certain conditions including payments in installments, at such times and in such available currency or currencies as IFC reasonably determines, taking into account the financial position of IFC. IFC’s Articles of Agreement also provide for the withdrawing member to repay losses on loans and equity investments in excess of reserve provided on the date of withdrawal. NOTE N – OTHER INCOME Other income for the years ended June 30, 2023, June 30, 2022 and June 30, 2021 comprise the following: For the year ended (US$ in millions) June 30, 2023 June 30, 2022 June 30, 2021 Investment (losses) gains on PEBP assets $ 55 $ (17) $ 130 Fees collected from clients 16 13 14 Post-retirement Contributions Reserve Fund (PCRF) income 15 1 — Other reimbursable arrangements 9 14 24 Others 48 33 44 Total Other Income $ 143 $ 44 $ 212 The notes to consolidated financial statements are an integral part of these statements. 108 IFC 2023 ANNUAL REPORT FINANCIALS INTERNATIONAL FINANCE CORPORATION Page 115 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE O – RETAINED EARNINGS DESIGNATIONS AND RELATED EXPENDITURES AND ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) Designated retained earnings The components of designated retained earnings and related expenditures are summarized below: Funding Mechanism for Technical Assistance Creating Small and Total and Markets Performance- Medium Designated Grants to Advisory Advisory Based Grants Enterprise Retained (US$ in millions) IDA Services Window Initiative Ventures Earnings At June 30, 2020 $ 213 $ 69 $ 135 $ 1 $ 15 $ 433 Year ended June 30, 2021 Designations of retained earnings — — 44 — — 44 Expenditures against designated retained earnings (213) (27) (28) (1) (1) (270) At June 30, 2021 $ — $ 42 $ 151 $ — $ 14 $ 207 Year ended June 30, 2022 Designations of retained earnings — 72 89 — — 161 Expenditures against designated retained earnings — (36) (33) — (1) (70) At June 30, 2022 $ — $ 78 $ 207 $ — $ 13 $ 298 Year ended June 30, 2023 Designations of retained earnings — 6 — — — 6 Expenditures against designated retained earnings — (36) (46) — (1) (83) At June 30, 2023 $ — $ 48 $ 161 $ — $ 12 $ 221 On August 4, 2022, the Board of Directors approved the entire designation of $6 million of IFC’s retained earnings for Funding Mechanism for Technical Assistance and Advisory Services (FMTAAS). This designation was approved by the Board of Governors on October 14, 2022. Accumulated other comprehensive income (loss) The components of accumulated other comprehensive income (loss) at June 30, 2023 and June 30, 2022 are summarized as follows: (US$ in millions) June 30, 2023 June 30, 2022 Net unrealized losses on available-for-sale debt securities $ (238) $ (300) Net unrealized gains on borrowings at fair value under the Fair Value Option due to changes in instrument-specific credit risk 340 390 Unrecognized net actuarial gains (losses) and unrecognized prior service costs on benefit plans 530 (172) Total accumulated other comprehensive income (loss) $ 632 $ (82) The notes to consolidated financial statements are an integral part of these statements. IFC 2023 ANNUAL REPORT FINANCIALS 109 INTERNATIONAL FINANCE CORPORATION Page 116 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE P – NET UNREALIZED GAINS AND LOSSES ON NON-TRADING FINANCIAL INSTRUMENTS ACCOUNTED FOR AT FAIR VALUE Net unrealized gains and losses on non-trading financial instruments accounted for at fair value for the years ended June 30, 2023, June 30, 2022 and June 30, 2021 comprise: For the year ended June 30, June 30, June 30, (US$ in millions) 2023 2022 2021 Unrealized gains and losses on loans, debt securities and associated derivatives: Unrealized gains (losses) on loans under the Fair Value Option $ 9 $ (95) $ 108 Unrealized gains on derivatives associated with loans 172 389 233 Unrealized (losses) gains on debt securities under the Fair Value Option (55) (532) 325 Unrealized gains on derivatives associated with debt securities 49 115 69 Total net unrealized gains (losses) on loans, debt securities and associated derivatives 175 (123) 735 Unrealized gains and losses on borrowings from market, IDA and associated derivatives: Unrealized gains on market borrowings accounted for at fair value 265 3,795 2,016 Unrealized losses on derivatives associated with market borrowings (320) (3,928) (1,957) Unrealized gains on borrowings from IDA accounted for at fair value 5 27 12 Total net unrealized (losses) gains on borrowings from market, IDA and associated derivatives (50) (106) 71 Net unrealized gains and losses on non-trading financial instruments accounted for at fair value $ 125 $ (229) $ 806 Market borrowings economically hedged with financial instruments, including 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 movements in IFC's own credit risk spread, foreign currency exchange risk premiums and accrued interest balances. The magnitude and direction (gain or loss) can be volatile from period to period but they do not alter the timing of cash flows on market borrowings. Changes in the fair value of borrowings resulting from changes in IFC’s own credit risk spread are recorded through other comprehensive income whereas changes in fair value due to other factors, and all fair value changes on hedging derivatives, are accounted for through net income (loss). The notes to consolidated financial statements are an integral part of these statements. 110 IFC 2023 ANNUAL REPORT FINANCIALS INTERNATIONAL FINANCE CORPORATION Page 117 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE Q – DERIVATIVES 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 accounting hedges under ASC Topic 815. The fair value of derivative instrument assets and liabilities by risk type at June 30, 2023 and June 30, 2022 is summarized as follows: (US$ in millions) June 30, 2023 June 30, 2022 Derivative assets Interest rate $ 843 $ 552 Foreign exchange 225 900 Interest rate and currency 4,465 2,282 Equity 124 77 Credit and other 65 45 Total derivative assets $ 5,722 $ 3,856 Derivative liabilities Interest rate $ 2,245 $ 1,684 Foreign exchange 217 76 Interest rate and currency 8,706 6,105 Equity 10 4 Credit and other 17 31 Total derivative liabilities $ 11,195 $ 7,900 The notes to consolidated financial statements are an integral part of these statements. IFC 2023 ANNUAL REPORT FINANCIALS 111 INTERNATIONAL FINANCE CORPORATION Page 118 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE Q – DERIVATIVES (continued) The effect of derivative instrument contracts on the consolidated statement of operations for the years ended June 30, 2023, June 30, 2022 and June 30, 2021 is summarized as follows: (US$ in millions) For the year ended Derivative risk June 30, June 30, June 30, category Consolidated Statement of Operations location 2023 2022 2021 Interest rate Income (loss) from loans and guarantees, including realized gains and losses on loans and associated derivatives $ 54 $ (25) $ (23) Income (loss) from debt securities, including realized gains and losses on debt securities and associated derivatives 20 (13) (12) Income (loss) from liquid asset trading activities 56 73 (71) Charges on borrowings (407) 243 292 Other income 18 17 13 Net unrealized losses on non-trading financial instruments accounted for at fair value (248) (1,263) (396) Foreign exchange (Loss) income from liquid asset trading activities (62) 2,223 (987) Foreign currency transaction (losses) gains on non-trading activities (12) 8 (16) Net unrealized gains (losses) on non-trading financial instruments accounted for at fair value 7 (3) 3 Interest rate and Loss from loans and guarantees, including realized gains and losses on currency loans and associated derivatives (9) (217) (168) Loss from debt securities, including realized gains and losses on debt securities and associated derivatives (109) (64) (70) (Loss) income from liquid asset trading activities (209) 575 107 Charges on borrowings (372) 781 842 Foreign currency transaction (losses) gains on non-trading activities (285) (2,180) 1,468 Other income 3 2 4 Net unrealized gains (losses) on non-trading financial instruments accounted for at fair value 108 (2,144) (1,265) Equity Gains (losses) from equity investments and associated derivatives 43 (43) (30) Net unrealized (losses) gains on non-trading financial instruments accounted for at fair value (1) (13) 9 Other derivative Net unrealized gains (losses) on non-trading financial instruments contracts accounted for at fair value 33 (3) (6) Total $ (1,372) $ (2,046) $ (306) The income related to each derivative risk category includes realized and unrealized gains and losses. At June 30, 2023, the outstanding volume, measured by U.S. dollar equivalent notional, of interest rate contracts was $74.5 billion ($49.2 billion – June 30, 2022), foreign exchange contracts was $20.7 billion ($17.2 billion – June 30, 2022) and interest rate and currency contracts was $53.6 billion ($47.0 billion – June 30, 2022). At June 30, 2023, there were 129 equity contracts related to IFC’s loan and equity investment portfolio and 27 other derivative contracts, mainly credit indexed, recognized as derivatives assets or liabilities under ASC Topic 815 (139 equity risk and 25 other contracts – June 30, 2022). The notes to consolidated financial statements are an integral part of these statements. 112 IFC 2023 ANNUAL REPORT FINANCIALS INTERNATIONAL FINANCE CORPORATION Page 119 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE R – 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. IFC categorizes its financial instruments into three levels based on the established fair value hierarchy. For more information regarding the fair value hierarchy and how IFC measures fair value, see Note A – Summary of Significant Accounting Policies. Readers are cautioned in using these data for purposes of evaluating the financial condition of IFC and the fair values of the individual financial instruments do not represent the fair value of IFC taken as a whole. Recognizing there is a heightened degree of uncertainty and judgment in incorporating the impact of Russia's invasion of Ukraine, IFC utilized, where available, comparator, sector and country information, in addition to discounted cash flow models, in valuing its equity investment portfolio at June 30, 2023. Debt securities and loans accounted for at fair value that do not have available market prices were primarily valued using discounted cash flow approaches and reflected spreads at June 30, 2023. For the following instruments, the significant unobservable inputs and its relationship to the fair valuation movement are listed below: Instrument Significant Unobservable Input Increase in Unobservable Input Results In IFC Local Currency Borrowings IFC Yield Curve Decrease in Fair Value Interest Rate Swaps Yield Curve Points Decrease in Fair Value Currency Swaps Yield Curve and Exchange Rates Decrease in Fair Value Discount Rates, Credit Default Spreads Decrease in Fair Value Debt Securities and Loans Valuation Multiple, Recovery Rates Increase in Fair Value Cost of equity, discounts for lack of Decrease in Fair Value marketability, weighted average cost of capital Equity Securities and Equity Related Derivatives Growth rates, return on assets, perpetual growth rates, EV/EBITDA, price to book value Increase in Fair Value and other valuation multiples and volatilities The methodologies used and key assumptions made to estimate fair values as of June 30, 2023 and June 30, 2022, 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 U.S. Treasuries. U.S. Treasuries and U.S. Government agency bonds are classified as Level 1. The remaining liquid assets valued using vendor prices are classified as Level 2 or Level 3 based on the results of IFC’s evaluation of the vendor’s pricing methodologies and individual security facts and circumstances. Most vendor prices use some form of matrix pricing methodology to derive the inputs for projecting cash flows or to derive prices. When vendor prices are not available, liquid assets are valued internally by IFC using executable or indicative dealer quotes sourced from the market 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. Liquid assets classified as Level 3 as of June 30, 2023 ($0) and as of June 30, 2022 ($179 million) were fair valued based on non- quantitative unobservable valuation inputs. The valuation techniques for these liquid assets are presented in the table below. June 30, 2022 (US$ in millions) Valuation technique Fair value Government obligations Dealer indicative price $ 172 Corporate debt securities Dealer indicative price 7 Total $ 179 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. The majority of 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 significant unobservable inputs used in the fair value measurement of loans and debt securities are discount rates, credit default swap spreads, and expected The notes to consolidated financial statements are an integral part of these statements. IFC 2023 ANNUAL REPORT FINANCIALS 113 INTERNATIONAL FINANCE CORPORATION Page 120 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE R – FAIR VALUE MEASUREMENTS (continued) recovery rates. The valuation techniques and significant unobservable inputs for loans and debt securities classified as Level 3 as of June 30, 2023 and as of June 30, 2022 are presented below. June 30, 2023 Weighted average (US$ in millions) Valuation technique Fair value Significant inputs Range (%) (%) Debt securities – preferred shares Discounted cash flows $ 15 Discount rate 10.6 - 16.0 12.0 Market comparables 44 Valuation multiples a Recent transactions 121 Other techniques 28 Total preferred shares 208 Credit default swap Other debt securities Discounted cash flows 5,886 spreads 0.4 - 20.2 3.3 Expected recovery rates 0.0 - 75.0 44.7 Recent transactions 1,825 Other techniques 411 Total other debt securities 8,122 Total $ 8,330 _________ a Includes valuation techniques with multiple significant inputs, therefore the range and weighted average are not provided. June 30, 2022 Weighted average (US$ in millions) Valuation technique Fair value Significant inputs Range (%) (%) Debt securities – preferred shares Discounted cash flows $ 23 Discount rate 7.4 - 17.3 10.6 Market comparables 37 Valuation multiples a Recent transactions 56 Other techniques 68 Total preferred shares 184 Credit default swap Other debt securities Discounted cash flows 4,672 spreads 0.6 - 13.4 4.4 Expected recovery rates 0.0 - 75.0 42.6 Recent transactions 1,018 Other techniques 500 Total other debt securities 6,190 Total $ 6,374 ________ a Includes valuation techniques with multiple significant inputs, therefore the range and weighted average are not provided. Borrowings – 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. Fair values derived from market source pricing are also classified as Level 2. The significant inputs used in valuing borrowings classified as Level 2 are presented below: Classes Significant Inputs Structured bonds Foreign exchange rate and inter-bank yield curves, IFC’s credit curve and swaption volatility matrix, foreign exchange rate volatility, equity spot price, volatility and dividend yield. Unstructured bonds Inter-bank yield curve and IFC’s credit curve. As of June 30, 2023, IFC had bond issuances with a total fair value of $228 million classified as level 3 in Azerbaijani manat, Jamaican dollars, Uruguayan peso and Uzbekistan sum where the significant unobservable inputs were yield curve data ($232 million – June 30, 2022). As of June 30, 2023, the weighted average effective interest rate on medium and long-term borrowings carried at amortized cost The notes to consolidated financial statements are an integral part of these statements. 114 IFC 2023 ANNUAL REPORT FINANCIALS INTERNATIONAL FINANCE CORPORATION Page 121 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE R – FAIR VALUE MEASUREMENTS (continued) was 7.3% (7.2% – June 30, 2022) and the effective interest rate on short-term borrowings carried at amortized cost was 4.1% (0.2% – June 30, 2022). Derivative instruments – The various classes of derivative instruments include interest rate contracts, foreign exchange contracts, interest rate and currency contracts, equity contracts and other derivative contracts. Certain over the counter derivatives in the liquid asset portfolio priced in-house are classified as Level 2, while certain over the counter derivatives priced using external manager prices are classified as Level 3. Fair values for derivative instruments are derived by determining the present value of estimated future cash flows using appropriate discount rates and option specific models where appropriate. The significant inputs used in valuing the various classes of derivative instruments classified as Level 2 and significant unobservable inputs for derivative instruments classified as Level 3 as of June 30, 2023 and June 30, 2022 are presented below: Level 2 derivatives Significant Inputs Interest rate Inter-bank yield curves, foreign exchange basis curve and yield curves specified to index floating rates. Foreign exchange Foreign exchange rate, inter-bank yield curves and foreign exchange basis curve. Interest rate and currency Foreign exchange rate, inter-bank yield curves, foreign exchange basis curve and yield curves specified to index floating rates. (US$ in millions) June 30, 2023 Weighted average Level 3 derivatives Type Fair value Significant inputs Range (%) (%) Equity related derivatives Fixed strike price options $ 1 Volatilities 28.1 - 44.3 44.3 Variable strike price options 113 Contractual strike price a Yield curve points, Interest rate and currency swap assets Vanilla swaps 74 exchange rates Interest rate and currency swap Yield curve points, liabilities Vanilla swaps (10) exchange rates Total $ 178 _________ a Includes valuation techniques with multiple significant inputs, therefore the range and weighted average are not provided. (US$ in millions) June 30, 2022 Weighted average Level 3 derivatives Type Fair value Significant inputs Range (%) (%) Equity related derivatives Fixed strike price options $ 2 Volatilities 28.1 - 53.0 53.0 Variable strike price options 71 Contractual strike price a Yield curve points, Interest rate and currency swap assets Vanilla swaps 35 exchange rates Interest rate and currency swap Yield curve points, liabilities Vanilla swaps (34) exchange rates Total $ 74 _________ a Includes valuation techniques with multiple significant inputs, therefore the range and weighted average are not provided. The notes to consolidated financial statements are an integral part of these statements. IFC 2023 ANNUAL REPORT FINANCIALS 115 INTERNATIONAL FINANCE CORPORATION Page 122 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE R – FAIR VALUE MEASUREMENTS (continued) Equity investments – Equity investments valued using quoted prices in active markets are classified as Level 1. Equity investments classified as Level 2 are valued using quoted prices in inactive markets. Equity investments classified as Level 3 are primarily valued using discounted cash flow and market comparable approaches. The significant unobservable inputs include cost of equity, weighted average cost of capital, asset growth rate, return on assets, perpetual growth rate, price to book and market multiples. The valuation techniques and significant unobservable inputs used in fair value measurements categorized within Level 3 of the fair value hierarchy for equity investments that were measured at fair value through net income as of June 30, 2023 and June 30, 2022 are presented below. (US$ in millions) June 30, 2023 Weighted average Sector Valuation technique Fair value Significant inputs Range (%) Banking and other financial Discounted cash flows $ 517 Cost of equity (%) 11.0 - 26.0 13.7 Institutions Asset growth rate (%) (1.5) - 56.6 8.6 Return on assets (%) 0.3 - 8.7 2.0 Perpetual growth rate (%) 2.5 - 13.0 5.2 Market comparables 400 Price to book value 0.3 - 1.5 1.3 EV/Sales 1.5 - 15.4 9.6 Discount for lack of Listed price (adjusted) 199 marketability (%) * 35.0 Recent transactions 380 Other techniques 180 Associated options b 31 Total banking and other financial institutions 1,707 Funds Recent transactions 106 Other techniques 53 Total funds 159 Weighted average cost of Others Discounted cash flows 896 capital (%) 7.2 - 29.8 11.5 Cost of equity (%) 9.7 - 25.5 14.9 Market comparables 746 EV/Sales 0.7 - 20.3 4.2 EV/EBITDA 4.2 - 22.0 14.0 Price to book value 0.6 - 2.4 1.8 Other valuation multiples a Recent transactions 521 Other techniques 81 Associated options b 91 Total others 2,335 Total $ 4,201 _________ * No range is provided as all of the projects that use this valuation technique are with the same institution and have the same discount percentage. a Includes price/earnings ratio and price/sales ratio, the range and weighted average are not provided due to the immaterial amounts. b Fair values for associated options are derived by determining the present value of estimated future cash flows using appropriate discount rates and option specific models where appropriate. The notes to consolidated financial statements are an integral part of these statements. 116 IFC 2023 ANNUAL REPORT FINANCIALS INTERNATIONAL FINANCE CORPORATION Page 123 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE R – FAIR VALUE MEASUREMENTS (continued) (US$ in millions) June 30, 2022 Weighted average Sector Valuation technique Fair value Significant inputs Range (%) Banking and other financial Discounted cash flows $ 535 Cost of equity (%) 9.2 - 25.4 11.7 Institutions Asset growth rate (%) (26.0) - 36.2 5.4 Return on assets (%) (4.1) - 6.6 1.8 Perpetual growth rate (%) 3.0 - 13.0 5.2 Market comparables 174 Price to book value 0.3 - 1.7 1.5 EV/Sales 1.7- 16.5 10.0 Discount for lack of Listed price (adjusted) 215 marketability (%) * 35.0 Recent transactions 487 Other techniques 155 Associated options b 7 Total banking and other financial institutions 1,573 Funds Recent transactions 30 Other techniques 13 Total funds 43 Weighted average cost of Others Discounted cash flows 1,254 capital (%) 4.5 - 27.7 10.2 Cost of equity (%) 8.3 - 22.5 12.8 Market comparables 304 EV/Sales 1.6 - 48.7 12.2 EV/EBITDA 3.6 - 18.0 13.1 Price to book value 0.6 - 1.9 1.5 a Other valuation multiples Recent transactions 739 Other techniques 63 Associated options b 88 Total others 2,448 Total $ 4,064 _________ * No range is provided as all of the projects that use this valuation technique are with the same institution and have the same discount percentage. a Includes price/earnings ratio and price/sales ratio, the range and weighted average are not provided due to the immaterial amounts. b Fair values for associated options are derived by determining the present value of estimated future cash flows using appropriate discount rates and option specific models where appropriate. The notes to consolidated financial statements are an integral part of these statements. IFC 2023 ANNUAL REPORT FINANCIALS 117 INTERNATIONAL FINANCE CORPORATION Page 124 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE R – FAIR VALUE MEASUREMENTS (continued) Fair value of assets and liabilities Estimated fair values of IFC’s financial assets and liabilities and off-balance sheet financial instruments at June 30, 2023 and June 30, 2022 are summarized below: June 30, 2023 June 30, 2022 Carrying Fair Carrying Fair (US$ in millions) value value value value Financial assets Cash and due from banks, time deposits, trading securities and securities purchased under resale agreements and receivable for cash collateral pledged $ 47,478 $ 47,478 $ 46,350 $ 46,350 Investments: Loans at amortized cost, net of reserve against losses 29,908 30,369 24,849 24,820 Loans accounted for at fair value under the Fair Value Option 1,506 1,506 1,374 1,374 Total loans 31,414 31,875 26,223 26,194 a a Equity investments accounted for at fair value 10,778 10,776 11,137 11,136 Debt securities accounted for at fair value as available-for-sale 1,373 1,373 1,905 1,905 Debt securities accounted for at fair value under the Fair Value Option 7,937 7,937 4,828 4,828 Total debt securities 9,310 9,310 6,733 6,733 Total investments 51,502 51,961 44,093 44,063 Derivative assets: Borrowings-related 2,795 2,795 128 128 Liquid asset portfolio-related and other 433 433 1,464 1,464 Investment-related 1,977 1,977 1,927 1,927 Client risk management-related 517 517 337 337 Total derivative assets 5,722 5,722 3,856 3,856 Other investment-related financial assets — 3 — 4 Financial liabilities Securities sold under repurchase agreements and payable for cash collateral received $ 6,631 $ 6,631 $ 6,223 $ 6,223 Market, IBRD, IDA and other borrowings outstanding 52,443 52,433 48,269 48,277 Derivative liabilities: Borrowings-related 10,032 10,032 7,336 7,336 Liquid asset portfolio-related and other 241 241 77 77 Investment-related 523 523 214 214 Client risk management-related 399 399 273 273 Total derivative liabilities 11,195 11,195 7,900 7,900 _________ a For $2 million as of June 30, 2023 ($1 million – June 30, 2022) of equity investments primarily accounted for under the cost recovery method, no fair value measurement is provided since the recovery of invested capital is uncertain. The fair value of loan commitments amounted to $39 million at June 30, 2023 ($40 million – June 30, 2022). Fair values of loan commitments are based on present value of loan commitment fees. The notes to consolidated financial statements are an integral part of these statements. 118 IFC 2023 ANNUAL REPORT FINANCIALS INTERNATIONAL FINANCE CORPORATION Page 125 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE R – FAIR VALUE MEASUREMENTS (continued) Fair value hierarchy As required by ASC 820, financial assets and financial liabilities are classified in their entirety based on the lowest level input that is significant to the fair value measurement. The following tables provide information as of June 30, 2023 and June 30, 2022, about IFC’s financial assets and financial liabilities measured at fair value on a recurring basis: June 30, 2023 (US$ in millions) Level 1 Level 2 Level 3 Total Time deposits with maturities greater than three months a $ — $ 2,467 $ — $ 2,467 Trading securities: Asset-backed securities — 5,232 — 5,232 Corporate debt securities b — 4,022 — 4,022 Government obligations 17,042 4,724 — 21,766 Total trading securities 17,042 13,978 — 31,020 Loans — — 1,488 1,488 Loans measured at net asset value c 18 Total Loans (outstanding principal balance $1,642) — — 1,488 1,506 Equity investments: Banking and other financial institutions 662 17 1,707 2,386 Funds — 16 159 175 Others 681 1 2,335 3,017 Equity investments measured at net asset value c 5,198 Total equity investments 1,343 34 4,201 10,776 Debt securities: Corporate debt securities — 1,839 5,911 7,750 Preferred shares — — 208 208 Asset-backed securities — 55 723 778 Debt securities measured at net asset value c 574 Total debt securities — 1,894 6,842 9,310 Derivative assets: Interest rate — 843 — 843 Foreign exchange — 225 — 225 Interest rate and currency — 4,391 74 4,465 Equity and other — — 124 124 Credit and Other derivative contracts — 65 — 65 Total derivative assets — 5,524 198 5,722 Total assets at fair value $ 18,385 $ 23,897 $ 12,729 $ 60,801 Borrowings: d Structured bonds $ — $ 4,073 $ — $ 4,073 Unstructured bonds — 44,815 228 45,043 Total borrowings (outstanding principal balance $57,108) — 48,888 228 49,116 Derivative liabilities: Interest rate — 2,245 — 2,245 Foreign exchange — 217 — 217 Interest rate and currency — 8,696 10 8,706 Equity and other — — 10 10 Credit and Other derivative contracts — 17 — 17 Total derivative liabilities — 11,175 20 11,195 Total liabilities at fair value $ — $ 60,063 $ 248 $ 60,311 _________ a Time deposits with maturities greater than three months are carried at cost, which approximates fair value and are considered to be level 2. b Includes securities priced at par plus accrued interest, which approximates fair value. c In accordance with ASC 820, investments that are measured at fair value using net asset value per share have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in consolidated balance sheet. d Includes discount notes (not under the short-term Discount Note Program), with original maturities greater than one year, with principal due at maturity of $5.8 billion, with a fair value of $1.8 billion as of June 30, 2023. The notes to consolidated financial statements are an integral part of these statements. IFC 2023 ANNUAL REPORT FINANCIALS 119 INTERNATIONAL FINANCE CORPORATION Page 126 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE R – FAIR VALUE MEASUREMENTS (continued) June 30, 2022 (US$ in millions) Level 1 Level 2 Level 3 Total Time Deposits with maturities greater than three months a $ — $ 3,959 $ — $ 3,959 Trading securities: Asset-backed securities — 3,825 — 3,825 Corporate debt securities b — 3,999 7 4,006 Government obligations 15,600 7,288 172 23,060 Total trading securities 15,600 15,112 179 30,891 Loans — 54 1,303 1,357 Loans measured at net asset value c 17 Total Loans (outstanding principal balance $1,519) — 54 1,303 1,374 Equity investments: Banking and other financial institutions 774 65 1,573 2,412 Funds — 19 43 62 Others 866 38 2,448 3,352 Equity investments measured at net asset value c 5,310 Total equity investments 1,640 122 4,064 11,136 Debt securities: Corporate debt securities — 1,079 4,070 5,149 Preferred shares — — 184 184 Asset-backed securities — 52 817 869 Debt securities measured at net asset value c 531 Total debt securities — 1,131 5,071 6,733 Derivative assets: Interest rate — 552 — 552 Foreign exchange — 900 — 900 Interest rate and currency — 2,247 35 2,282 Equity and other — — 77 77 Credit and Other derivative contracts — 45 — 45 Total derivative assets — 3,744 112 3,856 Total assets at fair value $ 17,240 $ 24,122 $ 10,729 $ 57,949 Borrowings: d Structured bonds $ — $ 4,740 $ — $ 4,740 Unstructured bonds — 40,335 232 40,567 Total borrowings (outstanding principal balance $52,174) — 45,075 232 45,307 Derivative liabilities: Interest rate — 1,684 — 1,684 Foreign exchange — 76 — 76 Interest rate and currency — 6,071 34 6,105 Equity and other — — 4 4 Credit and Other derivative contracts — 31 — 31 Total derivative liabilities — 7,862 38 7,900 Total liabilities at fair value $ — $ 52,937 $ 270 $ 53,207 _________ a Time deposits with maturities greater than three months are carried at cost, which approximates fair value and are considered to be level 2. b Includes securities priced at par plus accrued interest, which approximates fair value. c In accordance with ASC 820, investments that are measured at fair value using net asset value per share have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in consolidated balance sheet. d Includes discount notes (not under the short-term Discount Note Program), with original maturities greater than one year, with principal due at maturity of $4.9 billion, with a fair value of $1.5 billion as of June 30, 2022. The notes to consolidated financial statements are an integral part of these statements. 120 IFC 2023 ANNUAL REPORT FINANCIALS INTERNATIONAL FINANCE CORPORATION Page 127 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE R – FAIR VALUE MEASUREMENTS (continued) The following tables present the changes in the carrying value of IFC’s Level 3 financial assets and financial liabilities for the years ended June 30, 2023, June 30, 2022, and June 30, 2021: For the year ended June 30, 2023 Net unrealized gains Net (losses) unrealized included in gains other (losses) comprehen included in sive net income income Net gains (losses) (realized (loss) (loss) Purchases, and unrealized) included in related to related to issuances, assets / assets / Balance as Other sales, Transfers Transfers Balance as liabilities liabilities of July 1, comprehensive settlements into out of of June 30, held at held at (US$ in millions) 2022 Net income income and others Level 3 a Level 3 b 2023 year end year end Trading securities: Asset-backed securities $ — $ 1 $ — $ 55 $ — $ (56) $ — $ — $ — Corporate debt securities 7 — — — — (7) — — — Government and agency obligations 172 (1) — 97 — (268) — — — Total trading securities 179 — — 152 — (331) — — — Loans 1,303 30 — 101 54 — 1,488 17 — Equity investments: Banking and other financial institutions 1,573 28 — 68 55 (17) 1,707 12 — Funds 43 12 — 104 — — 159 5 — Others 2,448 (23) — (137) 47 — 2,335 (145) — Total equity investments 4,064 17 — 35 102 (17) 4,201 (128) — Debt securities: Corporate debt securities 4,070 (106) 105 2,218 574 (950) 5,911 88 3 Preferred shares 184 49 (54) 29 — — 208 (17) (4) Asset-backed securities 817 4 5 (103) — — 723 13 8 Total debt securities 5,071 (53) 56 2,144 574 (950) 6,842 84 7 Derivative assets: Interest rate and currency 35 (7) — 55 12 (21) 74 65 — Equity and other 77 53 — (6) — — 124 58 — Total derivative assets 112 46 — 49 12 (21) 198 123 — Total assets at fair value $ 10,729 $ 40 $ 56 $ 2,481 $ 742 $ (1,319) $ 12,729 $ 96 $ 7 Borrowings: Unstructured bonds $ (232) $ (12) $ 1 $ (121) $ (4) $ 140 $ (228) $ (12) $ 1 Total borrowings (232) (12) 1 (121) (4) 140 (228) (12) 1 Derivative liabilities: Interest rate and currency (34) 15 — (2) (4) 15 (10) (2) — Equity and other (4) (6) — — — — (10) (6) — Total derivative liabilities (38) 9 — (2) (4) 15 (20) (8) — Total liabilities at fair value $ (270) $ (3) $ 1 $ (123) $ (8) $ 155 $ (248) $ (20) $ 1 _________ a 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, 2023. b Transfers out of Level 3 are due to availability of observable market data resulting from an increase in market activity for these securities that were part of July 1, 2022 beginning balance as of June 30, 2023. The notes to consolidated financial statements are an integral part of these statements. IFC 2023 ANNUAL REPORT FINANCIALS 121 INTERNATIONAL FINANCE CORPORATION Page 128 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE R – FAIR VALUE MEASUREMENTS (continued) For the year ended June 30, 2022 Net unrealized gains Net (losses) unrealized included in gains other (losses) comprehen included in sive net income income Net gains (losses) (realized (loss) (loss) Purchases, and unrealized) included in related to related to issuances, assets / assets / Balance as Other sales, Transfers Transfers Balance as liabilities liabilities of July 01, Net income comprehensive settlements into out of of June 30, held at held at (US$ in millions) 2021 (loss) income and others Level 3 a Level 3 b 2022 year end year end Trading securities: Asset-backed securities $ — $ — $ — $ 30 $ — $ (30) $ — $ — $ — Corporate debt securities — (4) — 120 — (109) 7 (1) — Government and agency obligations 271 9 — 126 — (234) 172 (10) — Total trading securities 271 5 — 276 — (373) 179 (11) $ — Loans 1,313 (122) — 171 — (59) 1,303 (122) — Equity investments: Banking and other financial institutions 1,663 62 — (152) — — 1,573 (65) — Funds 16 (4) — 31 — — 43 (6) — Others 2,989 36 — (233) — (344) 2,448 (16) — Total equity investments 4,668 94 — (354) — (344) 4,064 (87) — Debt securities: Corporate debt securities 3,985 (425) (153) 318 884 (539) 4,070 (335) (165) Preferred shares 483 (99) (19) (181) — — 184 17 8 Asset-backed securities 892 (72) (35) 32 — — 817 (68) (44) Total debt securities 5,360 (596) (207) 169 884 (539) 5,071 (386) (201) Derivative assets: Interest rate and currency 26 12 — 9 10 (22) 35 27 — Equity and other 133 (57) — 1 — — 77 (57) — Total derivative assets 159 (45) — 10 10 (22) 112 (30) — Total assets at fair value $ 11,771 $ (664) $ (207) $ 272 $ 894 $ (1,337) $ 10,729 $ (636) $ (201) Borrowings: Unstructured bonds $ (90) $ 3 $ — $ (214) $ (44) $ 113 $ (232) $ 3 $ — Total borrowings (90) 3 — (214) (44) 113 (232) 3 — Derivative liabilities: Interest rate and currency (10) 4 — (17) (21) 10 (34) (23) — Equity and other (5) 1 — — — — (4) 1 — Total derivative liabilities (15) 5 — (17) (21) 10 (38) (22) — Total liabilities at fair value $ (105) $ 8 $ — $ (231) $ (65) $ 123 $ (270) $ (19) $ — _________ a 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, 2022. b Transfers out of Level 3 are due to availability of observable market data resulting from an increase in market activity for these securities that were part of July 1, 2021 beginning balance as of June 30, 2022. The notes to consolidated financial statements are an integral part of these statements. 122 IFC 2023 ANNUAL REPORT FINANCIALS INTERNATIONAL FINANCE CORPORATION Page 129 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE R – FAIR VALUE MEASUREMENTS (continued) For the year ended June 30, 2021 Net unrealized gains Net (losses) unrealized included in gains other (losses) comprehen included in sive net income income Net gains (losses) (realized (loss) (loss) Purchases, and unrealized) included in related to related to issuances, assets / assets / Balance as Other sales, Transfers Transfers Balance as liabilities liabilities of July 01, Net income comprehensive settlements into out of of June 30, held at held at (US$ in millions) 2020 (loss) income and others Level 3 a Level 3 b 2021 year end year end Trading securities: Asset-backed securities $ 20 $ 2 $ — $ 87 $ — $ (109) $ — $ — $ — Corporate debt securities — (2) — 282 — (280) — — — Government and agency obligations — — — 261 113 (103) 271 (1) — Total trading securities 20 — — 630 113 (492) 271 (1) $ — Loans 942 121 — 250 — — 1,313 121 — Equity investments: Banking and other financial institutions 1,765 215 — (285) 6 (38) 1,663 273 — Funds 115 (9) — (90) — — 16 (9) — Others 2,620 483 — (71) 99 (142) 2,989 431 — Total equity investments 4,500 689 — (446) 105 (180) 4,668 695 — Debt securities: Corporate debt securities 3,648 135 107 157 1,175 (1,237) 3,985 175 51 Preferred shares 390 179 (8) (78) — — 483 217 8 Asset-backed securities 930 36 (17) (57) — — 892 33 (27) Total debt securities 4,968 350 82 22 1,175 (1,237) 5,360 425 32 Derivative assets: Interest rate and currency 41 (17) — 4 — (2) 26 10 — Equity and other 153 (20) — — — — 133 (20) — Total derivative assets 194 (37) — 4 — (2) 159 (10) — Total assets at fair value $ 10,624 $ 1,123 $ 82 $ 460 $ 1,393 $ (1,911) $ 11,771 $ 1,230 $ 32 Borrowings: Unstructured bonds $ (152) $ 1 $ — $ (84) $ — $ 145 $ (90) $ 1 $ — Total borrowings (152) 1 — (84) — 145 (90) 1 — Derivative liabilities: Interest rate and currency (38) 5 — (5) — 28 (10) (7) — Equity and other (4) (1) — — — — (5) (1) — Total derivative liabilities (42) 4 — (5) — 28 (15) (8) — Total liabilities at fair value $ (194) $ 5 $ — $ (89) $ — $ 173 $ (105) $ (7) $ — _________ a 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, 2021. b Transfers out of Level 3 are due to availability of observable market data resulting from an increase in market activity for these securities that were part of July 1, 2020 beginning balance as of June 30, 2021. The notes to consolidated financial statements are an integral part of these statements. IFC 2023 ANNUAL REPORT FINANCIALS 123 INTERNATIONAL FINANCE CORPORATION Page 130 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE R – FAIR VALUE MEASUREMENTS (continued) The following tables present gross purchases, sales, issuances and settlements related to the changes in the carrying value of IFC’s Level 3 financial assets and financial liabilities for the years ended June 30, 2023, June 30, 2022, and June 30, 2021. For the year ended June 30, 2023 Settlements (US$ in millions) Purchases Sales Issuances and others Net Trading securities: Asset-backed securities $ 67 $ — $ — $ (12) $ 55 Government and agency obligations 97 — — — 97 Total trading securities 164 — — (12) 152 Loans — (37) 297 (159) 101 Equity investments: Banking and other financial institutions 116 (61) — 13 68 Funds 146 (1) — (41) 104 Others 203 (416) — 76 (137) Total equity investments 465 (478) — 48 35 Debt securities: Corporate debt securities 3,141 (2) — (921) 2,218 Preferred shares 112 (78) — (5) 29 Asset-backed securities 148 — — (251) (103) Total debt securities 3,401 (80) — (1,177) 2,144 Derivative assets: Interest rate and currency — — 53 2 55 Equity and other — — — (6) (6) Total derivative assets — — 53 (4) 49 Total assets at fair value $ 4,030 $ (595) $ 350 $ (1,304) $ 2,481 Borrowings: Unstructured bonds $ — $ — $ (121) $ — $ (121) Total borrowings — — (121) — (121) Derivative liabilities: Interest rate and currency — — (4) 2 (2) Total derivative liabilities — — (4) 2 (2) Total liabilities at fair value $ — $ — $ (125) $ 2 $ (123) The notes to consolidated financial statements are an integral part of these statements. 124 IFC 2023 ANNUAL REPORT FINANCIALS INTERNATIONAL FINANCE CORPORATION Page 131 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE R – FAIR VALUE MEASUREMENTS (continued) For the year ended June 30, 2022 Settlements (US$ in millions) Purchases Sales Issuances and others Net Trading securities: Asset-backed securities $ 44 $ — $ — $ (14) $ 30 Corporate debt securities 240 (120) — — 120 Government and agency obligations 220 — — (94) 126 Total trading securities 504 (120) — (108) 276 Loans — — 296 (125) 171 Equity investments: Banking and other financial institutions 112 (259) — (5) (152) Funds 119 (7) — (81) 31 Others 367 (434) — (166) (233) Total equity investments 598 (700) — (252) (354) Debt securities: Corporate debt securities 1,143 — — (825) 318 Preferred shares — (124) — (57) (181) Asset-backed securities 168 — — (136) 32 Total debt securities 1,311 (124) — (1,018) 169 Derivative assets: Interest rate and currency — — 6 3 9 Equity and other — — — 1 1 Total derivative assets — — 6 4 10 Total assets at fair value $ 2,413 $ (944) $ 302 $ (1,499) $ 272 Borrowings: Unstructured bonds $ — $ — $ (214) $ — $ (214) Total borrowings — — (214) — (214) Derivative liabilities: Interest rate and currency — — (20) 3 (17) Total derivative liabilities — — (20) 3 (17) Total liabilities at fair value $ — $ — $ (234) $ 3 $ (231) The notes to consolidated financial statements are an integral part of these statements. IFC 2023 ANNUAL REPORT FINANCIALS 125 INTERNATIONAL FINANCE CORPORATION Page 132 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE R – FAIR VALUE MEASUREMENTS (continued) For the year ended June 30, 2021 Settlements (US$ in millions) Purchases Sales Issuances and others Net Trading securities: Asset-backed securities $ 109 $ (17) $ — $ (5) $ 87 Corporate debt securities 282 — — — 282 Government and agency obligations 261 — — — 261 Total trading securities 652 (17) — (5) 630 Loans — (14) 373 (109) 250 Equity investments: Banking and other financial institutions 71 (368) — 12 (285) Funds 92 (1) — (181) (90) Others 174 (252) — 7 (71) Total equity investments 337 (621) — (162) (446) Debt securities: Corporate debt securities 965 (132) — (676) 157 Preferred shares 18 (77) — (19) (78) Asset-backed securities 89 — — (146) (57) Total debt securities 1,072 (209) — (841) 22 Derivative assets: Interest rate and currency — — 5 (1) 4 Total derivative assets — — 5 (1) 4 Total assets at fair value $ 2,061 $ (861) $ 378 $ (1,118) $ 460 Borrowings: Unstructured bonds $ — $ — $ (84) $ — $ (84) Total borrowings — — (84) — (84) Derivative liabilities: Interest rate and currency — — (4) (1) (5) Total derivative liabilities — — (4) (1) (5) Total liabilities at fair value $ — $ — $ (88) $ (1) $ (89) 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 statements of operations in income from liquid asset trading activities, Income from Loans and guarantees, including realized gains and losses on loans and associated derivatives, income from equity investments and associated derivatives, income from debt securities and realized gains and losses on debt securities and associated derivatives and net unrealized gains and losses on non-trading financial instruments accounted for at fair value. The notes to consolidated financial statements are an integral part of these statements. 126 IFC 2023 ANNUAL REPORT FINANCIALS INTERNATIONAL FINANCE CORPORATION Page 133 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE S – SEGMENT REPORTING For management purposes, IFC’s business comprises three segments: investment services, treasury services, and upstream 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. Operationally, the treasury services segment consists of the borrowing, liquid asset management, asset and liability management and client risk management activities. Upstream and advisory services includes providing advisory services to government and private sector clients to create markets and mobilize private capital, and engages in early stage project development activities to develop bankable investment projects. 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 upstream 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. Upstream and advisory services are primarily assessed based on the level and adequacy of its funding sources (See Note U). IFC’s management reporting system and policies are used to determine revenues and expenses attributable to each segment. Consistent with internal reporting, administrative expenses are allocated to each segment based largely upon personnel costs and segment headcounts. Transactions between segments are immaterial and, thus, are not a factor in reconciling to the consolidated data. The assets of the investment, treasury, and upstream and advisory services segments are detailed in Notes D, C, and U, respectively. An analysis of IFC’s major components of income and expense by business segment for the years ended June 30, 2023, June 30, 2022 and June 30, 2021, is provided below: For the year ended June 30, 2023 Upstream and Investment Treasury Advisory (US$ in millions) services services services Total Income from loans and guarantees, including realized gains and losses on loans and associated derivatives $ 2,290 $ — $ — $ 2,290 Provision for losses on loans, off-balance sheet credit exposures and other receivables (22) — — (22) Income from equity investments and associated derivatives 191 — — 191 Income from debt securities, including realized gains and losses on debt securities and associated derivatives 518 — — 518 Provision for losses on available-for-sale debt securities (7) — — (7) Income from liquid asset trading activities — 1,464 — 1,464 Charges on borrowings (1,375) (1,223) — (2,598) Upstream and Advisory services income — — 247 247 Service fees and other income 271 — — 271 Administrative expenses (1,201) (53) (176) (1,430) Upstream and Advisory services expenses — — (317) (317) Other, net 15 3 8 26 Foreign currency transaction (losses) gains on non-trading activities (86) — — (86) Income (loss) before net unrealized gains and losses on non- trading financial instruments accounted for at fair value and grants to IDA 594 191 (238) 547 Net unrealized gains (losses) on non-trading financial instruments accounted for at fair value 175 (50) — 125 Net income (loss) $ 769 $ 141 $ (238) $ 672 The notes to consolidated financial statements are an integral part of these statements. IFC 2023 ANNUAL REPORT FINANCIALS 127 INTERNATIONAL FINANCE CORPORATION Page 134 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE S – SEGMENT REPORTING (continued) For the year ended June 30, 2022 Upstream and Investment Treasury Advisory (US$ in millions) services services services Total Income from loans and guarantees, including realized gains and losses on loans and associated derivatives $ 1,156 $ — $ — $ 1,156 Provision for losses on loans, off-balance sheet credit exposures and other receivables (126) — — (126) Income from equity investments and associated derivatives 208 — — 208 Income from debt securities, including realized gains and losses on debt securities and associated derivatives 414 — — 414 Provision for losses on available-for-sale debt securities (14) — — (14) Loss from liquid asset trading activities — (413) — (413) Charges on borrowings (194) (108) — (302) Upstream and Advisory services income — — 233 233 Service fees and other income 186 — — 186 a Administrative expenses (1,187) (50) (204) (1,441) Upstream and Advisory services expenses — — (287) (287) Other, net 55 4 16 75 Foreign currency transaction gains on non-trading activities 76 — — 76 Income (loss) before net unrealized gains and losses on non- trading financial instruments accounted for at fair value and grants to IDA 574 (567) (242) (235) Net unrealized losses on non-trading financial instruments accounted for at fair value (123) (106) — (229) Net income (loss) $ 451 $ (673) $ (242) $ (464) __________ a. Starting January 2023, upstream and advisory organizational units in IFC regional industry departments have been fully integrated to deliver holistic solutions to enable new investment opportunities for IFC and others, enhance the development impact and operational performance of existing IFC investments, and improve the enabling environment to open new markets for private sector investments. As a result, upstream administrative expenses of $70 million previously reported in the Investment Services segment were reclassed to Upstream and Advisory services segment. The notes to consolidated financial statements are an integral part of these statements. 128 IFC 2023 ANNUAL REPORT FINANCIALS INTERNATIONALFINANCE INTERNATIONAL CORPORATION FINANCECORPORATION Page135 Page 135 NOTES TO NOTES CONSOLIDATED FINANCIAL TO CONSOLIDATED STATEMENTS FINANCIAL STATEMENTS NOTES NOTE S– SEGMENTREPORTING –SEGMENT REPORTING(continued) (continued) Forthe For yearended theyear June30, endedJune 2021 30,2021 Upstreamand Upstream and Investment Investment Treasury Treasury Advisory Advisory (US$in (US$ millions) inmillions) services services services services services services Total Total Incomefrom Income loansand fromloans andguarantees, guarantees,including includingrealized gainsand realizedgains and losseson losses loansassociated onloans derivatives associatedderivatives $$ 1,116 1,116 $$ — $ — $ — — $$ 1,116 1,116 Releaseof Release provisionfor ofprovision forlosses losseson onloans, off-balancesheet loans,off-balance credit sheetcredit exposuresand exposures otherreceivables andother receivables 201 201 — — — — 201 201 Incomefrom Income equityinvestments fromequity investmentsand associatedderivatives andassociated derivatives 3,201 3,201 — — — — 3,201 3,201 Incomefrom Income debtsecurities, fromdebt securities,including includingrealized realizedgains andlosses gainsand losses ondebt on securitiesand debtsecurities associatedderivatives andassociated derivatives 340 340 — — — — 340 340 Provisionfor Provision losseson forlosses available-for-saledebt onavailable-for-sale securities debtsecurities (3) (3) — — — — (3) (3) Incomefrom Income liquidasset fromliquid tradingactivities assettrading activities — — 327 327 — — 327 327 Chargeson Charges borrowings onborrowings (223) (223) (103) (103) — — (326) (326) Upstreamand Upstream Advisoryservices andAdvisory income servicesincome — — — — 237 237 237 237 Servicefees Service andother feesand income otherincome 358 358 — — — — 358 358 aa Administrativeexpenses Administrative expenses (1,108) (1,108) (43) (43) (204) (204) (1,355) (1,355) Upstreamand Upstream Advisoryservices andAdvisory expenses servicesexpenses —— —— (277) (277) (277) (277) Other,net Other, net (40) (40) (3) (3) (12) (12) (55) (55) Foreigncurrency Foreign transactionlosses currencytransaction onnon-trading losseson activities non-tradingactivities (148) (148) —— —— (148) (148) Income(loss) Income beforenet (loss)before netunrealized unrealizedgains gainsand losseson andlosses non- onnon- tradingfinancial trading instrumentsaccounted financialinstruments accountedfor atfair forat fairvalue value 3,694 3,694 178 178 (256) (256) 3,616 3,616 Netunrealized Net gainson unrealizedgains non-tradingfinancial onnon-trading instruments financialinstruments accountedfor accounted atfair forat value fairvalue 735 735 71 71 — — 806 806 Income(loss) Income beforegrants (loss)before toIDA grantsto IDA 4,429 4,429 249 249 (256) (256) 4,422 4,422 Grantsto Grants IDA toIDA (213) (213) — — — — (213) (213) Netincome Net (loss) income(loss) $$ 4,216 $ 4,216 $ 249 $ 249 $ (256) $ (256) $ 4,209 4,209 __________ __________ a.Starting a. January2023, StartingJanuary upstreamand 2023,upstream andadvisory advisoryorganizational unitsin organizationalunits IFCregional inIFC regionalindustry industrydepartments departmentshave beenfully havebeen integratedto fullyintegrated todeliver deliverholistic holisticsolutions toenable solutionsto new enablenew investment opportunities investment for IFC opportunities for IFC and and others, others, enhance the development enhance the development impact impact and and operational operational performance of existing performance of existing IFC IFC investments, investments, and improve the and improve enabling the enabling environmentto environment opennew toopen newmarkets marketsfor privatesector forprivate investments.As sectorinvestments. Asaaresult, result,upstream upstreamadministrative administrativeexpenses expensesof $77million of$77 reportedin millionreported inthe theInvestment Servicessegment InvestmentServices segment werereclassed were toUpstream reclassedto Upstreamandand Advisoryservices Advisory segment. servicessegment. Thenotes The toconsolidated notesto financialstatements consolidatedfinancial statementsare arean anintegral partof integralpart thesestatements. ofthese statements. IFC 2023 ANNUAL REPORT FINANCIALS 129 INTERNATIONAL INTERNATIONAL FINANCE FINANCE CORPORATION CORPORATION Page Page 136 136 NOTESTO NOTES CONSOLIDATEDFINANCIAL TOCONSOLIDATED STATEMENTS FINANCIALSTATEMENTS NOTE NOTE –– TT VARIABLE VARIABLE INTEREST INTEREST ENTITIES ENTITIES Significant Significant variable variable interests interests IFC IFC has has identified identified investments investments inin227 227 VIEs VIEs which which are are not not consolidated consolidated by by IFC IFC but butinin which which it it isis deemed deemedtoto hold hold significant significant variable variable interests interests atat June June 30, 30, 2023 2023 (225 (225 investments investments June –– June 30, 30, 2022). 2022). The The majority majority ofof these these VIEs VIEs dodo not not involve involve securitizations securitizations ororother other types types ofofstructured structured financing. financing. IFC IFC isis usually usually thetheminority minority investor investor inin these these VIEs. VIEs. These These VIEs VIEs are are mainly: mainly:(a) investment (a) investment funds, funds, where where the the general general partner partner oror fund fund manager manager does does not not have have substantive substantive equity equity atat risk, risk, which which IFC IFC does does not not consolidate consolidate because because it it does does not not have have thethe power power toto direct directthethe activities activities ofof the the VIEs VIEs that that most most significantly significantly impact impact their their economic economic performance performance and and (b) (b) entities entities whose whose total total equity equity investment investment isis considered considered insufficient insufficient toto permit permit such such entity entity toto finance finance its activities its activities without without additional additional subordinated subordinated financial financial support support or or whose whose activities activities are so are so narrowly narrowly defined definedby by contracts contracts that that equity equity investors investors are are considered considered lack toto lackdecision decision making making ability, ability, which which IFC IFC does does not not consolidate consolidate because because does it it does not not have have the the power power control toto control the the activities activities that that most most significantly significantly impact impact their their economic economic performance. performance. IFC’s IFC’s involvement involvement with with these these VIEs VIEs includes includes investments investments inin equity equity interests interests and and senior senior or subordinated or subordinated interests, interests, guarantees guarantees andand risk risk management management arrangements. arrangements. IFC’s IFC’s maximum maximum exposure exposure loss toto as loss asaa result result its ofof its investments investments these inin these VIEs VIEs was was $5.3 $5.3 billion billion June atat June 30, 30, 2023 2023 ($5.2 ($5.2 billion billion –– June June 30, 30, 2022).IFC’s 2022). IFC’smaximum maximumexposure exposuretotoloss basedon lossisisbased onthetheunlikely unlikelyevent eventthat thatall theassets allofofthe assetsininthe VIEsbecome theVIEs worthlessand becomeworthless and incorporatesnot incorporates onlypotential notonly lossesassociated potentiallosses associatedwith withassets assetsrecorded recordedon IFC’sconsolidated onIFC’s consolidatedbalancebalancesheet (maximumfunded sheet(maximum funded exposure) exposure) but but also also potential potential losses losses associated associated with with undisbursed undisbursed commitments commitments (maximum (maximum unfunded unfunded exposure). exposure). The The maximum maximum funded funded exposure exposure represents represents the the balance balance sheet sheet carrying carrying value value ofof IFC’s investment IFC’s investment inin the the VIE VIE and and reflects reflects the the initial initial amount amount cash ofof cash invested invested inin theVIE, the adjustedfor VIE,adjusted forprincipal principalpayments received,increases paymentsreceived, increasesor ordeclines declinesininfair valueand fairvalue andany impairmentininvalue anyimpairment recognizedinin valuerecognized earnings. earnings. The The maximum maximum exposure exposure unfunded ofof unfunded positions positions represents represents the the remaining remaining committed committed but but undisbursed undisbursed amount. amount. The The carrying carrying values values and and the the maximum maximum exposure exposure ofof IFC’s IFC’s investment inin investment these these VIEs VIEs June atat June 30, 30, 2023 and 2023 and June June 30, 2022 30, 2022 are are as follows: as follows: June June 30, 30, 2023 2023 June June 30, 30, 2022 2022 Nonconsolidated Nonconsolidated VIEs VIEs Carrying Carrying Value Value Maximum Maximum Exposure Carrying Exposure Carrying Value Maximum Value Maximum Exposure Exposure (US$ (US$ millions) inin millions) Assets: Assets: Investments Investments a a Loans Loans $$ 1,355 $ $ 1,355 1,527 $ $ 1,527 1,650 1,650 $ $ 1,939 1,939 Equity Equity Investments Investments 1,399 1,399 2,426 2,426 1,409 1,409 2,116 2,116 Debt Debt Securities Securities 1,333 1,333 1,408 1,408 969 969 1,043 1,043 b b Derivative Derivative Assets Assets —— —— 55 55 Liabilities: Liabilities: b b Derivative Derivative Liabilities Liabilities $$ (89) (89) $ $ (89) $ $ (89) (27) $ $ (27) (27) (27) Other Other Off-Balance Off-Balance Sheet Sheet Arrangements: Arrangements: Guarantees Guarantees Not Not Applicable $ $ Applicable 55 55 Not Not Applicable $ $ Applicable 86 86 _________ _________ The a aThe presented presented carrying carrying value value the ofof loans the loans does does not not include include the the associated associated loan loan loss loss reserve reserve ofof $63 $63 million million and and $78 $78 million million ofof asas June June 30, 2023 30, and 2023 and June June 30, 30, 2022, 2022, respectively. respectively. Represents b bRepresents Client Client Risk Risk Management arrangements. Management arrangements. IFC IFC transacted transacted with with aa VIE, VIE, ofof which which IFC IFC the isis the primary primary beneficiary, beneficiary, totoconstruct construct an an office office building building atat 2100 2100 KK Street Street on land on landowned owned by by IFC IFC adjacent adjacent totoits its current current office office premise. premise. IFC IFC commenced commenced occupying occupying the the building building inin March March 2019. 2019. The The building building and and land, land, totaling totaling $112 $112 million million are are included included “Receivables inin “Receivables and and other other assets” assets” on IFC's on IFC's consolidated consolidated balance balance sheet. sheet. The The notes notes toto consolidated consolidated financial financial statements statements are are an integral an part integral part ofof these statements. these statements. 130 IFC 2023 ANNUAL REPORT FINANCIALS INTERNATIONAL FINANCE CORPORATION Page 137 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE U – UPSTREAM AND ADVISORY IFC continues to address increasingly complex development challenges and is enhancing its creating markets strategy by undertaking both Upstream and Advisory activities. Specifically, IFC provides advisory services to government and private sector clients to create markets and mobilize private capital, and engages in early stage project development activities to develop bankable investment projects. IFC also works in collaboration with the World Bank to provide policy advice and develop activities that help create markets and support future transactions in multiple industries, especially in IDA eligible countries and FCS. IFC funds this business line by a combination of cash received from IFC shareholders’ development agencies and other development partners, IFC’s operations via retained earnings and operating budget allocations, as well as fees received from the recipients of the services. As of June 30, 2023, other assets included undisbursed donor funds of $574 million ($606 million – June 30, 2022) and IFC’s advisory services funding of $327 million ($331 million – June 30, 2022). Included in other liabilities as of June 30, 2023 is $574 million ($606 million – June 30, 2022) of refundable undisbursed donor funds. Upstream and advisory services expenses in FY23 amounted to $317 million ($287 million and $277 million in FY22 and FY21 respectively), including $234 million in FY23 sourced from government and other development partners ($217 million and $220 million in FY22 and FY21 respectively). The funds received from government and other development partners were also recognized as advisory services income in IFC’s consolidated statements of operations. NOTE V – PENSION AND OTHER POST-RETIREMENT BENEFITS IBRD, IFC and MIGA participate in the defined benefit Staff Retirement Plan (SRP), a Retired Staff Benefits Plan (RSBP) and a Post- Employment Benefits Plan (PEBP) (collectively “the Pension Plans”) that cover substantially all WBG employees, retirees and their beneficiaries. 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 30th measurement date for its pension and other post-retirement benefit plans. All costs, assets, and liabilities associated with the Plans are allocated among IBRD, IFC, and MIGA based upon their employees’ respective participation in the Pension Plans. Costs allocated to IBRD are substantially shared with IDA based on an agreed cost- sharing methodology. IDA, IFC, and MIGA reimburse IBRD for their proportionate share of any contributions made to the plans by IBRD. Contributions to the Pension 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, 2023, June 30, 2022 and June 30, 2021. For the years ended June 30, 2023, June 30, 2022 and June 30, 2021, the service cost of $255 million ($339 million and $300 million) are included in “Administrative expenses” respectively. The components of net periodic pension cost, other than the service cost component, are included in “Other, net” in the consolidated statement of operations. For the year ended June 30, SRP RSBP PEBP (US$ in millions) 2023 2022 2021 2023 2022 2021 2023 2022 2021 Pension Plan Benefit costs Service cost $ 179 $ 239 $ 211 $ 42 $ 55 $ 48 $ 34 $ 45 $ 41 Other components: Interest cost 236 167 146 37 28 24 33 23 21 Expected return on plan assets (290) (270) (203) (56) (52) (37) — — — Amortization of unrecognized prior service cost 1 1 1 3 3 3 1 1 1 Amortization of unrecognized net actuarial (gains) losses — — 76 (6) — 3 — 22 20 Sub total (53) (102) 20 (22) (21) (7) 34 46 42 Net periodic pension cost $ 126 $ 137 $ 231 $ 20 $ 34 $ 41 $ 68 $ 91 $ 83 The following table summarizes the Projected Benefit Obligations (PBO), fair value of plan assets, and funded status associated with the SRP, RSBP and PEBP for IFC for the years ended June 30, 2023 and June 30, 2022. Since the assets for the PEBP are not held in an irrevocable trust separate from the assets of IBRD, they do not qualify for off-balance sheet accounting and are therefore included in IBRD's investment portfolio. IFC has recognized a receivable (prepaid asset) from IBRD and a payable (liability) to IBRD equal to the amount required to support the Plan. The assets of the PEBP are mostly invested in fixed income, equity instruments and other fund investments. The notes to consolidated financial statements are an integral part of these statements. IFC 2023 ANNUAL REPORT FINANCIALS 131 INTERNATIONAL FINANCE CORPORATION Page 138 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE V – PENSION AND OTHER POST-RETIREMENT BENEFITS (continued) SRP RSBP PEBP (US$ in millions) 2023 2022 2023 2022 2023 2022 Projected benefit obligations Beginning of year $ 5,426 $ 6,239 $ 842 $ 990 $ 739 $ 849 Service cost 179 239 42 55 34 45 Interest cost 236 167 37 28 33 23 Net entity transfers 7 (29) 1 (2) — — Participant contributions 58 55 5 4 3 2 Benefits paid (171) (199) (16) (15) (13) (13) Actuarial (gain) loss (458) (1,046) (146) (218) (86) (167) End of year 5,277 5,426 765 842 710 739 Fair value of plan assets Beginning of year 4,926 5,084 948 959 — — Net entity transfers 7 (29) 1 (2) — — Participant contributions 58 55 5 4 — — Actual return on assets 298 (48) 60 (14) — — Employer contributions 47 63 13 16 — — Benefits paid (171) (199) (16) (15) — — End of year 5,165 4,926 1,011 948 — — Funded status a (112) (500) 246 106 (710) (739) Accumulated benefit obligations $ 4,867 $ 4,981 $ 765 $ 842 $ 647 $ 655 _________ a Negative funded status is included in “Payables and other liabilities” and positive funded status is included in “Receivables and other assets” on the Balance Sheet. As of June 30, 2023, the RSBP was overfunded by $246 million. The SRP was underfunded by $112 million and the PEBP, after reflecting IFC’s share of assets which are included in the Pension and Other Post-retirement Benefits receivable from IBRD ($704 million), was underfunded by $6 million. During the fiscal years ended June 30, 2023 and June 30, 2022, there were no amendments made to the retirement benefit plans. The following tables present the amounts included in Accumulated Other Comprehensive Income (Loss) relating to Pension and Other Post-retirement Benefits: Amounts included in Accumulated other comprehensive income at June 30, 2023: (US$ in millions) SRP RSBP PEBP Total Net actuarial gain $ (202) $ (306) $ (30) $ (538) Prior service cost 2 2 4 8 Net amount recognized in accumulated other comprehensive income $ (200) $ (304) $ (26) $ (530) Amounts included in Accumulated other comprehensive loss at June 30, 2022: (US$ in millions) SRP RSBP PEBP Total Net actuarial loss (gain) $ 264 $ (161) $ 56 $ 159 Prior service cost 3 5 5 13 Net amount recognized in accumulated other comprehensive loss $ 267 $ (156) $ 61 $ 172 Assumptions The actuarial assumptions used are based on financial market interest rates, inflation expectations, past experience, and Management’s best estimate of future benefit changes and economic conditions. Changes in these assumptions will impact future benefit costs and obligations. The expected long-term rate of return for the SRP assets is a weighted average of the expected long-term (10 years or more) returns for the various asset classes, weighted by the portfolio allocation. Asset class returns are developed using a forward-looking building The notes to consolidated financial statements are an integral part of these statements. 132 IFC 2023 ANNUAL REPORT FINANCIALS INTERNATIONAL FINANCE CORPORATION Page 139 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE V – PENSION AND OTHER POST-RETIREMENT BENEFITS (continued) 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, duration-adjusted change in yields and risk premium/spread (as appropriate). Other asset class returns are derived from their relationship to equity and bond markets. The expected long-term rate of return for the RSBP is computed using procedures similar to those used for the SRP. The discount rate used in determining the benefit obligation is selected by reference to the year end yield of AA corporate bonds. Actuarial gains and losses occur when actual results are different from expected results. Amortization of these unrecognized gains and losses will be included in income if, at the beginning of the fiscal year, they exceed 10 percent of the greater of the projected benefit obligation or the market-related value of plan assets. If required, the unrecognized gains and losses are amortized over the expected average remaining service lives of the employee group. The following tables present the weighted-average assumptions used in determining the projected benefit obligations for the years ended June 30, 2023 and June 30, 2022 and the net periodic pension costs for the years ended June 30, 2023, June 30, 2022 and June 30, 2021: Weighted average assumptions used to determine projected benefit obligations SRP RSBP PEBP (In percent, except years) 2023 2022 2023 2022 2023 2022 Discount rate 4.90 4.40 4.90 4.50 4.90 4.50 Rate of compensation increase 5.10 5.30 5.10 5.30 Health care growth rates – at end of fiscal year 5.40 5.80 Ultimate health care growth rate 4.20 4.40 Year in which ultimate rate is reached 2031 2031 Interest crediting rate 5.20 5.40 n.a n.a 5.20 5.40 Weighted average assumptions used to determine net periodic pension cost SRP RSBP PEBP (In percent, except years) 2023 2022 2021 2023 2022 2021 2023 2022 2021 Discount rate 4.40 2.70 2.60 4.50 2.80 2.70 4.50 2.80 2.60 Expected return on plan assets 5.90 5.40 5.10 5.90 5.40 5.10 Rate of compensation increase 5.30 4.80 4.60 5.30 4.80 4.60 Health care growth rates – at end of fiscal year 5.80 5.40 5.40 Ultimate health care growth rate 4.40 3.90 3.70 Year in which ultimate rate is reached 2031 2031 2031 Interest crediting rate 5.40 4.90 4.60 n.a n.a n.a 5.40 4.90 4.60 The medical cost trend rate can significantly affect the reported post-retirement benefit income or costs and benefit obligations for the RSBP. For the year ended June 30, 2023 and June 30, 2022, the actuarial gains were primarily due to an increase in the discount rates. Investment Strategy The investment policies establish the framework for investment of the Plan assets based on long-term investment objectives and the trade-offs inherent in seeking adequate investment returns within acceptable risk parameters. A key component of the investment policy is to establish a Strategic Asset Allocation (SAA) representing the policy portfolio (i.e., policy mix of assets) around which the SRP and RSBP (the Plans) are invested. 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 liquidity needs of the Plans. The SAA for the Plans is reviewed in detail and reset about every three to five years, with more frequent reviews and changes if and as needed based on market conditions. The notes to consolidated financial statements are an integral part of these statements. IFC 2023 ANNUAL REPORT FINANCIALS 133 INTERNATIONAL FINANCE CORPORATION Page 140 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE V – PENSION AND OTHER POST-RETIREMENT BENEFITS (continued) The key long-term objective is to generate asset performance that is reasonable in relation to the growth rate of the underlying liabilities and the assumed sponsor contribution rates, without taking undue risks. Given the relatively long investment horizons of the SRP and RSBP, and the relatively modest liquidity needs over the short-term to pay benefits and meet other cash requirements, the focus of the investment strategy is on generating sustainable long-term investment returns through a globally diversified set of strategies including fixed income, public and private equity and real assets. In April 2022, the Pension Finance Committee (PFC) approved a revision to the SAA band around the target allocation for private equity from +/-3 percent to +/-5 percent to accommodate the illiquid nature of this asset class and the limited ability to rebalance the allocation on a short-term basis, with the effective date of May 1, 2022. The changes do not materially alter the risk profile of the portfolio but are expected to slightly increase the efficiency of the allocation. The following table presents the policy asset allocation at June 30, 2023 and the actual asset allocations at June 30, 2023 and June 30, 2022 by asset category for the SRP and RSBP. SRP RSBP Policy % of Plan Assets Policy % of Plan Assets Allocation Allocation 2023 (%) 2023 2022 2023 (%) 2023 2022 Asset class Public equity 31 22 23 31 22 22 Fixed income & cash 20 16 17 20 16 17 Private equity 20 28 27 20 27 27 Real assets a 13 14 15 13 15 16 Market neutral hedge funds 10 11 10 10 11 10 Credit strategy 6 8 7 6 8 7 Other b — 1 1 — 1 1 Total 100 100 100 100 100 100 _________ a Includes public and private real estate, infrastructure and timber. b Includes authorized investments that are outside the policy allocations primarily in hedge funds. 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. As of June 30, 2023, the largest exposure to a single counterparty was 9% and 11% of the Plan assets in SRP and RSBP, respectively (7% and 6%, respectively – June 30, 2022). Risk management practices Managing investment risk is an integral part of managing the assets of the Plans. Asset diversification is central to the overall investment strategy and risk management approach for the Plans. Absolute risk indicators such as the overall return volatility and drawdown of the Plans are the primary measures used to define the risk tolerance level and establish the overall level of investment risk. In addition, the level of active risk (defined as the annualized standard deviation of portfolio returns relative to those of the policy portfolio) is closely monitored and managed on an ongoing basis. Market 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, are carried out on a regular basis which provides helpful information for assessing the impact on the portfolios caused by market risk factors. 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. The notes to consolidated financial statements are an integral part of these statements. 134 IFC 2023 ANNUAL REPORT FINANCIALS INTERNATIONAL FINANCE CORPORATION Page 141 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE V – PENSION AND OTHER POST-RETIREMENT BENEFITS (continued) Credit risk is monitored on a regular basis and assessed for possible credit event impacts. The liquidity position of the Plans is analyzed at regular intervals and periodically tested using various stress scenarios to ensure that the Plans have sufficient liquidity to meet all cash flow requirements. In addition, the long-term cash flow needs of the Plans are considered during the SAA exercise and are one of the main drivers in determining maximum allocation to the illiquid investment vehicles. The Plans mitigate operational risk by maintaining a system of internal controls along with other checks and balances at various levels. Fair value measurements and disclosures All plan assets are measured at fair value on a recurring basis. The following tables present the fair value hierarchy of major categories of plan assets as of June 30, 2023 and June 30, 2022: June 30, 2023 SRP RSBP (US$ in millions) Level 1 Level 2 Total Level 1 Level 2 Total Debt securities Discount notes and time deposits $ 1 $ 5 $ 6 $ 1 $ 2 $ 3 Securities purchased under resale agreements 6 — 6 3 — 3 Government and agency securities 502 71 573 118 19 137 Corporate and convertible bonds — 65 65 — 14 14 Asset-backed securities — 39 39 — 9 9 Mortgage-backed securities — 63 63 — 13 13 Total debt securities 509 243 752 122 57 179 Equity securities US common stocks 52 — 52 16 — 16 Non-US common stocks 330 — 330 60 — 60 Real estate investment trusts 28 — 28 5 — 5 Total equity securities 410 — 410 81 — 81 Other funds at NAV a Commingled funds — — 741 — — 131 Private equity funds — — 1,440 — — 275 Private credit — — 432 — — 80 Hedge funds — — 618 — — 112 Real estate funds (including infrastructure and timber) — — 700 — — 146 Total other funds — — 3,931 — — 744 Derivative assets/ liabilities (2) (1) (3) — — — b Other assets/ liabilities , net — — 75 — — 7 Total Assets $ 917 $ 242 $ 5,165 $ 203 $ 57 $ 1,011 _________ a Investments measured at fair value using NAV as a practical expedient have not been included under the fair value hierarchy. b Includes receivables and payables carried at amounts that approximate fair value. The notes to consolidated financial statements are an integral part of these statements. IFC 2023 ANNUAL REPORT FINANCIALS 135 INTERNATIONAL FINANCE CORPORATION Page 142 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE V – PENSION AND OTHER POST-RETIREMENT BENEFITS (continued) June 30, 2022 SRP RSBP (US$ in millions) Level 1 Level 2 Total Level 1 Level 2 Total Debt securities Discount notes and time deposits $ 4 $ — $ 4 $ 1 $ — $ 1 Securities purchased under resale agreements 29 — 29 8 — 8 Government and agency securities 576 94 670 120 22 142 Corporate and convertible bonds — 111 111 — 23 23 Asset-backed securities — 43 43 — 9 9 Mortgage-backed securities — 62 62 — 12 12 Total debt securities 609 310 919 129 66 195 Equity securities US common stocks 46 — 46 13 — 13 Non-US common stocks 335 — 335 61 — 61 Mutual funds 2 — 2 — — — Real estate investment trusts 40 — 40 7 — 7 Total equity securities 423 — 423 81 — 81 Other funds at NAV a Commingled funds — — 660 — — 110 Private equity funds — — 1,313 — — 253 Private credit — — 369 — — 67 Hedge funds — — 545 — — 98 Real estate funds (including infrastructure and timber) — — 680 — — 140 Total other funds — — 3,567 — — 668 Derivative assets/ liabilities 2 1 3 — 1 1 Other assets/ liabilities b, net — — 14 — — 3 Total Assets $ 1,034 $ 311 $ 4,926 $ 210 $ 67 $ 948 _________ a Investments measured at fair value using NAV as a practical expedient have not been included under the fair value hierarchy. b Includes receivables and payables carried at amounts that approximate fair value. Valuation methods and assumptions The following are general descriptions of asset categories, as well as the valuation methodologies and inputs used to determine the fair value of each major category of Plan assets. 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 discount notes, securities purchased under resale agreements, U.S. treasuries and agencies, debt obligations of foreign governments, sub-sovereigns and debt obligations in corporations of domestic and foreign issuers. Debt securities also include investments in ABS such as collateralized mortgage obligations and MBS. 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. The notes to consolidated financial statements are an integral part of these statements. 136 IFC 2023 ANNUAL REPORT FINANCIALS INTERNATIONAL FINANCE CORPORATION Page 143 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE V – PENSION AND OTHER POST-RETIREMENT BENEFITS (continued) Equity securities Equity securities (including Real Estate Investment Trusts) represent investments in entities 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 collective investment vehicles, such as trusts that are reported at NAV as provided by the investment manager or sponsor of the fund based on the valuation of underlying investments. Private equity funds Private equity funds include investments primarily in leveraged buyouts, growth capital, distressed investments and venture capital funds across North America, Europe and Asia in a variety of sectors. Many of these funds are in the investment phase of their life cycle. Private Equity investments do not have a readily determinable fair market value and are reported at NAV provided by the fund managers, taking into consideration the latest audited financial statements of the funds. Private credit funds Private credit funds include investments primarily in direct lending and opportunistic credit funds. Direct lending funds provide private financing to performing medium-size companies primarily owned by private equity sponsors. Opportunistic credit strategies (including distressed debt and multi-strategy funds) have flexible mandates to invest across both public and private markets globally. Private credit investments do not have a readily determinable fair value and are reported at NAV provided by the fund managers, taking into consideration the latest audited financial statements of the funds. Real estate funds (including infrastructure) Real estate funds include investments in core real estate, non-core real estate investments (such as debt, value add, and opportunistic equity investments) and infrastructure. Real estate investments do not have a readily determinable fair market value and are reported at NAV provided by the fund managers, taking into consideration the latest audited financial statements of the funds. Hedge funds Hedge fund investments include those seeking to maximize absolute returns using a broad range of strategies to enhance returns and provide additional diversification. Hedge Funds include investments in equity, event driven, fixed income, multi strategy and macro relative value strategies. These investments do not have a readily determinable fair market value and are reported at NAV provided by external managers or fund administrators (based on the valuations of underlying investments) monthly, 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. Since the reporting of those asset classes is done with a lag, management estimates are based on the latest available information considering 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 observable market 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: (US$ in millions) SRP RSBP PEBP July 1, 2023 – June 30, 2024 $ 207 $ 15 $ 24 July 1, 2024 – June 30, 2025 216 16 25 July 1, 2025 – June 30, 2026 229 18 27 July 1, 2026 – June 30, 2027 241 20 29 July 1, 2027 – June 30, 2028 259 22 32 July 1, 2028 – June 30, 2033 1,555 144 196 Expected contributions IFC’s contribution to the SRP and RSBP varies from year to year, as determined by the PFC, 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 by IFC during the fiscal year beginning July 1, 2023 is $50 million and $13 million, respectively. The notes to consolidated financial statements are an integral part of these statements. IFC 2023 ANNUAL REPORT FINANCIALS 137 INTERNATIONAL FINANCE CORPORATION Page 144 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE W – OFFSETTING OF DERIVATIVES, RESALE, REPURCHASE AND SECURITIES LENDING AGREEMENTS AND COLLATERAL IFC does not present derivative assets and liabilities or amounts due or owed under resale, repurchase and securities lending transactions related to contracts entered into with the same counterparty under a legally enforceable netting agreement on a net basis on its consolidated balance sheet. The following table provides the gross and net positions of IFC’s derivative contracts, resale, repurchase and securities lending agreements considering amounts and collateral held or pledged in accordance with enforceable counterparty credit support and netting agreements described below. The gross and net positions include derivative assets of $258 million and derivative liabilities of $455 million as of June 30, 2023, related to derivative contracts that are not subject to counterparty credit support or netting agreements. Collateral amounts are included only to the extent of the related net derivative fair values or net resale, repurchase and securities lending agreements amounts. (US$ in millions) June 30, 2023 Gross amounts not offset in the Gross amount of consolidated balance sheet assets presented in the consolidated Financial Collateral Assets balance sheet instruments received Net amount a c Derivative assets $ 6,853 $ 5,474 $ 169 $ 1,210 Resale agreements — — — — Total assets $ 6,853 $ 5,474 $ 169 $ 1,210 (US$ in millions) June 30, 2023 Gross amounts not offset in the Gross amount of consolidated balance sheet liabilities presented Cash in the consolidated Financial Collateral Liabilities balance sheet instruments pledged Net amount b Derivative liabilities $ 12,283 $ 5,474 $ 5,159 $ 1,650 Repurchase and securities lending agreements 6,483 6,476 — 7 Total liabilities $ 18,766 $ 11,950 $ 5,159 $ 1,657 (US$ in millions) June 30, 2022 Gross amounts not offset in the Gross amount of consolidated balance sheet assets presented in the consolidated Financial Collateral Assets balance sheet instruments received Net amount a c Derivative assets $ 4,390 $ 2,947 $ 680 $ 763 Resale agreements 3,799 3,799 — — Total assets $ 8,189 $ 6,746 $ 680 $ 763 (US$ in millions) June 30, 2022 Gross amounts not offset in the consolidated balance sheet Gross amount of liabilities presented Cash in the consolidated Financial Collateral Liabilities balance sheet instruments pledged Net amount b Derivative liabilities $ 8,203 $ 2,947 $ 4,324 $ 932 Repurchase and securities lending agreements 5,491 5,491 — — Total liabilities $ 13,694 $ 8,438 $ 4,324 $ 932 _________ a Includes accrued income of $1.1 billion and $534 million as of June 30, 2023 and June 30, 2022 respectively. b Includes accrued charges of $1.1 billion and $303 million as of June 30, 2023 and June 30, 2022 respectively. c Includes cash collateral of $168 million and $678 million as of June 30, 2023 and June 30, 2022 respectively. The remaining amounts of collateral received consist of off- balance-sheet US Treasury securities reported in the above table at fair value. The notes to consolidated financial statements are an integral part of these statements. 138 IFC 2023 ANNUAL REPORT FINANCIALS INTERNATIONAL FINANCE CORPORATION Page 145 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE W – OFFSETTING OF DERIVATIVES, RESALE, REPURCHASE AND SECURITIES LENDING AGREEMENTS AND COLLATERAL (continued) IFC’s derivative contracts with market counterparties are entered into under standardized master agreements published by the International Swaps and Derivatives Association (ISDA) Agreements. ISDA Agreements provide for a single lump sum settlement amount upon the early termination of transactions following a default or termination event whereby amounts payable by the non- defaulting party to the other party may be applied to reduce any amounts that the other party owes the non-defaulting party. This setoff effectively reduces any amount payable by the non-defaulting party to the defaulting party. IFC’s ISDA Agreements are appended by a Credit Support Annex (CSA) that provides for the receipt, and in some cases, posting, of collateral in the form of cash, U.S. Treasury securities or U.K. gilts to reduce mark-to-market exposure among derivative market counterparties. IFC recognizes cash collateral received and a corresponding liability on its balance sheet for the obligation to return it. Securities received as collateral are not recognized on IFC’s balance sheet. As of June 30, 2023, $5.2 billion of cash collateral was posted under CSAs ($4.4 billion June 30, 2022). IFC recognizes a receivable on its balance sheet for its rights to cash collateral posted. In accordance with the CSAs, IFC may rehypothecate securities received as collateral, subject to the obligation to return such collateral and any related distributions received. In the event of a counterparty default, IFC may exercise certain rights and remedies, including the right to set off any amounts payable by the counterparty against any collateral held by IFC and the right to liquidate any collateral held. As of June 30, 2023, IFC had $185 million ($730 million – June 30, 2022) of outstanding obligations to return cash collateral under CSAs. The estimated fair value of all securities received and held as collateral under CSAs as of June 30, 2023, all of which may be rehypothecated was $1 million ($2 million – June 30, 2022). As of June 30, 2023, $0 of such collateral was rehypothecated under securities lending agreements ($0 – June 30, 2022). Collateral posted by IFC in connection with repurchase agreements approximates the amounts classified as Securities sold under repurchase agreements. At June 30, 2023 and June 30, 2022, no trading securities were pledged in connection with borrowings under a short-term discount note program, the carrying amount of which was $3.0 billion at June 30, 2023 ($2.3 billion – June 30, 2022). Under certain CSA’s IFC is not required to pledge collateral unless its credit rating is downgraded from its current AAA/Aaa. The aggregate fair value of derivatives containing such a credit risk-linked contingent feature in a net liability position was $93 million at June 30, 2023 ($85 million – June 30, 2022). At June 30, 2023, IFC had no collateral posted under these agreements. If IFC’s credit rating were to be downgraded from its current AAA/Aaa to AA+/Aa1 or below, then collateral in the amount of $78 million would be required to be posted against net liability positions with counterparties at June 30, 2023 ($70 million – June 30, 2022). IFC’s resale, repurchase and securities lending transactions are entered into with counterparties under industry standard master netting agreements which generally provide the right to offset amounts owed one another with respect to multiple transactions under such master netting agreement and liquidate the purchased or borrowed securities in the event of counterparty default. The estimated fair value of all securities received and held as collateral under these master netting agreements as of June 30, 2023 was $0, ($3.8 billion – June 30, 2022). The following table presents an analysis of IFC’s repurchase agreements by (1) class of collateral pledged and (2) their remaining contractual maturity as of June 30, 2023 and June 30, 2022: Remaining Contractual Maturity of the Agreements – June 30, 2023 Overnight and Up to 30 Greater than (US$ in millions) Continuous days 30-90 days 90 days Total Repurchase agreements U.S. Treasury securities $ — $ 1,479 $ 3,530 $ 1,474 $ 6,483 a Total Repurchase agreements $ — $ 1,479 $ 3,530 $ 1,474 $ 6,483 _________ a Includes accrued interest. Remaining Contractual Maturity of the Agreements – June 30, 2022 Overnight and Up to 30 Greater than (US$ in millions) Continuous days 30-90 days 90 days Total Repurchase agreements U.S. Treasury securities $ 38 $ 1,503 $ 2,814 $ 1,144 $ 5,499 a Total Repurchase agreements $ 38 $ 1,503 $ 2,814 $ 1,144 $ 5,499 _________ a Includes accrued interest. As of both June 30, 2023 and June 30, 2022, IFC has no repurchase-to-maturity transactions nor securities lending transactions outstanding. The notes to consolidated financial statements are an integral part of these statements. IFC 2023 ANNUAL REPORT FINANCIALS 139 INTERNATIONAL FINANCE CORPORATION Page 146 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE X – CONTINGENCIES In the normal course of its business, IFC is from time to time named as a defendant or co-defendant in 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. The notes to consolidated financial statements are an integral part of these statements. 140 IFC 2023 ANNUAL REPORT FINANCIALS Page 64 INDEPENDENT AUDITOR’S REPORT President and Board of Directors International Finance Corporation Opinion We have audited the consolidated financial statements of International Finance Corporation and its consolidated entities ("IFC"), which comprise the consolidated balance sheets as of June 30, 2023 and 2022, and the related consolidated statements of operations, comprehensive income, changes in capital and cash flows, for each of the three years in the period ended June 30, 2023, and the related notes to the consolidated financial statements (collectively referred to as the "consolidated financial statements"). In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of IFC as of June 30, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2023, in accordance with accounting principles generally accepted in the United States of America. We have also audited, in accordance with auditing standards generally accepted in the United States of America (GAAS), IFC's internal control over financial reporting as of June 30, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated August 4, 2023, expressed an unmodified opinion on IFC’s internal control over financial reporting. Basis for Opinion We conducted our audits in accordance with GAAS. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are required to be independent of IFC and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Responsibilities of Management for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about IFC’s ability to continue as a going concern for one year after the date that the consolidated financial statements are issued. Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the consolidated financial statements. In performing an audit in accordance with GAAS, we: • Exercise professional judgment and maintain professional skepticism throughout the audit. • Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. IFC 2023 ANNUAL REPORT FINANCIALS 141 Page 65 • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances. • Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the consolidated financial statements. • Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about IFC’s ability to continue as a going concern for a reasonable period of time. We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit. Report on Supplemental Information Our audits were conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The consolidated statement of capital stock and voting power as of June 30, 2023 ("supplemental information") listed in the table of contents is presented for the purpose of additional analysis and is not a required part of the consolidated financial statements. This supplemental information is the responsibility of IFC’s management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated financial statements. Such information has been subjected to the auditing procedures applied in our audits of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated financial statements themselves, and other additional procedures in accordance with GAAS. In our opinion, such information is fairly stated in all material respects in relation to the consolidated financial statements as a whole. Other Information Included in Management’s Discussion and Analysis and Consolidated Financial Statements Management is responsible for the other information included in Management’s Discussion and Analysis and Consolidated Financial Statements. The other information comprises the information included in Management’s Discussion and Analysis and Consolidated Financial Statements but does not include the consolidated financial statements and our auditor’s report thereon. Our opinion on the consolidated financial statements does not cover the other information, and we do not express an opinion or any form of assurance thereon. In connection with our audits of the consolidated financial statements, our responsibility is to read the other information and consider whether a material inconsistency exists between the other information and the consolidated financial statements, or the other information otherwise appears to be materially misstated. If, based on the work performed, we conclude that an uncorrected material misstatement of the other information exists, we are required to describe it in our report. August 4, 2023 142 IFC 2023 ANNUAL REPORT FINANCIALS INVESTMENT PORTFOLIO IFC 2023 ANNUAL REPORT FINANCIALS 143 STATEMENT OF CUMULATIVE GROSS COMMITMENTS (at June 30, 2023) Cumulative Commitments 1 (US$ thousands) Investment Portfolio LOAN & NUMBER OF GUARANTEE REGION COUNTRY ENTERPRISES IFC PARTICIPATIONS TOTAL Africa Algeria 15 303,557 5,557 309,114 Angola 12 1,044,553 0 1,044,553 Benin 15 340,133 0 340,133 Botswana 8 85,452 0 85,452 Burkina Faso 30 1,237,037 0 1,237,037 Burundi 11 58,648 0 58,648 Cabo Verde 8 26,848 0 26,848 Cameroon 47 1,075,643 471,500 1,547,143 Central African Republic 1 9,880 0 9,880 Chad 12 170,314 13,900 184,214 Comoros 1 14,888 0 14,888 Congo, Democratic Republic of 38 741,463 143,800 885,263 Congo, Republic of 12 164,432 25,000 189,432 Cote D’Ivoire 83 1,444,342 175,275 1,619,617 Djibouti 2 9,290 0 9,290 Egypt, Arab Republic of 144 5,244,486 1,133,389 6,377,875 Eritrea 1 949 0 949 Eswatini 9 47,779 0 47,779 Ethiopia 26 965,780 46,336 1,012,117 Gabon 7 342,668 110,000 452,668 Gambia, The 10 47,270 0 47,270 Ghana 94 3,479,961 913,750 4,393,711 Guinea 23 678,013 191,000 869,013 Guinea-Bissau 5 9,156 0 9,156 Kenya 146 4,725,905 273,936 4,999,841 Lesotho 2 454 0 454 Liberia 14 265,579 0 265,579 Madagascar 30 485,713 21,000 506,713 Malawi 23 287,705 9,500 297,205 Mali 38 369,065 40,000 409,065 Mauritania 18 519,530 79,503 599,033 Mauritius 24 391,659 96 391,755 Morocco 57 1,567,546 526,934 2,094,480 Mozambique 35 615,009 136,913 751,923 Namibia 10 198,391 0 198,391 Niger 7 72,183 0 72,183 Nigeria 146 20,503,689 1,022,205 21,525,895 Rwanda 25 282,111 10,000 292,111 1. Includes long-term and short-term investment commitments. 144 IFC 2023 ANNUAL REPORT FINANCIALS LOAN & NUMBER OF GUARANTEE REGION COUNTRY ENTERPRISES IFC PARTICIPATIONS TOTAL Sao Tome and Principe 2 2,051 0 2,051 Senegal 56 920,833 134,554 1,055,387 Seychelles 8 49,443 12,000 61,443 Sierra Leone 13 221,172 25,000 246,172 Somalia 2 975 0 975 South Africa 127 6,609,919 150,025 6,759,944 South Sudan 2 8,750 0 8,750 Sudan 6 27,268 6,489 33,757 Tanzania 72 1,141,697 15,541 1,157,237 Togo 19 422,215 0 422,215 Tunisia 37 622,690 427,228 1,049,917 Uganda 59 676,194 86,788 762,982 Zambia 51 546,883 20,286 567,169 Zimbabwe 51 284,262 99,000 383,262 Regional Investments: Africa 177 5,211,928 92,722 5,304,650 Central Asia and Türkiye Kazakhstan 39 1,830,079 302,933 2,133,012 Kyrgyz Republic 19 174,826 0 174,826 Tajikistan 22 174,068 0 174,068 Türkiye 229 21,235,885 4,118,382 25,354,267 Turkmenistan 1 35,000 0 35,000 Uzbekistan 31 690,678 22,900 713,578 Regional Investments: Central Asia and Türkiye 2 55,000 0 55,000 East Asia and the Pacific Cambodia 21 813,991 660,727 1,474,719 China 349 13,955,298 2,735,933 16,691,232 Fiji 11 57,493 2,500 59,993 Indonesia 157 6,283,979 3,111,831 9,395,811 Kiribati 1 1,798 0 1,798 Korea, Republic of 52 1,108,449 195,700 1,304,149 Lao People’s Democratic Republic 16 132,202 10,000 142,202 Malaysia 15 220,889 5,389 226,278 Mongolia 21 1,348,356 971,625 2,319,981 Myanmar 32 874,352 20,000 894,352 Papua New Guinea 12 404,744 25,000 429,744 Philippines 124 4,129,604 718,470 4,848,073 Samoa 8 22,097 0 22,097 Solomon Islands 3 55,000 0 55,000 Thailand 102 3,918,877 1,763,419 5,682,297 Timor-Leste 2 3,000 0 3,000 Tonga 1 6,787 0 6,787 Vanuatu 4 18,104 0 18,104 Vietnam 89 12,605,762 756,706 13,362,468 Regional Investments: East Asia and the Pacific 78 2,465,216 0 2,465,216 IFC 2023 ANNUAL REPORT FINANCIALS 145 LOAN & NUMBER OF GUARANTEE REGION COUNTRY ENTERPRISES IFC PARTICIPATIONS TOTAL Europe Albania 23 559,391 78,613 638,004 Armenia 23 781,969 0 781,969 Azerbaijan 27 619,479 212,930 832,409 Belarus 21 809,388 18,000 827,388 Bosnia and Herzegovina 33 358,576 10,578 369,154 Bulgaria 32 1,065,341 183,647 1,248,988 Croatia 23 1,016,066 228,199 1,244,265 Georgia 33 1,205,896 49,825 1,255,721 Kosovo 10 86,150 0 86,150 Moldova 18 285,237 45,000 330,237 Montenegro 7 100,203 0 100,203 North Macedonia 17 304,463 25,000 329,463 Poland 61 1,451,430 135,317 1,586,747 Romania 67 4,736,620 570,527 5,307,147 Russian Federation 194 8,797,461 2,523,372 11,320,833 Serbia 45 1,968,647 369,723 2,338,371 Ukraine 67 3,390,912 953,751 4,344,662 Regional Investments: Europe 67 3,776,807 330,294 4,107,101 Latin America and the Caribbean Antigua and Barbuda 1 30,000 0 30,000 Argentina 213 8,372,840 6,131,343 14,504,182 Barbados 7 29,025 0 29,025 Belize 4 33,066 11,000 44,066 Bolivia 33 601,039 155,500 756,539 Brazil 348 25,856,665 9,861,403 35,718,068 Chile 80 3,427,925 1,553,155 4,981,079 Colombia 162 6,115,222 1,545,598 7,660,819 Costa Rica 38 1,916,795 104,709 2,021,504 Dominica 1 700 0 700 Dominican Republic 39 963,822 241,850 1,205,672 Ecuador 29 1,876,505 179,740 2,056,245 El Salvador 22 2,193,099 256,000 2,449,099 Grenada 2 8,000 0 8,000 Guatemala 33 3,041,634 230,000 3,271,634 Guyana 8 76,417 0 76,417 Haiti 17 146,735 26,000 172,735 Honduras 29 2,264,690 142,901 2,407,591 Jamaica 25 557,846 194,244 752,090 Mexico 259 9,673,169 2,985,750 12,658,919 Nicaragua 28 1,645,375 206,036 1,851,411 Panama 37 2,916,237 153,300 3,069,537 Paraguay 19 1,859,139 28,000 1,887,139 Peru 85 3,049,370 1,062,099 4,111,469 St. Lucia 5 80,422 35,000 115,422 Suriname 1 4,066 0 4,066 Trinidad and Tobago 19 433,654 235,000 668,654 Uruguay 21 408,842 120,000 528,842 146 IFC 2023 ANNUAL REPORT FINANCIALS LOAN & NUMBER OF GUARANTEE REGION COUNTRY ENTERPRISES IFC PARTICIPATIONS TOTAL Venezuela, Republica Bolivariana de 39 897,230 703,791 1,601,021 Regional Investments: Latin America and the Caribbean 102 2,848,074 350,000 3,198,074 Middle East Afghanistan 10 249,254 0 249,254 Bahrain 2 340,271 0 340,271 Iran, Islamic Republic of 11 63,343 8,199 71,542 Iraq 18 1,159,116 432,270 1,591,386 Jordan 72 2,425,048 707,490 3,132,539 Lebanon 43 6,323,413 230,430 6,553,843 Oman 7 319,853 57,000 376,853 Pakistan 158 9,615,398 719,199 10,334,597 Saudi Arabia 13 726,277 0 726,277 Syrian Arab Republic 4 24,732 0 24,732 United Arab Emirates 21 488,252 30,000 518,252 West Bank and Gaza 29 516,295 10,000 526,295 Yemen, Republic of 17 281,004 96,105 377,109 Regional Investments: Middle East 34 1,527,330 3,000 1,530,330 South Asia Bangladesh 77 7,808,009 194,620 8,002,629 Bhutan 6 54,517 0 54,517 India 579 21,409,888 1,743,640 23,153,528 Maldives 10 293,250 8,500 301,750 Nepal 31 524,856 50,250 575,106 Sri Lanka 53 2,024,643 128,616 2,153,259 Regional Investments: South Asia 8 183,443 0 183,443 Worldwide Australia 2 975 0 975 Cyprus 8 32,181 645 32,827 Czechia 18 455,176 245,588 700,764 Estonia 11 137,806 11,855 149,661 Finland 4 1,233 1,915 3,148 Greece 15 995,955 40,131 1,036,086 Hungary 34 691,655 70,335 761,990 Israel 1 10,500 0 10,500 Italy 1 960 0 960 Latvia 7 80,967 35,000 115,967 Lithuania 11 95,041 9,309 104,350 Portugal 7 51,811 11,000 62,811 Slovak Republic 7 115,544 0 115,544 Slovenia 13 292,535 47,383 339,918 Spain 5 19,043 1,685 20,728 Regional Investments: Worldwide 217 27,932,594 526,234 28,458,828 Other 2 8 298,194 1,400 299,594 7,358 337,406,900 59,509,734 396,916,634 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 Taiwan, China and Hong Kong SAR, China. IFC 2023 ANNUAL REPORT FINANCIALS 147 International Finance Corporation 2121 Pennsylvania Avenue, NW Washington, DC 20433 USA ifc.org