66100 v2 2011 INTERNATIONAL FINANCE CORPORATION FINANCIALS AND PROJECTS Table of Contents Management’s Discussion and Analysis 2 Overview 2 Client Services 5 Liquid Assets 11 Funding Resources 12 Enterprise Risk Management 13 Critical Accounting Policies 20 Results of Operations 21 Governance 27 Consolidated Financial Statements and Internal Control Reports 30 Management’s Report Regarding Effectiveness of Internal Control over External Financial Reporting 30 Independent Auditors’ Report on Management’s Report Regarding Effectivness of Internal Control over External Financial Reporting 32 Consolidated Balance Sheets 34 Consolidated Income Statements 35 Consolidated Statements of Comprehensive Income 36 Consolidated Statements of Changes in Capital 37 Consolidated Statements of Cash Flows 38 Consolidated Statement of Capital Stock and Voting Power 40 Notes to Consolidated Financial Statements 41 Independent Auditors’ Report 88 Project Commitments 89 Investment Portfolio — Cumulative Gross Commitments by Region 110 Notes and De�nitions 114 2 Management’s IFC Financials and Projects 2011 Discussion and Analysis Management’s Discussion The Management’s Discussion and Analysis contains forward looking statements which may be identi�ed by such terms as “antici- and Analysis pates,� “believes,� “expects,� “intends,� “plans� or words of similar meaning. Such statements involve a number of assumptions and estimates that are based on current expectations, which are subject to risks and uncertainties beyond IFC’s control. Consequently, actual future results could differ materially from those currently anticipated. I. Overview of Financial Results BASIS OF PREPARATION OF IFC’S CONSOLIDATED International Finance Corporation (IFC or the Corporation) is an FINANCIAL STATEMENTS international organization, established in 1956, to further economic growth in its developing member countries by promoting private The accounting and reporting policies of IFC conform to accounting sector development. IFC is a member of the World Bank Group, principles generally accepted in the United States (US GAAP). IFC’s which also comprises the International Bank for Reconstruction and accounting policies are discussed in more detail in Note A to Development (IBRD), the International Development Association IFC’s Consolidated Financial Statements as of and for the year (IDA), the Multilateral Investment Guarantee Agency (MIGA), and the ended June 30, 2011 (FY11 Consolidated Financial Statements). International Centre for Settlement of Investment Disputes (ICSID). It is a legal entity separate and distinct from IBRD, IDA, MIGA, and FINANCIAL PERFORMANCE SUMMARY ICSID, with its own Articles of Agreement, share capital, �nancial structure, management, and staff. Membership in IFC is open only to From year to year, IFC’s net income is affected by a number of factors member countries of IBRD. As of June 30, 2011, IFC’s entire share that can result in volatile �nancial performance. capital was held by 182 member countries. IFC reported income before grants to IDA of $2,179 million in IFC’s principal investment products are loans and equity invest- FY11, as compared to $1,946 million in the year ended June 30, 2010 ments, with smaller debt securities and guarantee portfolios. IFC (FY10) and $299 million in the year ended June 30, 2009 (FY09). also plays a catalytic role in mobilizing additional funding from other The increase in income before grants to IDA in FY11 when com- investors and lenders, through a variety of means comprising loan pared to FY10 was principally as a result of higher income from participations, parallel loans, sales of loans, the non-IFC portion investments (loans, equity investments, debt securities, including of structured �nance transactions, the non-IFC portion of commit- derivatives associated with investments) and higher service fees and ments in IFC’s initiatives, and the non-IFC investment portion of other income, partially offset by lower income from liquid asset trad- commitments in funds managed by IFC’s wholly owned subsidiary, ing activities, higher administrative and other expenses and higher IFC Asset Management Company LLP (AMC), collectively (Core expenditures for advisory services and against other designated Mobilization). In addition, IFC offers an array of �nancial products retained earnings. IFC’s �nancial performance is detailed more fully and advisory services to private businesses in the developing world in Section VII, Results of Operations. with a view to ful�lling its developmental mission. It also advises Grants to IDA totaled $600 million in FY11, as compared to member governments on how to create an environment hospitable to $200 million in FY10 and $450 million in FY09. Accordingly, net the growth of private enterprise and foreign investment. Unlike most income totaled $1,579 million in FY11, as compared with $1,746 mil- other multilateral institutions, IFC does not accept host government lion in FY10 and a net loss of $151 million in FY09. guarantees of its exposures. IFC raises virtually all of the funds for IFC’s net income (loss) for the past �ve �scal years ended June 30, its lending activities through the issuance of debt obligations in the is presented below (US$ millions): international capital markets, while maintaining a small borrowing window with IBRD. Equity investments are funded from net worth. Fiscal Year Ended June 30 For the year ended June 30, 2011 (FY11), IFC had an authorized 2007 borrowing program of up to $12.5 billion, and up to $2.5 billion to 2008 allow for possible prefunding during FY11 of the funding program 2009 for the year ending June 30, 2012 (FY12). 2010 IFC’s capital base and its assets and liabilities, other than its equity 2011 –500 0 500 1,000 1,500 2,000 2,500 investments, are primarily denominated in US dollars. IFC seeks to minimize foreign exchange and interest rate risks by closely matching the currency and rate bases of its assets in various currencies with liabilities having the same characteristics. IFC generally manages non-equity investment related and certain lending related residual currency and interest rate risks by utilizing currency and interest rate swaps and other derivative instruments. 3 The table below presents selected �nancial data for the last �ve �scal years (in millions of US dollars, except where otherwise stated): AS OF AND FOR THE YEARS ENDED JUNE 30 2011 2010 2009 2008 2007 Net income highlights: Income from loans and guarantees $ 877 $ 801 $ 871 $ 1,065 $ 1,062 Release of (provision) for losses on loans & guarantees 40 (155) (438) (38) 43 Income (loss) from equity investments 1,464 1,638 (42) 1,688 2,292 Of which: Realized capital gains on equity sales 737 1,290 990 1,219 1,941 Unrealized gains (losses) on equity investments 454 240 (299) 12 – Gains on non-monetary exchanges 217 28 14 177 – Dividends and pro�t participations 280 285 311 428 385 Equity investment impairment write-downs (218) (203) (1,058) (140) (40) Other, net (6) (2) – (8) 6 Income from debt securities 46 108 71 163 27 Income from liquid asset trading activities 529 815 474 473 618 Charges on borrowings (140) (163) (488) (782) (801) Other income 222 176 153 113 99 Other expenses (825) (743) (629) (555) (500) Foreign currency transaction (losses) gains on non-trading activities (33) (82) 10 (39) (5) Expenditures for advisory services and against other designated retained earnings (156) (110) (135) (150) (96) Income (loss) before net gains and losses on other non-trading �nancial instruments accounted for at fair value and grants to IDA 2,024 2,285 (153) 1,938 2,739 Net gains (losses) on other non-trading �nancial instruments 155 (339) 452 109 (99) Of which: Realized gains 63 5 – – – Gains on non-monetary exchanges 22 6 45 – – Unrealized gains (losses) 70 (350) 407 109 (99) Income before grants to IDA 2,179 1,946 299 2,047 2,640 Grants to IDA (600) (200) (450) (500) (150) Net income (loss) $ 1,579 $ 1,746 $ (151) $ 1,547 $ 2,490 Consolidated balance sheet highlights: Total assets $68,490 $61,075 $51,483 $49,471 $40,599 Liquid assets, net of associated derivatives 24,517 21,001 17,864 14,622 13,269 Loans, equity investments, and debt securities, net 29,934 25,944 22,214 23,319 15,796 Borrowings drawn-down and outstanding, including fair value adjustments 38,211 31,106 25,711 20,261 15,879 Total capital $20,279 $18,359 $16,122 $18,261 14,017 Of which: Undesignated retained earnings $16,032 $14,307 $12,251 $12,366 $10,604 Designated retained earnings 335 481 791 826 606 Capital stock 2,369 2,369 2,369 2,366 2,365 Accumulated other comprehensive income (AOCI) 1,543 1,202 711 2,703 442 4 Management’s IFC Financials and Projects 2011 Discussion and Analysis AS OF AND FOR THE YEARS ENDED JUNE 30 2011 2010 2009 2008 2007 Financial ratios: 1 Return on average assets (GAAP basis) 2 2.4% 3.1% (0.3)% 3.4% 6.3% Return on average assets (non-GAAP basis) 3 1.8% 3.8% (1.1)% 3.7% 8.6% Return on average capital (GAAP basis)4 8.2% 10.1% (0.9)% 9.6% 19.8% Return on average capital (non-GAAP basis) 5 6.0% 11.8% (3.0)% 9.0% 21.1% Cash and liquid investments as a percentage of next three years’ estimated net cash requirements 83% 71% 75% 62% 85% External funding liquidity level6 266% 190% 163% 96% 95% Debt to equity ratio7 2.6:1 2.2:1 2.1:1 1.6:1 1.4:1 Total reserves against losses on loans to total disbursed portfolio8 6.6% 7.4% 7.4% 5.5% 6.5% Capital measures: Capital to risk-weighted assets ratio9 n/a n/a 44% 48% 57% Total Resources Required ($ billions)10 14.4 12.8 10.9 10.4 8.0 Total Resources Available ($ billions)11 17.9 16.8 14.8 15.0 13.8 Strategic Capital12 3.6 4.0 3.9 4.6 5.8 Deployable Strategic Capital13 1.8 2.3 2.3 3.1 4.4 Deployable Strategic Capital as a percentage of Total Resources Available 10% 14% 16% 21% 32% 1 Certain �nancial ratios, as described below, are calculated excluding the effects of unrealized gains and losses on investments, other non-trading �nancial instruments, AOCI, and impacts from consolidated Variable Interest Entities (VIEs). 2 Net income for the � scal year as a percentage of the average of total assets at the end of such � scal year and the previous � scal year. 3 Net income excluding unrealized gains and losses on certain investments accounted for at fair value, income from consolidated VIEs, and net gains and losses on non-trading �nancial instruments accounted for at fair value, as a percentage of total disbursed loan and equity investments (net of reserves) at cost, liquid assets net of repos, and other assets averaged for the current period and previous � scal year. 4 Net income for the � scal year as a percentage of the average of total capital (excluding payments on account of pending subscriptions) at the end of such � scal year and the previ- ous � scal year. 5 Net income excluding unrealized gains and losses on certain investments accounted for at fair value, income from consolidated VIEs, and net gains and losses on non-trading �nancial instruments accounted for at fair value, as a percentage of paid in share capital and retained earnings (before certain unrealized gains and losses and excluding cumula- tive designations not yet expensed) averaged for the current period and previous � scal year. 6 Beginning June 30, 2007, IFC’s liquidity policy was revised so that IFC is to maintain a minimum level of liquidity, consisting of proceeds from external funding to cover at least 65% of the sum of (i) 100% of committed but undisbursed straight senior loans; (ii) 30% of committed guarantees; and (iii) 30% of committed client risk management products. 7 The ratio of outstanding borrowings plus outstanding guarantees to subscribed capital plus undesignated retained earnings (less cumulative unrealized gains and losses on loans, equity investments, and other non-trading �nancial instruments accounted for at fair value in net income) at the end of the � scal year. 8 Total reserves against losses on loans to total disbursed loan portfolio is de�ned as reserve against losses on loans as a percentage of the total disbursed loan portfolio at the end of the � scal year. 9 The ratio of capital (including paid-in capital, retained earnings, and portfolio (general) loan loss reserves) to risk-weighted assets, both on- and off-balance sheet. The ratio does not include designated retained earnings reported in total capital on IFC’s consolidated balance sheet. IFC’s Board of Directors has approved the use of a risk-based economic capital framework beginning in the year ended June 30, 2008 (FY08). Parallel use of the capital to risk-weighted assets ratio has now been discontinued. 10 The minimum capital required consistent with the maintenance of IFC’s AAA rating. It is computed as the aggregation of risk-based economic capital requirements for each asset class across the Corporation. 11 Paid in capital plus retained earnings net of designated retained earnings plus general and speci� c reserves against losses on loans. This is the level of available resources under IFC’s risk-based economic capital adequacy framework. 12 Total resources available less total resources required. 13 90% of total resources available less total resources required. 5 IFC’s investment project cycle can be divided into the following II. Client Services stages: • Business Development BUSINESS OVERVIEW • Early Review IFC fosters sustainable economic growth in developing countries • Appraisal (Due Diligence) by � nancing private sector investment, mobilizing capital in the • Investment Review international �nancial markets, and providing advisory services to • Negotiations businesses and governments. • Public Disclosure IFC emphasizes �ve strategic priorities: • Board of Director Review and Approval • strengthening the focus on frontier markets • Commitment • addressing climate change and ensuring environmental and social • Disbursement of Funds sustainability • Project Supervision and Development Outcome Tracking • addressing constraints to private sector growth in infrastructure, • Evaluation health, education, and the food-supply chain • Closing • developing local �nancial markets IFC carefully supervises its projects to monitor project perfor- • building long-term client relationships in emerging markets mance and compliance with contractual obligations and with IFC’s For all new investments, IFC articulates the expected impact on internal policies and procedures. sustainable development, and, as the projects mature, IFC assesses the quality of the development bene�ts realized. Investment Products IFC’s strategic priorities are aligned to advance the World Bank IFC �nances projects and companies through loans, typically for Group’s global priorities. seven to twelve years. IFC also makes loans to intermediary banks, IFC has three main business lines: Investment Services, Advisory leasing companies, and other �nancial institutions for on-lending. Services, and Asset Management. IFC’s equity investments provide developmental support, long-term growth capital for private enterprises, and support for corporate governance and enhanced social responsibility. IFC invests directly INVESTMENT SERVICES in companies’ equity, and through private equity funds. IFC generally IFC’s investments are normally made in its developing member invests between 5 and 20 percent of a company’s equity. countries. The Articles of Agreement mandate that IFC shall invest in IFC also invests through pro�t-participating loans, convertible productive private enterprise. The requirement for private ownership loans, and preferred shares. does not disqualify enterprises that are partly owned by the public IFC’s Global Trade Finance Program (GTFP) guarantees trade- sector if such enterprises are organized under local commercial and related payment obligations of �nancial institutions. Separately, the corporate law, operate free of host government control in a market Global Trade Liquidity Program (GTLP) provides liquidity for trade context and according to pro�tability criteria, and/or are in the pro- in developing countries. cess of being totally or partially privatized. IFC’s loan participation program mobilizes capital from inter- IFC provides a range of �nancial products and services to its national commercial banks, local and regional banks in emerging clients and develops �nancial tools that enable companies to man- markets, funds, insurance companies, and development �nance age risk and broaden their access to foreign and domestic capital institutions for development needs. markets. Investment services product lines include: loans, equity IFC uses structured and securitized products to provide forms of investments, trade �nance, loan participations, structured �nance, �nancing that may not otherwise be available to clients. Products and client risk management services. include partial credit guarantees, structured liquidity facilities, port- folio risk transfer, securitizations, and Islamic �nance. IFC provides derivative products to its clients to allow them to hedge their interest rate, currency, or commodity-price exposures. IFC intermediates between clients in developing countries and derivatives market makers to provide such clients with access to risk-management products. 6 Management’s IFC Financials and Projects 2011 Discussion and Analysis ADVISORY SERVICES INVESTMENT PROGRAM Advisory services are a critical tool for extending IFC’s reach and Commitments expanding IFC’s impact. Advisory services contribute signi�cantly to In FY11, IFC entered into new commitments totaling $12,186 million, IFC’s additionality by improving the business-enabling environment compared with $12,664 million in FY10. In addition, IFC mobilized for the private sector as well as the capabilities of private �rms and resources totaling $6,474 million, compared with $5,378 million service providers. IFC provides such services to promote sustain- in FY10 for a total investment program of $18,660 million in FY11 able private sector investment in developing countries. Through this ($18,042 million – FY10). work, which is funded in partnership with governments and other FY11 and FY10 commitments and Core Mobilization comprised donors, IFC contributes to development where opportunities for the following (US$ millions): development may be limited. FY11 FY10 IFC’s advisory services are organized into four business lines: • Access to �nance: to help increase the availability and afford- Commitments 1 ability of � nancial services, particularly for micro, small, and Loans $ 4,991 $ 5,721 medium enterprises. Equity investments 1,968 2,974 • Investment climate: to help governments implement reforms that Guarantees: improve the business environment and help encourage and retain GTFP 4,638 3,464 investment. Other 529 468 Client risk management 60 37 • Public-private partnerships: to advise governments on structur- Total commitments $12,186 $12,664 ing public-private partnerships in infrastructure and other public Core Mobilization services. Loan participations, parallel loans, sales of • Sustainable business: to support the development of markets loans and other mobilization and that are sustainable and work for all members of society. structured �nance Loan participations (B-loans) $ 3,457 $ 1,247 Parallel loans 1,127 734 ASSET MANAGEMENT COMPANY Sales of loans and other mobilization 134 379 Structured �nance – 797 AMC, a wholly-owned subsidiary of IFC, mobilizes and manages Total B-loans, structured �nance, parallel third-party funds for investment in developing and frontier markets. loans and other mobilization $ 4,718 $ 3,157 AMC serves as the fund manager of private funds targeted at large AMC institutional investors. AMC helps IFC mobilize additional capital IFC Capitalization Sub-debt Fund $ 252 $ 65 resources for investment in productive private enterprise in develop- IFC Capitalization Equity Fund 113 118 ing countries. ALAC Fund 85 53 At June 30, 2011, AMC managed four funds, the IFC Capitalization Africa Capitalization Fund 4 – (Equity) Fund, L.P. (the Equity Capitalization Fund); the IFC Total AMC $ 454 $ 236 Capitalization (Subordinated Debt) Fund, L.P. (the Sub-Debt Other initiatives GTLP $ 1,050 1,580 Capitalization Fund); the IFC African, Latin American and Caribbean Infrastructure Crisis Facility 252 45 Fund, L.P. (the ALAC Fund); and the Africa Capitalization Fund, Ltd. Debt and Asset Recovery Program – 237 (the Africa Capitalization Fund). The Equity Capitalization Fund and Micro�nance Enhancement Facility – 123 the Sub-Debt Capitalization Fund are collectively referred to as the Total other initiatives $ 1,302 $ 1,985 Capitalization Funds. Total Core Mobilization $ 6,474 $ 5,378 The Capitalization Funds, established in FY09, help strengthen Total Investment Program $18,660 $18,042 systemically important banks in emerging markets. Core Mobilization Ratio 0.53 0.42 The ALAC Fund was established in FY10. The ALAC fund co- 1 Debt security commitments are included in loans and equity investments based on invests with IFC in equity investments across a range of sectors in their predominant characteristics. Sub-Saharan Africa, Latin America, and the Caribbean. The Africa Capitalization Fund was established in FY11 to capital- ize systemically important commercial banking institutions in northern and Sub-Saharan Africa. 7 Disbursements ($25,400 million at June 30, 2010), comprising the disbursed loan IFC disbursed $6,715 million for its own account in FY11 ($6,793 mil- portfolio of $19,884 million ($18,197 million at June 30, 2010), lion in FY10): $4,519 million of loans ($4,907 million in FY10), the disbursed equity portfolio of $6,732 million ($5,431 million $1,884 million of equity investments ($1,617 million in FY10), and at June 30, 2010), and the disbursed debt security portfolio of $312 million of debt securities ($269 million in FY10). $2,115 million ($1,772 million at June 30, 2010). IFC’s disbursed investment portfolio is diversi�ed by sector and Disbursed Investment Portfolio geographic region with a focus on strategic high development impact IFC’s total disbursed investment portfolio (a non-US GAAP sectors such as �nancial markets and infrastructure. performance measure) was $28,731 million at June 30, 2011 The following charts show the distribution of the disbursed investment portfolio by geographical region and sector as of June 30, 2011, and June 30, 2010: Distribution by Region Distribution by Sector FY11 FY10 Finance and insurance Europe and Central Asia Latin America and Caribbean Electric power Oil, gas and mining Asia Europe and Central Asia Transportation and warehousing Latin America and Caribbean Asia Collective investment vehicles Middle East and North Africa Information Middle East and North Africa Sub-Saharan Africa Sub-Saharan Africa Industrial and consumer products Other Other Nonmetallic mineral product manufacturing Food and beverages Chemicals Agriculture and forestry Utilities Health care Primary metals Wholesale and retail trade Accommodation and tourism services Pulp and paper Construction and real estate Other Textiles, apparel and leather Percentage 0 5 10 15 20 25 30 35 40 FY10 FY11 8 Management’s IFC Financials and Projects 2011 Discussion and Analysis Disbursed B-loans The currency composition of the disbursed loan portfolio at The portfolio of disbursed and outstanding B-loans which are ser- June 30, 2011, and June 30, 2010, is shown below: viced by IFC at June 30, 2011, totaled $5,865 million, as compared with $6,336 million at June 30, 2010. Currencies Additional information on IFC’s investment portfolio as of and for the years ended June 30, 2011, and June 30, 2010, can be found in Notes B, D, E, F, G, H and I to IFC’s FY11 Consolidated Financial US dollars Statements. Euro Loans Loans generally have the following characteristics: Russian rubles • Term: typically amortizing with �nal maturities generally for seven Indian rupees to 12 years, although some loans have been extended for tenors as long as 20 years Chinese renminbi • Currency: primarily in major convertible currencies, principally US dollar, and to a lesser extent, Euro, but with a growing local Philippine pesos currency loan portfolio • Interest rate: typically variable (or �xed and swapped into variable) Indonesian rupiah • Pricing: reflects such factors as market conditions and country and project risks Colombian pesos IFC’s loans traditionally have been made in major currencies, based on client demand and on IFC’s ability to hedge loans in these South African rand currencies through the use of mechanisms such as cross-currency Brazilian reais swaps or forward contracts. Fixed-rate loans and loans in currencies other than US dollars are normally economically hedged using cur- New Turkish lira rency and/or interest rate swaps, into US dollar variable rate assets. Loans traditionally have been denominated in the currencies of Mexican pesos major industrial nations, but IFC has a growing portfolio of local currency products. IFC typically offers local currency products in Other other currencies where it can hedge the local currency loan cash 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 flows back into US dollars using swap markets. IFC’s disbursed FY10 FY11 loan portfolio at June 30, 2011 includes $2,206 million of currency products denominated in Russian rubles, Indian rupees, Chinese renminbi, Philippine pesos, Colombian pesos, Indonesian rupiah, Equity Investments South African rand, Brazilian reais, Mexican pesos, and New Turkish IFC’s equity investments are typically in the form of common or lira ($2,066 million at June 30, 2010). preferred stock which is not mandatorily redeemable by the issuer IFC’s disbursed loan portfolio totaled $19,884 million at June 30, or puttable to the issuer by IFC and are usually denominated in the 2011 ($18,197 million at June 30, 2010). The carrying value of currency of the country in which the investment is made. IFC’s loan portfolio on IFC’s consolidated balance sheet (com- IFC’s disbursed equity portfolio totaled $6,732 million at June 30, prising the disbursed loan portfolio together with adjustments as 2011 ($5,431 million at June 30, 2010), an increase of 24%. detailed in Note D to IFC’s FY11 Consolidated Financial Statements) The carrying value of IFC’s equity investment portfolio (compris- grew 11% to $18,455 million at June 30, 2011 ($16,660 million at ing the disbursed equity portfolio together with adjustments as June 30, 2010). detailed in Note D to IFC’s FY11 Consolidated Financial Statements) Loans comprise 69% of the disbursed investment portfolio as grew 25% to $9,313 million at June 30, 2011 ($7,469 million at of June 30, 2011 (72% at June 30, 2010) and 62% of the carry- June 30, 2010). ing value of the investment portfolio as of June 30, 2011 (64% at The fair value of IFC’s equity portfolio2 was $14,060 million at June 30, 2010). June 30, 2011 ($11,029 million at June 30, 2010). At June 30, 2011, 71% (74% at June 30, 2010) of IFC’s disbursed Equity investments accounted for 24% of IFC’s disbursed invest- loan portfolio was US dollar–denominated. ment portfolio at June 30, 2011, compared with 21% at June 30, 2010 and 31% of the carrying value of the investment portfolio at June 30, 2011 (29% at June 30, 2010). 2 Including “equity-like� securities classi� ed as debt securities in IFC’s consolidated balance sheet and equity-related options. 9 Debt Securities Core Mobilization Debt securities are typically in the form of bonds and notes issued Core Mobilization is de�ned as �nancing from entities other than IFC in bearer or registered form, securitized debt obligations (e.g. asset- that becomes available to clients due to IFC’s direct involvement in backed securities (ABS), mortgage-backed securities (MBS), and raising resources. lFC �nances only a portion, usually not more than other collateralized debt obligations) and preferred shares, which are 25%, of the cost of any project. All IFC-�nanced projects, therefore, mandatorily redeemable by the issuer or puttable to the issuer by IFC. require other �nancial partners. IFC mobilizes such private sector IFC’s disbursed debt security portfolio totaled $2,115 million at �nance from other entities through loan participations, parallel loans, June 30, 2011 ($1,772 million at June 30, 2010). partial credit guarantees, securitizations, loan sales, and risk shar- The carrying value of IFC’s debt securities portfolio (compris- ing facilities. In FY09, IFC launched AMC and a number of other ing the disbursed debt security portfolio together with adjust- initiatives, each with a core resource mobilization component, and ments as detailed in Note D to IFC’s FY11 Consolidated Financial revised its resource mobilization de�nition accordingly to include Statements) was $2,166 million at June 30, 2011 ($1,815 million at these in the measure. The components of core resource mobiliza- June 30, 2010). tion are as follows: Debt securities accounted for 7% of IFC’s disbursed investment portfolio at June 30, 2011 (7% at June 30, 2010) and 7% of the Loan Participations carrying value of the investment portfolio at June 30, 2011 (7% at The principal direct means by which IFC mobilizes private sector June 30, 2010). �nance is through the sale of participations in its loans, known as the B-loan program. Through the B-loan program, IFC has worked Guarantees primarily with commercial banks but also with nonbank �nancial Global Trade Finance Program institutions in �nancing projects since the early 1960s. FY11 commitments include $4,638 million ($3,464 million – FY10) Whenever it participates a loan, IFC will always make a loan for relating to GTFP. its own account (an A-loan), thereby sharing the risk alongside its loan participants. IFC acts as the lender of record and is responsible Other Guarantees for the administration of the entire loan, including the B-loan. IFC IFC offers partial credit guarantees to clients covering, on a risk- charges fees to the borrower at prevailing market rates to cover the sharing basis, client obligations on bonds and/or loans. IFC’s guar- cost of the B-loan. antee is available for debt instruments and trade obligations of B-loan commitments were $3,457 million in FY11 ($1,247 million clients and covers commercial as well as noncommercial risks. in FY10). IFC will provide local currency guarantees, but when a guarantee is called, the client will generally be obligated to reimburse IFC in Parallel Loans US dollar terms. Guarantee fees are consistent with IFC’s loan pric- Loans from other �nancial institutions that IFC helped raise for clients ing policies. FY11 commitments include $529 million of guarantees and received a fee, but for which IFC is not the lender of record, ($468 million – FY10). arranged by IFC in FY11 were $1,127 million ($734 million in FY10). Client Risk Management Products Sales Of Loans And Other Mobilization IFC provides derivative products to its clients to allow them to Loans originally disbursed and reported on IFC’s balance sheet that hedge their interest rate, currency or commodity price exposures. were subsequently sold and other mobilization totaled $134 million IFC intermediates between its developing country clients and deriva- in FY11 ($379 million in FY10). tives market makers in order to provide IFC’s clients with full market access to risk management products. FY11 commitments included Structured Finance $60 million of such products ($37 million – FY10). Structured �nance comprises partial credit guarantees, securitiza- tions and risk sharing facilities. Structured �nance commitments, net, de�ned as the amount of �nancing with a risk position equal to, or senior to, that of IFC’s risk participation in the transaction, totaled $0 in FY11 ($797 million in FY10). 10 Management’s IFC Financials and Projects 2011 Discussion and Analysis AMC The activities of the funds managed by AMC at June 30, 2011 and June 30, 2010 can be summarized as follows (US$ millions unless otherwise indicated): Equity Sub-Debt ALAC Africa Cap Fund Cap Fund Fund Cap Fund Total Assets under management at June 30, 2011: $1,275 $1,725 $1,000 $55 $4,055 From IFC 775 225 200 – 1,200 From other investors 500 1,500 800 55 2,855 For the year ended June 30, 2011: Fund Commitments to Investees: From IFC 168 38 21 – 227 From other investors 109 252 85 4 450 Disbursements from investors to Fund: From IFC 214 47 17 – 278 From other investors 138 316 64 1 519 Disbursements made by Fund 344 359 78 – 781 Disbursements made by Fund (number) 4 3 4 – 11 Equity Sub-Debt ALAC Africa Cap Fund Cap Fund Fund Cap Fund Total Assets under management at June 30, 2010: $1,275 $1,725 $ 900 $ – $3,900 From IFC 775 225 180 – 1,180 From other investors 500 1,500 720 – 2,720 For the year ended June 30, 2010: Fund Commitments to Investees: From IFC 181 10 13 – 204 From other investors 117 65 53 – 235 Disbursements from investors to Fund: From IFC 115 – 4 – 119 From other investors 74 1 14 – 89 Disbursements made by Fund 188 – – – 188 Disbursements made by Fund (number) 2 – – – 2 Other Initiatives Core Mobilization Ratio Global Trade Liquidity Program The core mobilization ratio is de�ned as: IFC’s FY11 core mobilization included $1,050 million ($1,580 mil- Loan participations + parallel loans + sales of loans + lion – FY10) relating to GTLP. non-IFC investment part of structured �nance + non-IFC commitments in initiatives + Infrastructure Crisis Facility non-IFC investments committed in funds managed by AMC The infrastructure crisis facility is a facility that includes debt and equity components and provides short- to medium-term �nancing Commitments (IFC investments + for infrastructure projects. It also includes advisory services to help IFC portion of structured �nance + governments design or redesign public-private-partnership projects. IFC commitments in new initiatives + FY11 resources mobilized includes $252 million relating to the IFC investments committed in funds managed by AMC) Infrastructure Crisis Facility ($45 million – FY10). For each dollar that IFC committed, IFC mobilized (in the form of B-loans, parallel loans, sales of loans, the non-IFC portion of struc- Other tured �nance and the non-IFC commitments in initiatives, and the There were no amounts committed by entities other than IFC to IFC’s non-IFC investments committed in funds managed by AMC) $0.53 in other initiatives in FY11 ($360 million – FY10). FY10 comprised FY11 ($0.42 in FY10). $237 million in respect of the Debt and Asset Recovery Program and $123 million in respect of the Micro�nance Enhancement Facility. 11 ADVISORY SERVICES The Advisory Services Portfolio at June 30, 2011 comprised 642 projects with an approved value of $820 million (736 projects with an approved value of $859 million – FY10). The breakdown of the Advisory Services Portfolio at June 30, 2011, by Business Line, can be summarized as follows: Access Investment Public-Private Sustainable to Finance Climate Partnerships Business Active Portfolio: No. of Projects 244 132 67 199 Value $ 294 $ 204 $ 90 $ 232 Project Expenditures for the year ended June 30, 2011 $ 59 $ 53 $ 28 $ 56 III. Liquid Assets IFC invests its liquid assets portfolio in highly rated �xed and floating risk associated with these investments through a variety of hedging rate instruments issued by, or unconditionally guaranteed by, gov- techniques including derivatives, principally currency and interest ernments, government agencies and instrumentalities, multilateral rate swaps and �nancial futures. organizations, and high quality corporate issuers; these include IFC’s liquid assets are invested in six separate portfolios, internally ABS and MBS, time deposits, and other unconditional obligations named P0 through P4, and P7. All six portfolios are accounted for of banks and �nancial institutions. Diversi�cation in multiple dimen- as trading portfolios. sions ensures a favorable risk return pro�le. IFC manages the market IFC’s liquid assets portfolio can be summarized as follows: Portfolio Fair Value ($ Billions)* Comprising Managed by Invested in Benchmark P0 $1.4 Proceeds from discount note IFC’s Treasury Money market instruments Overnight US dollar LIBID ($0.5) program and cash inflows Department from investment operations P1 $16.3 Proceeds from market IFC’s Treasury Principally global government Custom-created index of a ($13.1) borrowings invested pending Department bonds, ABS, bank deposits, series of six, equally weighted disbursement of operational and high quality corporate 6-month LIBID deposits loans bonds generally swapped into that mature on the 15th of 3-month US dollar LIBOR each month — average life of 3 months** P2 $5.1 Primarily IFC’s paid-in capital IFC’s Treasury US Treasuries, ABS, and other Lehman Brothers US 1–3 year ($6.1) and accumulated earnings Department sovereign and agency issues maturity Treasury Index*** that have not been invested in equity and quasi-equity investments P3 $0.9 An outsourced portion of the External managers Global government bonds and Same as for P1 ($0.7) P1 portfolio appointed by IFC other high quality corporate bonds as well as mortgage- backed securities P4 $0.8 An outsourced portion of the External managers Global government bonds, Same as for P2 ($0.6) P2 portfolio appointed by IFC and other high quality corporate bonds as well as mortgage-backed securities Total $24.5 bn ($21.0 bn) * at June 30, 2011 (June 30, 2010) ** The net duration of the P1 and P3 benchmarks is approximately 0.25 years. *** The net duration of the P2 and P4 benchmark is 1.9 years. 12 Management’s IFC Financials and Projects 2011 Discussion and Analysis The P7 portfolio was created in FY10, which contains the after- During FY11, IFC repurchased and retired $0.3 billion of outstand- swap proceeds from variable-rate borrowings denominated and ing debt ($0.9 billion in FY10 and $1.05 billion in FY09), generating invested in Euros. The P7 portfolio was less than $10 million at gains on buybacks of $10 million in FY11 ($62 million – FY10 and June 30, 2011. $61 million – FY09). IFC has a flexible approach to managing the liquid assets portfolios IFC diversi�es its borrowings by currency, country, source, and by making investments on an aggregate portfolio basis against its maturity to provide flexibility and cost-effectiveness. IFC also has benchmark within speci�ed risk parameters. In implementing these a developmental role in helping open up new domestic markets to portfolio management strategies, IFC utilizes derivative instruments, foreign issuers in its member countries. In FY11 IFC borrowed in thir- including futures and options, and takes positions in various sectors teen currencies and in �nal maturities ranging from one to 30 years. and countries. All positions are swapped back into US dollars. Outstanding market borrowings have remaining maturities ranging All liquid assets are managed according to an investment author- from less than one year to approximately 30 years, with a weighted ity approved by IFC’s Board of Directors and investment guidelines average remaining contractual maturity of 5.9 years at June 30, approved by IFC’s Corporate Risk Committee, a subcommittee of 2011 (6.5 years at June 30, 2010). Actual maturities may differ from IFC’s Management Team. contractual maturities due to the existence of call features in certain In addition to the six liquid asset portfolios, a P6 portfolio was of IFC’s borrowings. created in FY08 in support of IFC’s local currency lending capa- Market borrowings are generally swapped into floating-rate obliga- bilities. The P6 portfolio contains the proceeds of liquidity raised tions denominated in US dollars. As of June 30, 2011, IFC had gross in local currency prior to disbursement and is managed by IFC’s payables from borrowing-related currency swaps of $16.0 billion Treasury Department against local interbank rate indices. At June 30, ($13.7 billion at June 30, 2010) and from borrowing-related interest 2011 this portfolio contained short-term money market instruments rate swaps in the notional principal payable amount of $30.7 billion denominated in Brazilian reais, Russian rubles and Mexican pesos. ($23.1 billion at June 30, 2010). After the effect of these derivative The P6 portfolio totaled $0.6 billion at June 30, 2011 ($0.3 billion instruments is taken into consideration, 99% of IFC’s market bor- at June 30, 2010). rowings at June 30, 2011 were variable rate US dollar–denominated (98% — June 30, 2010). IFC’s mandate to help develop domestic capital markets can result IV. Funding Resources in providing local currency funds for onlending to its clients rather than being swapped into US dollars. At June 30, 2011, $0.4 billion of IFC’s funding resources (comprising borrowings, capital and retained non-US dollar–denominated market borrowings in Chinese renminbi earnings) as of June 30, 2011 and June 30, 2010 are as follows: and C.F.A. francs were used for such purposes. The weighted average cost of market borrowings after currency FY11 FY10 and interest rate swap transactions was 0.3% at June 30, 2011 (0.5% at June 30, 2010). In the fourth quarter of FY09, IFC launched a short term discount note program to provide an additional liquidity management tool Borrowings from market Borrowings from market for IFC and to support certain of IFC’s crisis response initiatives. sources sources The discount note program provides for issuances with maturities ranging from overnight to one year. At June 30, 2011, $1.5 billion was outstanding under this program ($1.4 billion – June 30, 2010). CAPITAL AND RETAINED EARNINGS Retained earnings Retained earnings As of June 30, 2011, IFC’s total capital as reported in IFC’s con- Paid-in capital Paid-in capital Discount Note Program Discount Note Program solidated balance sheet amounted to $20.3 billion, up from the Borrowings from IBRD Borrowings from IBRD June 30, 2010 level of $18.4 billion. At June 30, 2011, total capital comprised $2.4 billion of paid-in capital, substantially unchanged from June 30, 2010, $16.4 billion of retained earnings ($14.8 billion BORROWINGS at June 30, 2010), and $1.5 billion of accumulated other compre- hensive income ($1.2 billion at June 30, 2010). The major source of IFC’s borrowings is the international capital As of June 30, 2011 and 2010, IFC’s authorized capital was markets. Under the Articles of Agreement, IFC may borrow in the $2.45 billion, of which $2.37 billion was subscribed and paid in. public markets of a member country only with approvals from that member and also the member in whose currency the borrowing is Special Capital Increase denominated. IFC borrowed (after the effect of borrowing-related On July 20, 2010, the Board of Directors recommended that the derivatives) $10.3 billion during FY11 ($8.8 billion in FY10 and Board of Governors approve an increase in the authorized share $9.1 billion in FY09). In addition, IFC’s Board of Directors has capital of IFC of $130 million, to $2,580 million, and the issuance of authorized the repurchase and/or redemption of debt obligations $200 million of shares (including $70 million of unallocated shares). issued by IFC, which enhances the liquidity of IFC’s borrowings. 13 Currently the voting power of each IFC member is the sum of its Basic Votes, �xed at 250 votes per member, and its share votes, with V. Enterprise Risk Management one vote for each share of IFC stock held. At present, Basic Votes In executing its sustainable private sector development business, IFC represent 1.88% of total IFC voting power. The Board of Directors assumes various kinds of risks. Active management of these risks is also recommended that the Board of Governors approve an increase a key determinant of IFC’s success and its ability to maintain a stable in Basic Votes aimed at enhancing the voice and participation of capital and earning base, and is an essential part of its operations. developing and transition countries (DTCs) and requiring an amend- IFC’s Senior Management has de�ned a comprehensive enter- ment to IFC’s Articles of Agreement. Once the amendment to the prise risk management framework within which risks are continu- Articles of Agreement becomes effective, the Basic Votes of each ously identi�ed, measured, controlled, monitored and analyzed. The member shall be the number of votes that results from an equal dis- framework is de�ned in terms of several interrelated dimensions. Its tribution among all members of 5.55% of the aggregate sum of the guiding principles provide the foundation for active management of voting power of all members. risk in the conduct of IFC’s business at all levels and across all areas The above is expected to result in a shift of the voting power to of the organization under the supervision of the Board of Directors, DTCs by 6.07% to 39.48%. the Executive Vice President/CEO and the Management Team. Risk appetite is de�ned and implemented in the form of exposure Designations Of Retained Earnings limits, and policies and procedures. The Risk Management Vice Beginning in the year ended June 30, 2004, IFC began a process Presidency, together with independent institutional oversight bod- of designating retained earnings to increase its support of advisory ies, monitors conformity with these. Risk governance is provided services and, subsequently, for performance-based grants (PBG) by a sub-committee of the Management Team, the Corporate Risk (year ended June 30, 2005), grants to IDA (year ended June 30, Committee which reviews all risk policies and sets risk standards for 2006 (FY06)), the Global Infrastructure Project Development Fund the Corporation and receives regular reports on different aspects of (FY08), and IFC SME Ventures for IDA Countries (FY08). The levels risk exposure and mitigation. and purposes of retained earnings designations are set based on With the arrival of the World Bank Group Chief Risk Of�cer, Board of Director-approved principles, which are applied each year IFC intends to build on the collaboration on risk management with to assess IFC’s �nancial capacity and to determine the maximum IBRD and MIGA to ensure that the Board of Directors and Senior levels of retained earnings designations. Management’s needs for an integrated World Bank Group perspec- Amounts available to be designated are determined based on a tive on risk are effectively met. Board of Director-approved income-based formula and, beginning in FY08, on a principles-based Board of Director-approved �nancial distribution policy, and are approved by IFC’s Board of Directors. KEY RISK MANAGEMENT PRINCIPLES Expenditures for the various approved designations are recorded The key principles that guide IFC’s integrated risk management as expenses in IFC’s consolidated income statement in the year in framework are effective balancing of risk, development impact and which they occur, and have the effect of reducing retained earnings reward; ensuring business decisions are based on an understand- designated for this speci�c purpose. ing of risks; not undertaking activities that could adversely impact On August 5, 2010, IFC’s Board of Directors approved a designa- its reputation; and shared responsibility for risk management across tion of $600 million of IFC’s retained earnings for grants to IDA and the Corporation. $10 million for Advisory Services. On October 8, 2010, IFC’s Board of Governors noted with approval these designations. At June 30, 2011, retained earnings comprised $16,032 million of RISK PROFILE undesignated retained earnings ($14,307 million at June 30, 2010; At the highest level, IFC’s risk management objective is to preserve and $12,251 million at June 30, 2009), $217 million of retained earn- its reputation and �nancial soundness. There are diverse potential ings designated for advisory services ($313 million at June 30, 2010; sources of adverse reputational and �nancial impact. Regarding and $409 million at June 30, 2009), $54 million of retained earnings reputation, the most signi�cant factors include IFC’s ability to adapt designated for PBG ($101 million at June 30, 2010; and $183 mil- to a continuously changing world, the integrity and corporate gov- lion at June 30, 2009), $30 million of retained earnings designated ernance of its business partners and clients, and the environmental for the Global Infrastructure Project Development Fund ($30 mil- and social effects of the projects IFC is associated with. Financial lion at June 30, 2010; and $100 million at June 30, 2009), and soundness is linked to the preservation of IFC’s AAA rating, and is $34 million of retained earnings designated for IFC SME Ventures evidenced through, among other things, the recoverability of its loans, for IDA countries ($37 million at June 30, 2010; and $99 million at fluctuations in the value of its equity portfolio, and the liquidity of its June 30, 2009). liquid assets portfolio. FY11 Designations On August 4, 2011, IFC’s Board of Directors approved a designa- RISK APPETITE tion of $330 million of IFC’s retained earnings for grants to IDA and IFC’s risk appetite is the amount and type of risk IFC is willing to take $69 million of IFC’s retained earnings for advisory services. These or tolerate in pursuit of its objectives and is de�ned by self imposed designations are expected to be noted with approval by the Board of Governors, and thereby concluded in FY12. 14 Management’s IFC Financials and Projects 2011 Discussion and Analysis constraints and drivers. IFC translates its risk appetite into risk MANAGING FINANCIAL AND REPUTATIONAL IMPACT limits, policies, procedures and directives and regularly measures, monitors and evaluates its risk pro�le to ensure that appropriate The consequence of not managing risks optimally is either �nancial action is taken when its risk pro�le surpasses its risk appetite. IFC’s loss or adverse impact to IFC’s reputation. Reputational impact is of capacity to take risks is restricted by its capital base. Examples of signi�cant concern for IFC as the negative perception on the part of constraints and drivers include: (a) maintaining a AAA rating; (b) stakeholders and public in general can adversely affect IFC’s ability ensuring capital adequacy; (c) maintaining manageable exposure to maintain existing, or establish new business relationships and to “stress events�; (d) ensuring sound management of liquidity and continued access to sources of funding. funding risk; (e) ensuring IFC does not undertake engagements with Financial and reputational impact of risks that IFC takes during the potentially signi�cant reputational impact; and (f) focusing on IFC’s course of its business are closely monitored by risk oversight units development goals. and discussed with IFC’s Senior Management formally by analyz- ing and reviewing trends in IFC’s risk reports and by analyzing key �nancial indicators, �nancial ratios, external market conditions and RISK FOCAL AREAS events on a regular basis. In FY11, IFC has started producing an annual integrated risk monitor- Communication activities related to reputational impact are man- ing report jointly with IBRD and MIGA. As part of this initiative, risk aged by the Corporate Relations Department, which provides advice classi�cations were harmonized across the World Bank Group and a on strategic and crisis communications to mitigate and manage common three-level risk taxonomy was adopted. The key differences potential and actual reputational impacts both at the corporate and in the taxonomy across the World Bank Group are due to the different the project level throughout the investment cycle. A team responsible nature of each organization’s business. Based on this realignment, for external and internal communications, public affairs, and brand the broad categories of risks for IFC are Strategic, Operational, and marketing, collaborates across the Corporation to develop and Financial and Stakeholder risks. implement effective communications strategies. IFC’s Board of Directors and Board Committees oversee the overall risk tolerance for the Corporation and provide the highest FY11 Enterprise Risk Highlights level of oversight. Centralized risk management is provided by IFC In addition to the alignment of risk focal areas across the World Committees and Senior Management. IFC’s Management Team, Bank Group and development of an annual integrated risk monitoring under the direction of the Executive Vice President/CEO, is respon- report, highlights of signi�cant changes made in FY11 are as follows: sible for the day-to-day operations of the Corporation, including • Established IFC Development Goals to express development oversight and management of existing and potential risks. The Risk results as objectives and move from tracking to goal setting in Management Vice Presidency has oversight responsibility for �nan- order to shape strategy and select new business. cial and operational risks. Project-speci�c environmental, social and • Continued to re�ne the Economic Capital approach in setting and corporate governance issues that arise out of IFC’s engagements monitoring limits to ensure that risk differentiations are taken into are overseen by the Advisory Services Vice Presidency, and legal account in investment decisions. issues are overseen by the General Counsel Vice Presidency. There • Continued to perform several country stress tests to review risks is a common and shared accountability for strategic and stakeholder in the investment portfolio in light of the global recession and the risk management at the IFC Management Team level. sovereign debt crisis in Europe. Two independent bodies that serve to ensure IFC remains account- • Established a Regional Risk Director with responsibility for over- able to shareholders on the one hand, and accessible by impacted seeing core risk functions of IFC in speci�c regions. and concerned stakeholders on the other hand, are the Independent • Completed a corporate-wide rollout of Risk Control Self Assess- Evaluation Group and the Compliance Advisor/Ombudsman, ment to identify and assess key operational risks. respectively. In addition, the World Bank Group’s Internal Audit • Continued to perform signi�cant activities to ensure that internal Vice Presidency monitors internal controls and governance and the controls over external �nancial reporting were working effectively. World Bank Group’s Integrity Vice Presidency is responsible for • Established Regional Operating Committees to help IFC become monitoring integrity in operations and investigating allegations of more strategic in its decision-making, and respond faster to fraud and corruption. clients’ needs. • Mainstreamed a corporate governance review tool for application by the investment teams for any IFC investment process. RISK GOVERNANCE IFC’s risk governance structure provides the flexibility to meet the STRATEGIC RISK needs of an increasingly decentralized, client-facing, institution, while maintaining strong, coherent oversight of risks. IFC proactively man- IFC de�nes strategic risk as the potential reputation, �nancial, and ages all risks through its Management Committees. The Management other consequences of a failure to achieve its strategic mission, and Committees are comprised of the Corporate Risk Committee, the in particular, the risk of not achieving IFC’s purpose of furthering eco- Corporate Equity Committee, the Corporate Operations Committee nomic development by “encouraging the growth of productive private (supported by Regional Operations Committees) and the People and enterprise in member countries� and its vision “that people should Leadership Committee. have the opportunity to escape poverty and improve their lives.� 15 The overall management of strategic risk is effected through the FY11 Strategic Risk Highlights de�nition and implementation of an annual strategy for meeting IFC’s Development Goals were established to express development IFC’s mission and guidelines for its investment operations, advisory results as objectives and move from tracking to goal setting in order services, and treasury business lines. The strategy is developed to shape strategy and select new business. by Senior Management and is approved by the Board of Directors. IFC monitors the implementation of strategy through many pro- FINANCIAL RISK cesses, including: corporate and department scorecards, cascading objectives and the Integrated Quarterly Management Report. The IFC de�nes �nancial risk as the risk of potential loss from credit Independent Evaluation Group conducts ex post evaluations of the or �nancial market related activities as well as the potential risk implementation of IFC’s strategy on an ongoing basis. of jeopardizing IFC’s �nancial soundness. IFC assumes �nancial Given the nature and scope of products and services that IFC risks in order to achieve its development and strategic objectives. provides its clients in furtherance of its development mandate, IFC’s �nancial risk framework is designed to allow the Corporation operational or business conflicts of interest can arise in the normal to take well-calculated risks within the boundaries of its overall risk course of its activities. IFC recognizes that adverse reputational, appetite, which is based on the maintenance of its AAA rating. A client-relationship and other implications can arise if such conflicts key component of IFC’s risk management framework is the use of are not properly managed. In order to properly manage operational economic capital as a common currency of risk and a measure of the or business conflicts, IFC has implemented processes directed at Corporation’s aggregate capital position and needs. (i) the identi�cation of such conflicts as and when they arise; and Financial risk management is about taking well-calculated risks (ii) the application of mitigation measures speci�cally tailored to the within the boundaries of an institution’s overall risk appetite. As circumstances pertaining to the identi�ed conflicts. such, IFC’s �nancial risk management framework begins with a For all IFC investments, project teams are required to specify de�nition of its �nancial risk appetite, where risk appetite is de�ned development results expectations with time-bound targets upfront, as the amount and type of risk the Corporation is willing to take in using standard indicators. These indicators are tracked and the pursuit of its business objectives. Following from that de�nition is a performance of the project is rated on an annual basis throughout risk framework that encompasses strategy, capital planning, target the project life. setting, and risk monitoring and management. As a result, de�ning The key guiding principles and policies established as part of the the appetite for risk is central to adopting and embedding enterprise framework for managing strategic risk consist of: an ex-ante assess- risk management in IFC’s business decisions, reporting, and day-to- ment of strategic �t of each project; guiding principles for IFC’s day business activity. operations (catalytic role, business partnership and additionality); An important consideration when setting IFC’s risk appetite is the environment and social policies; and IFC sanctions procedures. need to use capital ef�ciently, recognizing the trade-offs inherent in keeping capital in reserve. Capital that is not deployed has no �nan- Guiding Principles For IFC’s Operations cial or development impact. At the same time, keeping some capital Catalytic role: IFC will seek above all to be a catalyst in facilitating in reserve allows IFC to maintain �nancial strength and to respond productive investments in the private sector of its developing member proactively in the event of a future crisis. countries. It does so by mobilizing �nancing from both foreign and IFC’s risk appetite as it pertains to �nancial risk has been de�ned domestic investors from the private and public sectors. by Senior Management and the Board of Directors as maintaining a Business partnership: IFC functions like a business in partner- AAA rating with a three-year risk horizon. To align its risk tolerance ship with the private sector. Thus, IFC takes the same commercial with this de�nition, IFC has used its economic capital framework to risks as do private institutions, investing its funds under the discipline measure the capital required to meet these requirements and has of the marketplace. developed risk policies and processes to manage its �nancial risk Additionality: IFC participates in an investment only when it can so that it remains within acceptable levels of risk tolerance. IFC make a special contribution not offered or brought to the deal by translates its risk appetite into risk limits, policies, procedures, and other investors. directives, and it monitors and evaluates its risk pro�le to ensure that appropriate action is taken when its risk pro�le surpasses its Sanctions Procedures risk appetite. In FY07, IFC established a set of procedures to sanction parties involved in IFC projects committing corrupt, fraudulent, collusive, Key Financial Policies and Guidelines coercive or obstructive practices. In April 2010, the World Bank IFC operates under a number of key �nancial policies and guide- Group concluded an agreement with other multilateral develop- lines as detailed below, which have been approved by its Board ment banks (MDBs) whereby entities debarred by one MDB may of Directors: be sanctioned for the same misconduct by the other participating • Disbursed equity plus quasi-equity investments (net of impairment development banks. The enhanced emphasis on combating fraud write-downs) may not exceed 100% of net worth. and corruption does not change the high expectations IFC has • Minimum liquidity (liquid assets plus undrawn borrowing com- always held for its staff, clients and projects, including due diligence mitments from IBRD) must be suf�cient at all times to cover at and commitment to good corporate governance. least 45% of IFC’s estimated net cash requirements for the next three years. 16 Management’s IFC Financials and Projects 2011 Discussion and Analysis • Loans are funded with liabilities having the same characteristics in For jeopardy investments, rapid response and focused attention terms of interest rate basis and currency and, for �xed rate loans, on portfolio projects that require more sophisticated workout and duration except for Board of Director-approved new products restructuring is undertaken. Early involvement is the key to recovery involving asset-liability mismatches. when projects get into dif�culty. To help enable early involvement, • IFC maintains a minimum level of liquidity, consisting of proceeds seasoned professionals are part of the regional crisis response teams from external funding, that covers at least 65% of the sum of: looking at potential issues with IFC’s investments. (i) 100% of committed but undisbursed straight senior loans; The credit risk of loans is quanti�ed in terms of the probability of (ii) 30% of committed guarantees; and (iii) 30% of committed default, loss given default and exposure at risk. These risk param- client risk management products. eters are used to determine risk based economic capital for capital • IFC is required to maintain a minimum level of total resources adequacy, capital allocation and internal risk management purposes (including paid-in capital, total loss reserves and retained earnings, as well as for setting general loan loss reserves and limits. net of designations) equal to total potential losses for all on- and Treasury counterparty credit risk is managed to mitigate potential off-balance sheet exposures estimated at levels consistent with losses from the failure of a trading counterparty to ful�ll its contrac- the maintenance of a AAA rating. tual obligations. General counterparty eligibility criteria are set by In addition, under IFC’s Articles of Agreement, as long as IFC has IFC’s Board of Director-approved Asset-Liability Management and outstanding borrowings from IBRD, IFC’s leverage, as measured Derivative Products Authorization and Liquid Asset Management by the ratio of IFC’s outstanding debt (borrowings plus outstanding General Investment Authorization. IFC Counterparties are subject guarantees) to IFC’s net worth (using subscribed capital), may not to conservative eligibility criteria and are currently restricted to banks exceed 4.0 to 1. and �nancial institutions with high quality credit ratings by leading international credit rating agencies. CREDIT RISK The eligibility criteria and limits of Treasury counterparties are stipulated by Liquid Asset Investment Guidelines and Treasury IFC de�nes credit risk as the risk that third parties that owe IFC Counterparty Credit Limits Guidelines, both of which are approved money, securities or other assets will not ful�ll their obligations. These by the Corporate Risk Committee. parties may default on their obligations to IFC due to bankruptcy, lack Speci� cally, IFC has adopted the following key �nancial poli- of liquidity, operational failure or other reasons. Credit risk manage- cies and guidelines that have been approved by the Corporate ment consists of policies, procedures and tools for managing credit Risk Committee: risk, primarily in IFC’s loan portfolio, but also related to counterparty risk taken in the liquid asset and borrowing portfolios. Credit risk Investment Operations management spans investment origination to �nal repayment or • IFC does not normally �nance for its own account more than 25% sale; it includes portfolio management and risk modeling activi- of a project’s cost. ties that provide an integrated view of credit risks and their drivers • Total exposure to a country is based on the amount of economic across the Corporation. With respect to IFC’s credit risk exposure capital required to support its investment portfolio in that country. to clients in developing emerging markets, at key steps during the Exposure limits are set for each country based on the size of its investment approval process, information obtained from the invest- economy and its risk score. Sub-limits apply for certain sector ment departments is analyzed and an independent review of the exposures within a country. credit risk of the transaction undertaken, including the assignment • Lender of record exposure in a country may not exceed a speci�ed of a credit risk rating. The credit risk rating, together with invest- percentage of a country’s total long- and medium-term external ment size and product type, is a key input into the risk tiering that debt. Lower trigger levels are set for certain countries. determines authority levels required for transaction approval. After • IFC’s total exposure to a single obligor and groups of obligors commitment, the quality of IFC’s investment portfolio is monitored may not exceed stipulated economic capital limits based on the according to supervision principles and procedures de�ned in the riskiness of the obligor. Operational Policies and Procedures. Responsibility for the day-to- day monitoring and management of credit risk in the portfolio rests Portfolio Management with the individual investment departments. • IFC’s committed exposure in guarantees that are subrogated in Credit risk also includes concentration risk: the risk of extreme local currency is limited to $300 million for currencies for which credit losses due to concentration of credit exposure to a common there are no adequate currency and interest rate risk hedging risk factor. IFC manages concentration risk through a number of oper- instruments as determined by IFC’s Treasury Department at the ational and prudential limits, including limitations on single project/ time of commitment. There is a sublimit of $100 million for an client exposure, single country exposure, and segment concentra- individual currency under this limit. tion. Similarly, credit policies and guidelines have been formulated covering treasury operations; these are subject to annual review and Treasury Operations approval by the Corporate Risk Committee. • Counterparties are subject to conservative eligibility criteria. For Credit risk across IFC’s investment portfolio is monitored and man- derivative instruments IFC’s counterparties are currently restricted aged through proactive identi�cation of emerging risks and portfolio to banks and �nancial institutions with a high quality credit rating stress testing in focus sub-portfolios. (with a mark-to-market agreement) by leading international credit rating agencies. In addition to IFC’s traditional use of top-rated 17 international banks as swap counterparties, for the sole purpose IFC operates under the assumption that the guarantee portfolio is of funding local currency loans, IFC has recently extended the exposed to the same idiosyncratic and systematic risks as IFC’s loan universe of eligible swap counterparties to include central banks portfolio and the inherent probable losses in the guarantee portfolio and selected local banks. need to be covered by a reserve for loss. The reserve at June 30, • Exposures to individual counterparties are subject to concentration 2011, was $24 million, unchanged from June 30, 2010, based on the limits. For derivatives, exposure is measured in terms of replace- year-end portfolio, and is included in payables and other liabilities on ment cost for measuring total potential exposure. Institution- IFC’s consolidated balance sheet. There was no provision for losses speci�c limits are updated at least quarterly based on changes in on loans and guarantees in the consolidated income statement in the total size of IFC derivatives portfolio or as needed according to FY11 ($10 million – FY10). changes in counterparty’s fundamental situation or credit status. In accordance with IFC’s key �nancial policies and guidelines • To limit exposure, IFC signs collateral agreements with counter- noted above, IFC holds collateral in the amount of $3,613 million at parties that require the posting of collateral when net mark-to- June 30, 2011 ($1,476 million – June 30, 2010). market exposure exceeds certain predetermined thresholds, which decrease as a counterparty’s credit rating deteriorates. IFC also MARKET RISK requires that low quality counterparties should not have more than 30% of total net-of-collateral exposures. IFC’s exposure to market risk is minimized by adopting the matched- • Because counterparties can be downgraded during the life of a funding policy noted above and by using derivative instruments to transaction, the agreements provide an option for IFC to terminate convert assets and liabilities into floating rate US dollar assets and all swaps if the counterparty is downgraded below investment liabilities with similar duration. grade or if other early termination events occur that are standard in the market. Investment Operations • For exchange-traded instruments, IFC limits credit risk by restrict- Interest rate and currency exchange risk associated with �xed rate ing transactions to a list of authorized exchanges, contracts and and/or non-US dollar lending is hedged via currency and interest dealers, and by placing limits on the Corporation’s position in rate swaps that convert cash flows into variable rate US dollar flows. each contract. Market risk resulting from derivative transactions with clients, which are intended to facilitate clients’ risk management, is mini- FY11 Credit Risk Highlights mized by entering into offsetting positions with highly rated market The quality of IFC’s loan portfolio, as measured by aggregate risk rat- counterparties. ings, improved between June 30, 2010 and June 30, 2011, although IFC takes equity risk in its local currency based emerging market such risk ratings deteriorated marginally in the fourth quarter of FY11, investments. The portfolio is comprised of listed and unlisted equity reflecting recent developments in the Middle East and North Africa. investments. The Corporate Equity Committee provides guidance IFC does not recognize income on loans where collectibility is in on IFC’s overall strategy in equity investments, equity portfolio man- doubt or payments of interest or principal are past due more than agement and on asset allocation. While recognizing the nature of 60 days unless collection of interest is expected in the near future. IFC as both a development institution and a long term investor and The amount of non-performing loans as a percentage of the dis- also the fact that most of the Corporation’s equity investments are in bursed loan portfolio3, a key indicator of loan portfolio performance, private securities at the outset, the factors taken into account while was 4.7% at June 30, 2011 (4.8% at June 30, 2010). The principal making asset allocation decisions include developmental impact amount outstanding on non-performing loans totaled $943 million at considerations, IFC’s additionality and comparative advantages, June 30, 2011, an increase of $66 million (7.5%) from the June 30, country diversi�cation, sector diversi�cation, IFC’s country exposure 2010 level of $877 million. considerations, macro-economic considerations, global trends in Total reserves against losses on loans at June 30, 2011, decreased equity markets, and valuations. to $1,307 million ($1,349 million at June 30, 2010). Total reserves against losses on loans are equivalent to 6.6% of the disbursed loan Liquid Asset Portfolios portfolio, (7.4% — June 30, 2010). The interest rate risk in the internally-managed liquid asset manage- The �ve-year trend of non-performing loans is presented below: ment portfolios is measured using a corporate value-at-risk model, which calculates daily value-at-risk measurements, interest rate Non-performing Loans duration and credit spread duration. $ millions 0 200 400 600 800 1,000 The P0, P1 and P3 portfolios are managed to variable rate US dol- FY06 lar benchmarks, on a portfolio basis. To this end, a variety of derivative FY07 instruments are used, including short-term, over-the-counter foreign FY08 exchange forwards (covered forwards), interest rate and currency FY09 swaps, and exchange-traded interest rate futures and options. IFC FY10 also takes both long and short positions in securities in the manage- FY11 ment of these portfolios to their respective benchmarks. Percentage 0.0 1.0 2.0 3.0 4.0 5.0 6.0 The primary source of market risk in the liquid asset portfolios is $ millions Percentage of disbursed loans the P2 and P4 portfolios, which are managed to Barclay’s 1-3 year US Treasury Index benchmark. P2 represents the portion of IFC’s 3 Excluding “loan-like� debt securities. 18 Management’s IFC Financials and Projects 2011 Discussion and Analysis capital not disbursed as equity investments, and the benchmark the P7 portfolio ($0 in FY10 and FY09). The overall market environ- reflects the chosen risk pro�le for this uninvested capital (paid-in ment in FY11 and the resulting impact on the performance of IFC’s capital and retained earnings). P4 represents an outsourced portion liquid assets portfolios are discussed in more detail in Section VII, of the P2 portfolio. In addition, the P1 and P3 portfolios contain a Results of Operations. degree of market risk (e.g., spread risk). Foreign currency transaction losses on non-trading activities for The P6 portfolio consists of foreign currency proceeds raised FY11 included in net income were $33 million ($82 million in FY10 locally through swaps and other funding instruments to provide more and $10 million of gains in FY09). Foreign currency transaction gains flexible local currency loan products to clients. on investments in debt securities accounted for as available-for- The P7 portfolio is managed to six equal-weighted EURIBID sale for FY11 included in other comprehensive income (OCI) were deposits maturing at the next six monthly reset dates of outstanding $129 million ($53 million in FY10 and $69 million losses in FY09). liabilities, rebalanced at each calendar month-end. LIQUIDITY RISK Borrowing Activities Access to funding is maximized, and cost is minimized, by issuing IFC’s investments are predominantly illiquid in nature due to the debt securities in various capital markets in a variety of currencies, lack of capital flows, the infrequency of transactions, and the lack sometimes using complex structures. These structures include bor- of price transparency in many emerging markets. To offset this rowings payable in multiple currencies, or borrowings with principal liquidity risk, strict investment eligibility criteria for the Liquid Asset and/or interest determined by reference to a speci�ed index such portfolios are de�ned in the liquid asset management investment as a reference interest rate, or one or more foreign exchange rates. guidelines to ensure predominant liquidity of these funds. Examples Market risk associated with �xed rate obligations and structured of these requirements are minimum bond issue sizes, single bond instruments entered into as part of IFC’s funding program is gener- issue concentration limits, and percentage of total bond issue limits. ally mitigated by using derivative instruments to convert them into Consequently, a signi�cant portion of the liquid assets is invested variable rate US dollar obligations, consistent with the matched- in highly liquid securities such as: (a) high quality foreign sovereign, funding policy. sovereign-guaranteed and supranational �xed income instruments; (b) US Treasury or agency instruments; and (c) money market mutual Asset-Liability Management funds. In the event of a liquidity crisis where market conditions are While IFC’s matched-funding policy provides a signi�cant level of such that selling business investments is too costly or undesirable, protection against currency and interest rate risk, IFC can be exposed or are such that market borrowings are too costly, these liquid assets to residual market risk in its overall asset and liability management of will be available to be liquidated to provide the funds needed to sup- the funded balance sheet. Residual currency risk arises from events port IFC’s cash requirements. such as changes in the level of non-US dollar loan loss reserves. The primary instruments for maintaining suf�cient liquidity are IFC’s The aggregate position in each lending currency is monitored on a six liquid asset portfolios, together with the P6 portfolio: daily basis and the risk is managed within a range of +/- $5 million • P0, which is generally invested in short-dated deposits, money equivalent in each currency. market funds, � xed certi�cates of deposits, one-month floater Residual interest rate risk may arise from two main sources: securities and repos, refl ecting its use for short-term funding • Assets that are fully match-funded at inception, which can become requirements mismatched over time due to write-downs, prepayments, or • P1 and P2, which are generally invested in: (a) high quality foreign rescheduling; and sovereign, sovereign-guaranteed and supranational �xed income • Differing interest rate reset dates on assets and liabilities. instruments; (b) US Treasury or agency instruments; (c) high The residual risk is managed by measuring the sensitivity of the quality ABS rated by at least two rating agencies and/or other present value of assets and liabilities in each currency to a one basis high quality notes issued by corporations; (d) MBS; (e) interest point change in interest rates and managed on a daily basis within rate futures and swaps to manage currency risk in the portfolio, as a range of +/- $50,000. well as its duration relative to benchmark; and (f) cash deposits and repos FY11 Market Risk Highlights • P3, which is an outsourced portion of the P1 portfolio (managed Total liquid asset returns (comprising interest, realized and unrealized by external managers) gains and losses, and foreign currency transaction gains and losses) • P4, which is an outsourced portion of the P2 portfolio (managed were $529 million in FY11 ($815 million in FY10 and $474 million in by external managers) FY09), of which $340 million was attributable to the P0, P1 and P3 • P6, which is invested in short-term local currency money market portfolios ($393 million in FY10 and $156 million in FY09), $188 mil- instruments and local government securities lion was attributable to the P2 and P4 portfolios ($422 million in • P7, which consists of after-swap proceeds from variable-rate bor- FY10 and $318 million in FY09)4 and $1 million was attributable to rowings denominated and invested in Euros 4 In addition, FY08 income from liquid assets included $35 million from the P6 portfolio. Beginning in FY09, income from the P6 portfolio ($44 million in FY11; $27 million in FY10; $42 million in FY09) is reported in other income. 19 FY11 Liquidity Risk Highlights IFC utilizes risk transfer, including insurance, at both the project On June 30, 2011, IFC’s liquidity level stood at $24.5 billion and the institutional levels for mitigation of low frequency and high ($21.0 billion on June 30, 2010). Current levels of liquid assets also severity operational risks. At both levels, IFC identi�es and evalu- represented 266% of the sum of (i) 100% of committed but undis- ates risks, determines available contractual transfer and insurance bursed straight senior loans; (ii) 30% of committed guarantees; and options, implements the optimal structure, and tracks its effective- (iii) 30% of committed client risk management products (190% on ness over time. IFC also insures its corporate assets and operations June 30, 2010). against catastrophic losses where commercially viable. Other key components of IFC’s operational risk management FUNDING RISK approach include: • Operational risk assessment and measurement based on market IFC’s primary objective with respect to managing funding risk is practices and tools. to maintain its triple-A credit ratings and, thereby, maintain access • Adoption of the COSO5 control framework as the basis for its to market funding as needed at the lowest possible cost. evaluation of the effectiveness of its internal controls over �nancial The risk of higher funding costs is also reduced by IFC’s annual reporting. funding targets, the US$ billion-dollar benchmark bonds, and the • Ongoing independent review of the effectiveness of IFC’s internal Discount Note Program. Accessing the capital markets for �nanc- controls in selected key areas and functions performed by the ing establishes investor con�dence, liquidity, price transparency, Internal Audit Vice Presidency of the World Bank Group. and a diversi�ed investor base, all of which help to reduce �nancing • Promoting data integrity in the Corporation based on its data cost. IFC’s Discount Note Program provides swift access to funded management policy. liquidity, to complement traditional funding sources, and to provide a • Ensuring that processes and controls are in place to manage the natural funding source for short term �nancing programs. risks in new products and initiatives before they are executed, through a New Products/Initiatives Assessment Group with rep- FY11 Funding Risk Highlights resentation from key business and support functions. During FY11, IFC raised $10.3 billion, net of derivatives ($8.8 billion in FY10 and $9.1 billion in FY09). The outstanding balance under the FY11 Operational Risk Management Highlights Discount Note Program at June 30, 2011 was $1.5 billion ($1.4 bil- IFC is continuing a multiyear effort to analyze and develop enhanced lion — June 30, 2010). Credit spreads on IFC’s market borrowings methodologies for identifying, measuring, monitoring and managing were little changed throughout FY11. During FY10, credit spreads operational risk in its key activities. During FY11, IFC: for IFC narrowed somewhat but remained wider than those generally • Completed a corporate-wide roll-out of its Risk and Control Self experienced by IFC in FY09 and prior. Assessment methodology and synthesis of results for reporting to Senior Management and the Audit Committee. OPERATIONAL RISK • Began rolling out other operational risk management methodolo- gies and tools, including risk events tracking, root cause analysis Consistent with “Internal Convergence of Capital Measurement and key risk indicators. and Capital Standards, A Revised Framework� issued by the Basel • Conducted events to promote and raise awareness of operational Committee on Banking Supervision in June 2004, IFC de�nes opera- risk management, including inviting experts from external organi- tional risk as the risk of loss resulting from inadequate or failed inter- zations to share experiences and market practices on operational nal processes, people and systems or from external events. risk-related topics. IFC’s Operational Risk Management (ORM) program is based on • Mainstreamed a corporate governance review tool for application a directive approved by the Corporate Risk Committee during FY10. by the investment team for any IFC investment process. This directive establishes the approach and roles and responsibilities IFC also continues to focus on its preparedness to react to an for operational risk management in the Corporation. emergency situation that could disrupt its normal operations. IFC’s ORM approach is designed to ensure that operational risks During FY11 IFC: are identi�ed, assessed, and managed so as to minimize potential • Updated its Business Impact Analysis, last conducted in FY08. adverse impacts and to enable Senior Management to determine This provides the basis for Senior Management to con�rm the rela- which risks IFC will: (i) manage internally, as part of its ongoing busi- tive priority of IFC’s business processes for recovery in the event ness; (ii) mitigate through contingency planning; or (iii) transfer to of a disruption, based on the potential �nancial and reputational third parties, whether by subcontracting, outsourcing, or insurance. impact of disruption to each process. IFC seeks to mitigate the risks it manages internally by maintaining • Maintained Emergency Management Teams in all regions; con- a comprehensive system of internal controls that is designed not only ducted emergency simulation exercises, in cooperation with IBRD, to identify the parameters of various risks but also to monitor and in its Washington, D.C. of�ces; and held emergency management control those areas of particular concern. workshops in larger country of�ces in selected regions. 5 COSO refers to the Internal Control — Integrated Framework formulated by the Committee of Sponsoring Organizations of the Treadway Commission, which was convened by the US Congress in response to the well-publicized irregularities that occurred in the �nancial sector in the United States during the late 1980s. 20 Management’s IFC Financials and Projects 2011 Discussion and Analysis and aligns the loan loss provisioning framework with IFC’s capital VI. Critical Accounting Policies adequacy framework. The reserve against losses on loans is separately reported in The Notes to IFC’s FY11 Consolidated Financial Statements contain the consolidated balance sheet as a reduction of IFC’s total loans. a summary of IFC’s signi�cant accounting policies, including a dis- Increases or decreases in the reserve level are reported in the income cussion of recently adopted accounting standards and accounting statement as provision for losses or release of provision for losses on and �nancial reporting developments. Certain of these policies are loans, and guarantees. The reserve against losses on loans relates considered to be “critical� to the portrayal of IFC’s �nancial condi- only to the Client Services segment of IFC (see Note T to the FY11 tion, since they require management to make dif�cult, complex or Consolidated Financial Statements for further discussion of IFC’s subjective judgments, some of which may relate to matters that are business segments). inherently uncertain. These policies include: (i) Determining the level of reserves against losses in the loan EQUITY AND DEBT SECURITY IMPAIRMENT portfolio; IFC assesses all equity investments accounted for at fair value (ii) Determining the level and nature of impairment for equity invest- through OCI and all equity investments accounted for at cost less ments and debt securities carried at fair value with changes impairment for impairment each quarter. When impairment is identi- in fair value being reported in OCI and for equity investments �ed and is deemed to be other than temporary, the equity investment accounted for at cost less impairment (where impairment is is written down to its impaired value, which becomes the new cost determined with reference to fair value); basis in the equity investment. IFC generally presumes that all equity (iii) Determining the fair value of certain equity investments, debt impairments are deemed to be other than temporary. Impairment securities, loans, liquid assets, borrowings and derivatives, losses on equity investments accounted for at cost less impairment which are accounted for at fair value with changes in fair value are not reversed for subsequent recoveries in value of the equity being reported in net income and OCI; and investment until it is sold. Recoveries in value on equity investments (iv) Determining the future pension and postretirement bene�t costs accounted for at fair value through OCI that have been the subject and obligations using actuarial assumptions based on �nancial of an other-than-temporary impairment write-down are reported in market interest rates, past experience, and management’s best OCI until sold. estimate of future bene�t changes and economic conditions. IFC assesses all debt security investments accounted for at fair Many of IFC’s �nancial instruments are classi�ed in accordance value through OCI for impairment each quarter. When impairment with the fair value hierarchy established by accounting standards for is identi�ed, the entire impairment is recognized in net income if fair value measurements and disclosures where the fair value and/ certain conditions are met (as detailed in Note A to IFC’s FY11 or impairment is estimated based on internally developed models or Consolidated Financial Statements). However, if IFC does not intend methodologies utilizing signi�cant inputs that are non-observable. to sell the debt security and it is not more likely than not that IFC will be required to sell the security, but the security has suffered a credit RESERVE AGAINST LOSSES ON LOANS loss, the credit-related impairment loss is recognized in net income and the non-credit related loss is recognized in OCI. IFC considers a loan as impaired when, based on current information and events, it is probable that IFC will be unable to collect all amounts due according to the loan’s contractual terms. The reserve against VALUATION OF FINANCIAL INSTRUMENTS WITH NO QUOTED losses for impaired loans reflects management’s judgment of the MARKET PRICES present value of expected future cash flows discounted at the loan’s IFC reports at fair value all of its derivative instruments, all of its effective interest rate. The reserve against losses for loans includes liquid asset trading securities and certain borrowings, loans, equity an estimate of probable losses on loans inherent in the portfolio investments and debt securities. In addition, various investment but not speci�cally identi�able. The reserve is established through agreements contain embedded or stand-alone derivatives that, for periodic charges to income in the form of a provision for losses on accounting purposes, are separately accounted as either derivative loans. Loans written off, as well as any subsequent recoveries, are assets or liabilities, including puts, caps, floors, and forwards. IFC recorded through the reserve. classi�es all �nancial instruments accounted for at fair value based The assessment of the adequacy of reserves against losses for on the fair value hierarchy established by accounting standards for loans is highly dependent on management’s judgment about fac- fair value measurements and disclosures as described in more detail tors such as its assessment of the �nancial capacity of borrowers, in Notes A and R to IFC’s FY11 Consolidated Financial Statements. geographical concentration, industry, regional and macroeconomic Many of IFC’s �nancial instruments accounted for at fair value conditions, and historical trends. Due to the inherent limitation of have fair values that are based on unadjusted quoted market prices any particular estimation technique, management utilizes a capi- or using models where the signi�cant assumptions and inputs are tal pricing and risk framework to estimate the probable losses on market-observable. The fair values of �nancial instruments valued loans inherent in the portfolio but not speci�cally identi�able. This using models where the signi�cant assumptions and inputs are not Board of Director-approved framework uses actual loan loss history 21 market-observable are generally estimated using complex pricing PENSION AND OTHER POSTRETIREMENT BENEFITS models of the net present value of estimated future cash flows. Management makes numerous assumptions in developing pricing IFC participates, along with IBRD and MIGA, in pension and post- models, including an assessment about the counterparty’s �nancial retirement bene�t plans that cover substantially all of their staff position and prospects, the appropriate discount rates, interest rates, members. All costs, assets and liabilities associated with the plans and related volatility and expected movement in foreign currency are allocated between IBRD, IFC and MIGA based upon their exchange rates. Changes in assumptions could have a signi�cant employees’ respective participation in the plans. The underlying impact on the amounts reported as assets and liabilities and the actuarial assumptions used to determine the projected bene�t obli- related unrealized gains and losses reported in the income statement gations, fair value of plan assets and funded status associated with and statement of OCI. The fair value computations affect both the these plans are based on �nancial market interest rates, past expe- Client Services and Treasury segments of IFC (see Note T to the rience, and management’s best estimate of future bene�t changes FY11 Consolidated Financial Statements for further discussion of and economic conditions. For further details, please refer to Note V IFC’s business segments). to the FY11 Consolidated Financial Statements. VII. Results of Operations OVERVIEW The overall market environment has a signi�cant influence on IFC’s �nancial performance. The main elements of IFC’s net income and comprehensive income and influences on the level and variability of net income and compre- hensive income from year to year are: Elements Signi�cant Influences Net income: Yield on interest earning assets Market conditions including spread levels and degree of competition. Nonaccruals and recoveries of interest on loans formerly in nonaccrual status and income from participation notes on individual loans are also included in income from loans. Liquid asset income Realized and unrealized gains and losses on the liquid asset portfolios, which are driven by external factors such as: the interest rate environment; and liquidity of certain asset classes within the liquid asset portfolio. Income from the equity investment portfolio Performance of the equity portfolio (principally realized capital gains, dividends, equity impairment write-downs, gains on non-monetary exchanges and unrealized gains and losses on equity investments). Provisions for losses on loans and guarantees Risk assessment of borrowers and actual and forecasted levels of default. Other income and expenses Level of advisory services provided by IFC to its clients, the level of expense from the staff retirement and other bene�ts plans, and the approved administrative and other budgets. Gains and losses on other non-trading �nancial Principally, differences between changes in fair values of borrowings, including IFC’s credit spread, and associated instruments accounted for at fair value derivative instruments and unrealized gains associated with the investment portfolio including puts, warrants and stock options which in part are dependent on the global climate for emerging markets. Grants to IDA Level of Board of Governors-approved grants to IDA. Other comprehensive income: Unrealized gains and losses on listed equity Global climate for emerging markets equities and company-speci�c performance. Such equity investments are investments and debt securities accounted for valued using unadjusted quoted market prices and debt securities are valued using internally developed models or as available-for-sale methodologies utilizing inputs that may be observable or non-observable. Unrecognized net actuarial gains and losses Returns on pension plan assets and the key assumptions that underlay projected bene�t obligations, including and unrecognized prior service costs on �nancial market interest rates, past experience, and management’s best estimate of future bene�t changes bene�t plans and economic conditions. 22 Management’s IFC Financials and Projects 2011 Discussion and Analysis The following paragraphs detail signi�cant variances between The weighted average contractual interest rate on loans at June 30, FY11 and FY10, and FY10 and FY09, covering the periods included 2011 was 4.6%, unchanged from June 30, 2010, reflecting the in IFC’s FY11 Consolidated Financial Statements. Certain amounts lower overall interest rate environment existing at June 30, 2011 in FY10 and FY09 have been reclassi�ed to conform to the current as compared with June 30, 2010, combined with marginally higher year’s presentation. Where applicable, the following paragraphs spreads to LIBOR on IFC’s loans. These factors combined resulted reflect reclassi�ed prior year comparative information. Such reclas- in $28 million higher interest income than in FY10. Commitment si�cations had no effect on net income or total assets. and �nancial fees were $2 million higher than in FY10. Recoveries of interest on loans being removed from non-accrual status, net of FY11 VERSUS FY10 reversals of income on loans being placed in nonaccrual status were unchanged from FY10. Income from IFC’s participation notes Net Income over and above minimum contractual interest and other income was IFC has reported income before net gains and losses on other unchanged from FY10. Unrealized gains on loans accounted for at non-trading �nancial instruments accounted for at fair value and grants fair value and gains on non-monetary exchanges were $46 million to IDA of $2,024 million, $261 million lower than the income before net higher than in FY10. gains and losses on other non-trading �nancial instruments accounted for at fair value and grants to IDA of $2,285 million in FY10. Income From Equity Investments The change in income before net gains and losses on other Income from the equity investment portfolio decreased by $174 mil- non-trading �nancial instruments and grants to IDA in FY11 when lion from an income of $1,638 million in FY10 to $1,464 million compared to FY10 was principally as a result of: (i) lower income in FY11. from equity investments; (ii) lower income from liquid asset trading IFC generated realized gains on equity investments, including activities; (iii) higher expenditures for advisory services and against recoveries of previously written-off equity investments and net of other designated retained earnings; (iv) higher administrative and losses on sales of equity investments, for FY11 of $737 million, as other expenses; lower income from debt securities; partially offset compared with $1,290 million for FY10, a decrease of $553 million. by: (i) higher service fees and other income; (ii) higher income from IFC sells equity investments where IFC’s developmental role was loans and guarantees; and a small release of provisions for losses on complete, and where pre-determined sales trigger levels had been loans and guarantees as compared to a small charge. met and, where applicable, expiration of lock ups. IFC reported net gains on other non-trading �nancial instruments Gains on non-monetary exchanges totaled $217 million, as com- of $155 million in FY11 as compared with a net loss of $339 million pared with $28 million in FY10. Two investments generated gains in FY10, resulting in income before grants to IDA of $2,179 million in in excess of $20 million for a total of $192 million, or 88% of FY11 FY11, as compared to $1,946 million in FY10. non-monetary gains. In FY10, no investments generated gains in Grants to IDA totaled $600 million in FY11, as compared to excess of $20 million. $200 million in FY10. Accordingly, net income totaled $1,579 million Total realized gains on equity investments are concentrated – in in FY11, as compared with a net income of $1,746 million in FY10. FY11, 10 investments generated individual capital gains in excess A more detailed analysis of the components of IFC’s net income of $20 million for a total of $416 million, or 56%, of the FY11 gains, follows. compared to 9 investments that generated individual capital gains in excess of $20 million for a total of $867 million, or 67%, of the Income From Loans And Guarantees FY10 gains. IFC’s primary interest earning asset is its loan portfolio. Income from Dividend income totaled $280 million, as compared with $285 mil- loans and guarantees for FY11 totaled $877 million, compared with lion in FY10. Consistent with FY10, a signi�cant amount of IFC’s $801 million in FY10, an increase of $76 million. dividend income in FY11 was due to returns on IFC’s joint ventures The disbursed loan portfolio grew by $1,687 million, from in the oil, gas and mining sectors accounted for under the cost $18,197 million at June 30, 2010 to $19,884 million at June 30, 2011. recovery method, which totaled $57 million in FY11, as compared The overall interest rate environment was lower in FY11 than in FY10. with $60 million in FY10. Unrealized gains on equity investments that are accounted for at fair value through net income in FY11 totaled $454 million, as compared with income of $240 million in FY10. Six investments in equity funds accounted for $199 million of the unrealized gains in FY11. Individual investments in such Funds provided a signi�cant component of the unrealized gains. 23 Income From Debt Securities Charges On Borrowings Income from debt securities decreased to $46 million in FY11 from IFC’s charges on borrowings decreased by $23 million, from $108 million in FY10, a decrease of $62 million. The largest compo- $163 million in FY10 to $140 million in FY11, largely reflecting the nents of the decrease were lower gains on non-monetary exchanges, lower US dollar interest rate environment, when comparing FY11 resulting from conversions to equity investments, ($28 million) and and FY10. During FY11, IFC bought back $0.3 billion of its mar- lower unrealized gains on debt securities accounted for at fair value ket borrowings ($0.9 billion in FY10). Charges on borrowings of ($25 million), in FY11 when compared with FY10. Realized gains on $140 million in FY11 ($163 million in FY10) are reported net of gains debt securities were $16 million lower in FY11 as compared to FY10. on buybacks of $10 million ($62 million in FY10). The weighted average rate of IFC’s borrowings outstanding from Provision For Losses On Loans And Guarantees market sources, after the effects of borrowing-related derivatives, The quality of IFC’s loan portfolio, as measured by country risk and excluding short-term borrowings issued under the Discount Note ratings and credit risk ratings was substantially unchanged during Program, fell during the year from 0.5% at June 30, 2010 to 0.3% FY11. Non-performing loans increased from $877 million (4.8%) of at June 30, 2011. The size of the borrowings portfolio (excluding the the disbursed loan portfolio at June 30, 2010 to $943 million (4.7%) short-term Discount Note Program), net of borrowing-related deriva- at June 30, 2011. IFC recorded a release of provision for losses on tives and before fair value adjustments, increased by $5.1 billion loans and guarantees of $40 million in FY11 ($16 million release during FY11 from $28.8 billion at June 30, 2010, to $33.9 billion of speci�c provisions on loans, and $24 million release in portfolio at June 30, 2011. provisions on loans) as compared to a provision for losses on loans and guarantees of $155 million in FY10 ($153 million in speci�c Other Income provisions, $8 million release in portfolio provisions, and $10 million Other income of $222 million for FY11 was $46 million higher than in speci�c provisions on guarantees). On June 30, 2011, IFC’s total in FY10 ($176 million). Other income in FY11 includes income from reserves against losses on loans were 6.6% of the disbursed loan the P6 local currency liquidity portfolio of $44 million ($27 million in portfolio (7.4% at June 30, 2010). FY10) and Management Fees and Service fee reimbursements from Speci�c reserves against losses at June 30, 2011 of $382 mil- AMC of $28 million ($7 million in FY10). lion ($432 million at June 30, 2010) are held against impaired loans of $918 million ($984 million at June 30, 2010), a coverage ratio of Other Expenses 42% (44%). Administrative expenses (the principal component of other expenses) increased by $36 million (5%) from $664 million in FY10 to $700 mil- Income From Liquid Asset Trading Activities lion in FY11. The increase in administrative expenses was largely due Income from liquid asset trading activities comprises interest from to salary increases and new hires. Administrative expenses include time deposits and securities, net gains and losses on trading activi- the grossing-up effect of certain revenues and expenses attributable ties, and a small currency translation effect. The liquid assets port- to IFC’s reimbursable program and jeopardy projects ($24 million folio, net of derivatives and securities lending activities, increased in FY11, as compared with $36 million in FY10). IFC recorded an from $21.0 billion at June 30, 2010, to $24.5 billion at June 30, 2011. expense from pension and other postretirement bene�t plans in FY11 Income from liquid asset trading activities totaled $529 million of $109 million, as compared with $69 million in FY10, an increase in FY11 ($815 million in FY10). In FY11 and FY10, all liquid asset driven by actuarial assumptions. portfolios outperformed their respective benchmarks. In addition to interest income and foreign currency transaction Expenditures For Advisory Services losses of $440 million, the portfolio of ABS and MBS showed fair Expenditures for advisory services in FY11 totaled $106 million, value gains totaling $159 million in FY11. Holdings in other products, $5 million higher than in FY10. including US Treasuries, global government bonds, high quality cor- porate bonds and derivatives generated $70 million of losses in FY11. Performance-Based Grants And IFC SME Ventures For At June 30, 2011, trading securities with a fair value of $210 million IDA Countries are classi�ed as Level 3 securities ($177 million on June 30, 2010). Expenditures for PBGs and SME Ventures for IDA countries totaled The P1 portfolio generated a return of $330 million in FY11, or $50 million in FY11, $41 million higher than in FY10. The increase 2.29%. In FY10, the P1 portfolio generated a return of $376 million, is largely attributable to the last draw down of $37 million of infra- or 3.44%. The externally managed P3 portfolio, managed against the structure-related PBGs. same variable rate benchmark as the P1 portfolio, returned $6 million in FY11, or 0.97%, $8 million lower than the $14 million, or 2.81% return in FY10. The P2 and externally-managed P4 portfolios returned $179 million (3.33%) and $9 million (1.87%) in FY11, respectively, as compared to $404 million (7.28%) and $18 million (3.68%) in FY10. IFC’s P0 portfolio earned $4 million in FY11, a total return of 0.44%, as compared to $3 million (0.36%) in FY10. The P7 portfo- lio earned $1 million (1.32%) in FY11 as compared to $0 in FY10. 24 Management’s IFC Financials and Projects 2011 Discussion and Analysis Net Gains And Losses On Other Non-trading IFC reported net gains on derivatives associated with investments Financial Instruments (principally put options, stock options, conversion features, war- As discussed in more detail in Note A to IFC’s FY11 Consolidated rants and loan hedging swaps) of $62 million in FY11 (net losses of Financial Statements, IFC accounts for certain �nancial instruments $113 million in FY10). Gains and losses are highly concentrated, with at fair value with unrealized gains and losses on such �nancial instru- �ve derivatives accounting for $140 million of gains and �ve deriva- ments being reported in net income, namely: (i) all swapped market tives accounting for $58 million of losses in FY11 (�ve derivatives borrowings; and (ii) all equity investments in which IFC has greater accounting for $56 million of gains and �ve derivatives accounting than 20% holdings and/or equity and fund investments which, in the for $84 million of losses in FY10). absence of the Fair Value Option, would be required to be accounted for under the equity method. All other non-trading derivatives, includ- Grants To IDA ing stand-alone and embedded derivatives in the loan, equity and During FY11, IFC recorded a grant to IDA of $600 million, as com- debt security portfolios continue to be accounted for at fair value. pared with $200 million in FY10. The resulting effects of fair value accounting for these non-trading �nancial instruments on net income in FY11 and FY10 can be sum- Other Comprehensive Income marized as follows (US$ millions): Unrealized Gains And Losses On Equity Investments And Debt Securities FY11 FY10 IFC’s investments in debt securities and equity investments that are Realized gains and losses on derivatives associated listed in markets that provide readily determinable fair values at fair with investments $ 63 $ 5 value are classi�ed as available-for-sale, with unrealized gains and Non-monetary gains on derivatives associated losses on such investments being reported in OCI until realized. with investments 22 6 When realized, the gain or loss is transferred to net income. Changes Unrealized gains and losses on derivatives associated in unrealized gains and losses on equity investments and debt securi- with investments (23) (124) Unrealized gains and losses on market borrowings and ties being reported in OCI are signi�cantly impacted by (i) the global associated derivatives, net 93 (226) environment for emerging markets; and (ii) the realization of gains on Net gains and losses on other non-trading �nancial sales of such equity investments and debt securities. instruments accounted for at fair value $155 $(339) The net change in unrealized gains and losses on equity invest- ments and debt securities in OCI can be summarized as follows: Changes in the fair value of IFC’s market borrowings and asso- ciated derivatives, net includes the impact of changes in IFC’s FY11 FY10 own credit spread when measured against US$ LIBOR. As credit Net unrealized gains and losses on equity investments spreads widen, unrealized gains are recorded and when credit arising during the year: spreads narrow, unrealized losses are recorded (notwithstanding Unrealized gains $ 697 $1,117 the impact of other factors, such as changes in risk-free interest and Unrealized losses (309) (198) foreign currency exchange rates). The magnitude and direction (gain Reclassi�cation adjustment for realized gains and impairment write-downs included in net income (274) (313) or loss) can be volatile from period to period but do not alter the cash Net unrealized gains on equity investments $ 114 $ 606 flows. IFC’s policy is to generally match currency, amount and timing Net unrealized gains and losses on debt securities of cash flows on market borrowings with cash flows on associated arising during the year derivatives entered into contemporaneously. Unrealized gains $ 234 $ 181 In FY10, interest rates continued to decline in an environment still Unrealized losses (97) (61) flush with liquidity after the shocks of the �nancial crisis the prior Reclassi�cation adjustment for realized gains, year, and appetite for risk in international capital markets slowly non credit-related portion of impairment write- downs which were recognized in net income and recovered. Risk premiums partially reverted although credit spreads impairment write-downs included in net income 4 (43) remained elevated relative to pre-crisis norms. In FY11, the interest Net unrealized gains on debt securities $ 141 $ 77 rate structure reached a bottom during the second quarter of the year Total unrealized gains on equity investments and and interest rates remained stable at low levels subsequently. Credit debt securities $ 255 $ 683 spreads were little changed throughout FY11 at around LIBOR flat for IFC’s benchmark US$ global bond offerings. In FY10, credit spreads Unrecognized Net Actuarial Gains And Losses And remained elevated relative to the levels that prevailed before FY09. Unrecognized Prior Service Costs On Bene�t Plans As a result, IFC reported unrealized gains for FY11 of $93 million, as Changes in the funded status of pension and other postretirement compared to unrealized losses of $226 million in FY10. bene�t plans are recognized in OCI, to the extent they are not recog- nized in net income under periodic bene�t cost for the year. During FY11, IFC experienced a decrease in the current value adjustment for unrecognized net periodic pension cost of $86 million, primarily reflecting a higher increase in the fair value of plan assets as com- pared to the increase in the projected bene�t obligation. 25 FY10 VERSUS FY09 IFC generated realized gains on equity investments, including recoveries of previously written-off equity investments and net of Net Income losses on sales of equity investments, for FY10 of $1,290 million, as IFC has reported income before net losses on other non-trading compared with $990 million for FY09, an increase of $300 million. �nancial instruments accounted for at fair value and grants to IDA of IFC sells equity investments where IFC’s developmental role was $2,285 million, $2,438 million higher than the loss before net gains complete, and where pre-determined sales trigger levels had been and losses on other non-trading �nancial instruments accounted for met and, where applicable, expiration of lock ups. at fair value and grants to IDA of $153 million in FY09. Total realized gains on equity investments are concentrated – in The signi�cant improvement in income before net losses on non- FY10, 9 investments generated individual capital gains in excess of trading �nancial instruments and grants to IDA in FY10 when com- $20 million for a total of $867 million, or 67%, of the FY10 gains, pared to FY09 was principally as a result of a generally improved compared to 9 investments that generated individual capital gains in operating environment for IFC’s investment and liquid asset portfolios excess of $20 million for a total of $723 million, or 73%, of the FY09 in FY10 as compared with that experienced in FY09. This resulted gains. A signi�cant amount of gains ($885 million) were realized in: (i) lower impairment write-downs on equity investments; (ii) higher during the last three months of FY09, principally driven by the sale realized capital gains on equity sales and unrealized gains on equity of one investment in the Oil, Gas and Mining sector that generated investments accounted for at fair value in net income; (iii) lower pro- a gain of $592 million. visions for losses on loans and guarantees; (iv) higher income from Dividend income totaled $285 million, as compared with $311 mil- liquid asset trading activities; and (v) lower charges on borrowings. lion in FY09. Consistent with FY09, a signi�cant amount of IFC’s IFC reported net losses on non-trading �nancial instruments of dividend income in FY10 was due to returns on IFC’s joint ventures $339 million in FY10 as compared with a net gain of $452 million in in the oil, gas and mining sectors accounted for under the cost FY09, resulting in income before grants to IDA of $1,946 million recovery method, which totaled $60 million in FY10, as compared in FY10, as compared to $299 million in FY09. with $56 million in FY09. Grants to IDA totaled $200 million in FY10, as compared to Unrealized gains on equity investments that are accounted for at $450 million in FY09. Accordingly, net income (in accordance with fair value through net income in FY10 totaled $240 million, as com- US GAAP) totaled $1,746 million in FY10, as compared with a net pared with losses of $299 million in FY09. loss of $151 million in FY09. A more detailed analysis of the components of IFC’s net Income From Debt Securities income follows. Income from debt securities increased to $108 million in FY10 from $71 million in FY09, an increase of $37 million. The majority of the Income From Loans And Guarantees increase was attributable to higher unrealized gains on debt securi- IFC’s primary interest earning asset is its loan portfolio. Income from ties accounted for at fair value and higher non-monetary gains on loans and guarantees for FY10 totaled $801 million, compared with debt securities, resulting from conversions to equity investments, in $871 million in FY09, a decrease of $70 million. FY10 when compared with FY09. Unrealized gains on debt securi- The disbursed loan portfolio grew by $1,449 million, from ties accounted for at fair value were $23 million higher in FY10 as $16,748 million at June 30, 2009 to $18,197 million at June 30, 2010. compared to FY09. The overall interest rate environment was lower in FY10 than in FY09. The weighted average contractual interest rate on loans at June 30, Provision For Losses On Loans And Guarantees 2010 was 4.6%, versus 5.0% at June 30, 2009, refl ecting the The quality of IFC’s loan portfolio, as measured by country risk ratings lower overall interest rate environment existing at June 30, 2010 as and credit risk ratings was substantially unchanged during FY10. compared with June 30, 2009. These factors combined resulted Non-performing loans as a percentage of the disbursed loan port- in $203 million lower interest income than in FY09. Commitment folio increased from 2.7% of the disbursed loan portfolio at June 30, and �nancial fees were $29 million higher than in FY09. Recoveries 2009 to 4.8% of the disbursed loan portfolio at June 30, 2010. The of interest on loans being removed from non-accrual status, net of increase in non-performing loans was largely due to two loans each reversals of income on loans being placed in nonaccrual status, were with principal outstanding in excess of $100 million being placed $3 million higher in FY10 as compared to FY09. Income from IFC’s in non-performing status during FY10. IFC recorded a provision for participation notes, over and above minimum contractual interest, losses on loans and guarantees of $155 million in FY10 ($153 mil- was $3 million lower in FY10 than in FY09. Unrealized gains on loans lion in speci�c provisions on loans, $8 million release of portfolio accounted for at fair value were $104 million higher than in FY09. provisions on loans, and $10 million of provisions on guarantees) as compared to $438 million in FY09 ($109 million in speci� c Income From Equity Investments provisions on loans, $332 million in portfolio provisions on loans, Income from the equity investment portfolio increased by $1,680 mil- and a $3 million release of provisions on guarantees). On June 30, lion from a loss of $42 million in FY09 to income of $1,638 million 2010, IFC’s total reserves against losses on loans were 7.4% of the in FY10. disbursed loan portfolio (7.4% at June 30, 2009). Speci�c reserves against losses at June 30, 2010 of $432 million ($300 million at June 30, 2009) are held against impaired loans of $984 million ($552 million), a coverage ratio of 44% (54%). 26 Management’s IFC Financials and Projects 2011 Discussion and Analysis Income From Liquid Asset Trading Activities Other Expenses Income from liquid asset trading activities comprises interest from Administrative expenses (the principal component of other expenses) time deposits and securities, net gains and losses on trading activi- increased by $82 million (14%) from $582 million in FY09 to ties, and a small currency translation effect. The liquid assets port- $664 million in FY10. The increase in administrative expenses was folio, net of derivatives and securities lending activities, increased largely due to increases in the following categories: (i) salary and from $17.9 billion at June 30, 2009, to $21.0 billion at June 30, 2010. related bene�ts; (ii) reinstatement of variable pay programs in FY10; Income from liquid asset trading activities totaled $815 million and (iii) information technology and security. Administrative expenses in FY10 ($474 million in FY09). In FY10, all liquid asset portfolios include the grossing-up effect of certain revenues and expenses outperformed their respective benchmarks. In FY09, the P1, P2, P3 attributable to IFC’s reimbursable program and jeopardy projects and P4 portfolios underperformed their respective benchmarks and ($36 million in FY10, as compared with $31 million in FY09). IFC the P0 portfolio outperformed its benchmark. The main cause of the recorded an expense from pension and other postretirement bene�t underperformances when compared to benchmark in FY09 was the plans in FY10 of $69 million, as compared with $34 million in FY09. poor performance of the holdings of ABS and MBS. In addition to interest income of $358 million, the portfolio of ABS Expenditures For Advisory Services and MBS showed fair value gains totaling $419 million in FY10. Expenditures for advisory services in FY10 totaled $101 million, Holdings in other products, including US Treasuries, global govern- $28 million or 22% lower than expenditures for advisory services of ment bonds, high quality corporate bonds and derivatives generated $129 million in FY09. $36 million of gains in FY10 and substantially all holdings in the liquid asset portfolio paid on schedule in FY10. Performance-Based Grants And IFC SME Ventures For At June 30, 2010, trading securities with a fair value of $177 million IDA Countries are classi�ed as Level 3 securities ($856 million on June 30, 2009). Expenditures were $9 million in FY10 ($6 million in FY09). The P1 portfolio generated a return6 of $376 million in FY10, or 3.44%. In FY09, the P1 portfolio generated a return of $130 million, Net Gains And Losses On Other Non-Trading or 0.53%. The externally managed P3 portfolio, managed against Financial Instruments the same variable rate benchmark as the P1 portfolio, returned As discussed in more detail in Note A to IFC’s FY10 Consolidated $14 million in FY10, or 2.81%, $16 million higher than the negative Financial Statements, IFC accounts for certain �nancial instruments $2 million, or 0.65% return in FY09. at fair value with unrealized gains and losses on such �nancial instru- The P2 and externally-managed P4 portfolios returned $404 mil- ments being reported in net income, namely: (i) all swapped market lion (7.28%) and $18 million (3.68%) in FY10, respectively, as borrowings; and (ii) all equity investments in which IFC has greater compared to $293 million (5.87%) and $25 million (6.40%) in FY09. than 20% holdings and/or equity and fund investments which, in the IFC’s P0 portfolio earned $3 million in FY10, a total return of absence of the Fair Value Option, would be required to be accounted 0.36%, as compared to $28 million (1.70%) in FY09. for under the equity method. All other non-trading derivatives, includ- ing stand-alone and embedded derivatives in the loan, equity and Charges On Borrowings debt security portfolios continue to be accounted for at fair value. IFC’s charges on borrowings decreased by $325 million, from The resulting effects of fair value accounting for these non-trading $488 million in FY09 to $163 million in FY10, largely reflecting the �nancial instruments on net income in FY10 and FY09 can be sum- lower US dollar interest rate environment, when comparing FY10 marized as follows (US$ millions): and FY09. During FY10, IFC bought back $0.9 billion of its mar- FY10 FY09 ket borrowings ($1.05 billion in FY09). Charges on borrowings of $163 million in FY10 ($488 million in FY09) are reported net of gains Realized gains and losses on derivatives associated on buybacks of $62 million ($61 million in FY09). with investments $ 5 $ – The weighted average rate of IFC’s borrowings outstanding from Non-monetary gains and losses on derivatives market sources, after the effects of borrowing-related derivatives, associated with investments 6 45 Unrealized gains and losses on derivatives associated and excluding short-term borrowings issued under the Discount Note with investments (124) 26 Program, fell during the year from 1.4% at June 30, 2009 to 0.5% at Unrealized gains and losses on market borrowings and June 30, 2010. The size of the borrowings portfolio (excluding the associated derivatives, net (226) 381 short-term Discount Note Program), net of borrowing-related deriva- Net (losses) gains on other non-trading �nancial tives and before fair value adjustments, increased by $3.0 billion instruments accounted for at fair value $ (339) $ 452 during FY10 from $25.8 billion at June 30, 2009, to $28.8 billion at June 30, 2010. Prior to FY09, IFC’s own credit spread had been relatively stable at sub-LIBOR rates — as such, there was no signi�cant reported Other Income volatility associated with fair valuing IFC’s market borrowings and Other income of $176 million for FY10 was $23 million higher than associated derivatives. Beginning in the second quarter of FY09 and in FY09 ($153 million). Other income in FY10 includes income from extending into the third quarter of FY09 as the global �nancial crisis the P6 local currency liquidity portfolio of $27 million ($42 million worsened, IFC’s own credit spreads, consistent with all supranation- in FY09). als and other triple-A rated institutions widened considerably but 6 Return percentages are reported gross of fees. 27 narrowed somewhat during the fourth quarter, although remaining LIBOR-plus at June 30, 2009. In FY10, as appetite for risk in inter- VIII. Governance national capital markets slowly recovered, credit spreads remained MANAGEMENT CHANGES elevated relative to the levels that prevailed before FY09. As a result, IFC reported an unrealized loss for FY10 of $226 million, as com- During FY11, the following changes occurred in the Senior pared to an unrealized gain of $381 million in FY09. Management of IFC: IFC reported a net loss on derivatives associated with equity invest- Ms. Nina Shapiro retired as Vice President, Finance and Treasurer, ments (principally put options, stock options, conversion features effective December 31, 2010. and warrants) of $43 million in FY10. Gains and losses are highly Mr. Michel G. Maila stepped down from his duties as Vice concentrated, with �ve derivatives accounting for $56 million of gains President, Risk Management, effective October 15, 2010. and �ve derivatives accounting for $84 million of losses in FY10 (�ve Ms. Saadia Khairi was appointed as Vice President, Risk derivatives accounting for $105 million of gains and �ve derivatives Management and Strategy, effective November 1, 2010. accounting for $55 million of losses in FY09). Ms. Saadia Khairi’s title became Vice President, Risk, Finance, and Strategy, effective May 2, 2011. Grants To IDA Ms. Saadia Khairi’s title became Vice President, Risk Management, During FY10, IFC recorded a grant to IDA of $200 million, as com- Financial Reporting and Corporate Strategy, effective June 16, 2011. pared with $450 million in FY09. Mr. Jingdong Hua was appointed Vice President, Treasury and Information Technology, effective May 2, 2011. Other Comprehensive Income Subsequent to June 30, 2011, the following changes have occurred Unrealized Gains And Losses On Equity Investments And in the Senior Management of IFC: Debt Securities Mr. Jyrki Koskelo retired as Vice President, Global Industries, The net change in unrealized gains and losses on equity investments effective July 1, 2011. and debt securities in OCI can be summarized as follows: Ms. Karin Finkelston was appointed Vice President, Asia Paci�c, FY10 FY09 effective July 1, 2011. Mr. Rashad Kaldany’s title became Vice President, Global Net unrealized gains and losses on equity investments Industries, effective July 1, 2011. arising during the year: Mr. Dimitris Tsitsiragos was appointed Vice President, Eastern Unrealized gains $ 1,117 $ 180 and Southern Europe, Central Asia, Middle East and North Africa, Unrealized losses (198) (1,294) Reclassi�cation adjustment for realized gains and effective July 1, 2011. impairment write-downs included in net income (313) (357) Net unrealized gains (losses) on equity investments $ 606 $(1,471) GENERAL GOVERNANCE Net unrealized gains and losses on debt securities arising during the year IFC’s decision-making structure is comprised of the Board of Unrealized gains $ 181 $ 57 Governors, the Board of Directors, the President, the Executive Vice Unrealized losses (61) (294) President and CEO, other of�cers and staff. The Board of Governors Reclassi�cation adjustment for realized gains, non credit-related portion of impairment write- is the highest decision-making authority. The Board of Governors downs which were recognized in net income and has delegated to the Board of Directors authority to exercise all of impairment write-downs included in net income (43) 63 the powers of IFC except those reserved to the Governors under the Net unrealized gains (losses) on debt securities $ 77 $ (174) Articles of Agreement. Total unrealized gains (losses) on equity investments and debt securities $ 683 $(1,645) BOARD MEMBERSHIP Unrecognized Net Actuarial Gains And Losses And In accordance with its Articles of Agreement, members of IFC’s Unrecognized Prior Service Costs On Bene�t Plans Board of Directors are appointed or elected by their member govern- Changes in the funded status of pension and other postretirement ments. Currently, the Board of Directors is composed of 25 Directors. bene�t plans are recognized in OCI, to the extent they are not recog- These Directors are neither of�cers nor staff of IFC. The President nized in net income under periodic bene�t cost for the year. During is the only management member of the Board of Directors, serving FY10, IFC experienced a decrease in the current value adjustment as a non-voting member and as Chairman of the Board of Directors. for unrecognized net periodic pension cost of $192 million, primarily The Board of Directors has established several Committees reflecting a lower increase in the fair value of plan assets as com- including: pared to the increase in the projected bene�t obligation. • Committee on Development Effectiveness • Audit Committee • Budget Committee • Personnel Committee • Ethics Committee • Committee on Governance and Administrative Matters 28 Management’s IFC Financials and Projects 2011 Discussion and Analysis The Board of Directors and its Committees function in continuous The Audit Committee has the capacity, under exceptional cir- session at the principal of�ces of the World Bank Group, as busi- cumstances, to obtain advice and assistance from outside legal, ness requires. Each Committee’s terms of reference establishes its accounting or other advisors as deemed appropriate. respective roles and responsibilities. As Committees do not vote on issues, their role is primarily to serve the full Board of Directors in BUSINESS CONDUCT discharging its responsibilities. The Board of Directors is responsible for the conduct of the Staff members’ ethical obligations to the institution are embodied in general operations of IFC. The Directors are also responsible for its core values and principles of staff employment. In support of this presenting to the Board of Governors, at the Annual meetings, an commitment, the institution has in place a code of conduct, entitled audit of accounts, an administrative budget, and an annual report on Living our Values (the Code). The Code applies to all staff worldwide operations and policies as well as other matters. and is available on IBRD’s Web site, www.worldbank.org. In addition to the Code, Staff and Administrative Manuals, guid- AUDIT COMMITTEE ance for staff is also provided through programs, training materials, and other resources. Managers are responsible for ensuring that Membership internal systems, policies, and procedures are consistently aligned The Audit Committee consists of eight members of the Board of with the World Bank Group’s business conduct framework. Directors. Membership on the Committee is determined by the Board The World Bank Group has both an Ethics HelpLine and a Fraud of Directors, based upon nominations by the Chairman of the Board and Corruption hotline. A third-party service offers numerous meth- of Directors, following informal consultation with the Directors. ods of world wide communication. Reporting channels include: phone, mail, email, anonymously, or through con�dential submission Key Responsibilities through a website. The Audit Committee is appointed by the Board of Directors to assist IFC has in place procedures for the receipt, retention and handling it in the oversight and assessment of IFC’s �nances and account- of recommendations and concerns relating to business conduct ing, including the effectiveness of �nancial policies, the integrity identi�ed during accounting, internal control and auditing processes. of �nancial statements, the system of internal controls regarding The World Bank Group’s Staff Rules clarify and codify the obli- �nance, accounting and ethics (including fraud and corruption), and gations of staff in reporting suspected fraud, corruption or other �nancial and operational risks. The Audit Committee also has the misconduct that may threaten operations or governance of the responsibility for reviewing the performance and recommending to World Bank Group. Additionally, these rules offer protection from the Board of Directors the appointment of the external auditor, as well retaliation. Strengthened whistleblower protections have also been as monitoring the independence of the external auditor. The Audit implemented recently. Committee participates in oversight of the internal audit function and reviews the annual internal audit plan. In the execution of its role, the AUDITOR INDEPENDENCE Audit Committee discusses with management, the external audi- tors, and the internal auditors, �nancial issues and policies, which The appointment of the external auditor of IFC is governed by a have a bearing on IFC’s �nancial position and risk-bearing capacity. set of Board of Director-approved principles. Key features of those The Committee also reviews with the external auditor the �nancial principles include: statements prior to their publication and recommends the annual • Prohibition of the external auditor from the provision of all non �nancial statements for approval of the Board of Directors. The Audit audit-related services; Committee updated its terms of reference in July 2009. • All audit-related services must be pre-approved on a case-by-case basis by the Board of Directors, upon recommendation of the Executive Sessions Audit Committee; Under the Committee’s Terms of Reference, members of the • Mandatory rebidding of the external audit contract every � ve Committee may convene in executive session at any time, without years, with a limitation of two consecutive terms and mandatory management present. The Committee meets separately in executive rotation thereafter. session with the external and internal auditors. External auditors are appointed to a �ve-year term of service. This is subject to annual reappointment based on the recommendation Access To Resources And To Management of the Audit Committee and approval of a resolution by the Board Throughout the year, the Audit Committee receives a large volume of Directors. of information, which supports the preparation of the �nancial state- Communication between the external auditor and the Audit ments. The Audit Committee meets both formally and informally Committee is ongoing, as frequently as is deemed necessary by throughout the year to discuss relevant matters. Directors have either party. The Audit Committee have independent access to the complete access to management. The Audit Committee reviews external auditors. IFC’s external auditors also follow the communica- and discusses with management topics contemplated in their Terms tion requirements with audit committees set out under U.S. generally of Reference. accepted auditing standards. 29 INTERNAL CONTROL OVER FINANCIAL REPORTING AND year covered by this report, that had materially affected, or would DISCLOSURE CONTROLS AND PROCEDURES be reasonably likely to materially affect IFC’s internal control over external �nancial reporting. As of June 30, 2011, no such signi�cant In FY11, IFC continued its practice of conducting an annual assess- changes had occurred. ment of its internal controls over external �nancial reporting based Disclosure controls and procedures are those processes which on the criteria for effective internal control described by the COSO are designed to ensure that information required to be disclosed framework. Between FY06 and FY09, management had not sought is accumulated and communicated to management, as appropri- the attestation to its published assertion on internal controls previ- ate to allow timely decisions regarding required disclosure by IFC. ously provided by IFC’s external auditors. In FY11, IFC’s external Management has undertaken an evaluation of the effectiveness of auditors have provided an attestation report that management’s such controls and procedures. Based on that evaluation, manage- assertion regarding the effectiveness of internal control over external ment has concluded that these controls and procedures were effec- �nancial reporting is fairly stated in all material respects. tive as of June 30, 2011. Management has carried out an evaluation of internal control over external �nancial reporting for the purpose of determining if there were any changes made in internal controls during the �scal 30 INTERNATIONAL FINANCE CORPORATION 31 INTERNATIONAL FINANCE CORPORATION 32 INTERNATIONAL FINANCE CORPORATION 33 INTERNATIONAL FINANCE CORPORATION 34 INTERNATIONAL FINANCE CORPORATION CONSOLIDATED BALANCE SHEETS as of June 30, 2011 and June 30, 2010 (US$ millions) 2011 2010 Assets Cash and due from banks ......................................................................................................... $ 642 $ 528 Time deposits ............................................................................................................................ 4,825 5,435 Trading securities - Notes C and R ........................................................................................... 24,761 23,428 Securities purchased under resale agreements ....................................................................... 1,549 539 Investments - Notes B, D, E, F, R and U Loans ($637 - June 30, 2011 and $450 - June 30, 2010 at fair value; $87 - June 30, 2011 and $0 - June 30, 2010 at lower of cost or fair value) (net of reserves against losses of $1,307 - June 30, 2011 and $1,349 - June 30, 2010) - Notes D, E and R........................................................ 18,455 16,660 Equity investments ($6,565 - June 30, 2011 and $4,918 - June 30, 2010 at fair value) - Notes B, D and R........................................................................................ 9,313 7,469 Debt securities - Notes D, F and R ........................................................................................ 2,166 1,815 Total investments .......................................................................................................... 29,934 25,944 Derivative assets - Notes Q and R ............................................................................................. 4,177 2,688 Receivables and other assets - Note J ...................................................................................... 2,602 2,513 Total assets ..................................................................................................................... $ 68,490 $ 61,075 Liabilities and capital Liabilities Securities sold under repurchase agreements and payable for cash collateral received ............................................................................................... $ 5,787 $ 8,393 Borrowings outstanding - Notes K and R ............................................................................... From market sources at amortized cost ........................................................................... 1,880 1,851 From market sources at fair value ..................................................................................... 36,281 29,205 From International Bank for Reconstruction and Development at amortized cost ............ 50 50 Total borrowings ........................................................................................................... 38,211 31,106 Derivative liabilities - Notes Q and R ..................................................................................... 1,757 1,140 Payables and other liabilities - Note L ................................................................................... 2,456 2,077 Total liabilities ................................................................................................................... 48,211 42,716 Capital Capital stock, authorized 2,450,000 shares of $1,000 par value each - Note M Subscribed and paid-in ..................................................................................................... 2,369 2,369 Accumulated other comprehensive income - Note O ............................................................ 1,543 1,202 Retained earnings - Note O ................................................................................................... 16,367 14,788 Total capital ...................................................................................................................... 20,279 18,359 Total liabilities and capital ............................................................................................. $ 68,490 $ 61,075 The notes to the Consolidated Financial Statements are an integral part of these statements. 35 INTERNATIONAL FINANCE CORPORATION CONSOLIDATED INCOME STATEMENTS for each of the three years ended June 30, 2011 (US$ millions) 2011 2010 2009 Income from investments Income from loans and guarantees - Note E ............................................................$ 877 $ 801 $ 871 Release of provision (provision) for losses on loans and guarantees - Note E......... 40 (155) (438) Income (loss) from equity investments - Note G ....................................................... 1,464 1,638 (42) Income from debt securities - Note F ........................................................................ 46 108 71 Total income from investments ..................................................................... 2,427 2,392 462 Income from liquid asset trading activities - Note C ..................................................... 529 815 474 Charges on borrowings - Note K .................................................................................. (140) (163) (488) Income from investments and liquid asset trading activities, after charges on borrowings.............................................................................. 2,816 3,044 448 Other income Service fees ............................................................................................................. 88 70 39 Other - Notes B and N .............................................................................................. 134 106 114 Total other income ............................................................................................. 222 176 153 Other expenses Administrative expenses - Note W ........................................................................... (700) (664) (582) Expense from pension and other postretirement benefit plans - Note V .................. (109) (69) (34) Other - Note B ........................................................................................................... (16) (10) (13) Total other expenses ......................................................................................... (825) (743) (629) Foreign currency transaction gains and losses on non-trading activities ...................... (33) (82) 10 Expenditures for advisory services and against other designated retained earnings - Note O ........................................................................................ (156) (110) (135) Income (loss) before net gains (losses) on other non-trading financial instruments accounted for at fair value and grants to IDA ........................... 2,024 2,285 (153) Net gains and losses on other non-trading financial instruments accounted for at fair value – Note P Realized gains........................................................................................................... 63 5 - Gains on non-monetary exchanges ......................................................................... 22 6 45 Unrealized gains (losses) .......................................................................................... 70 (350) 407 Total net gains (losses) on other non-trading financial instruments accounted for at fair value ............................................................................. 155 (339) 452 Income before grants to IDA ................................................................................... 2,179 1,946 299 Grants to IDA - Note O .................................................................................................. (600) (200) (450) Net income (loss) ........................................................................................................$ 1,579 $ 1,746 $ (151) The notes to the Consolidated Financial Statements are an integral part of these statements. 36 INTERNATIONAL FINANCE CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME for each of the three years ended June 30, 2011 (US$ millions) 2011 2010 2009 Net income (loss) ........................................................................................................$ 1,579 $ 1,746 $ (151) Other comprehensive income (loss) Net unrealized gains (losses) on debt securities arising during the period ................................................................................................... 137 120 (237) Add (less): reclassification adjustment for realized losses (gains) included in net income ..................................................................... 2 (14) (6) Less: reclassification adjustment for non-monetary exchanges included in net income .............................................................................. - (32) (2) Less: reclassification adjustment for non credit-related portion of impairment write-downs which were recognized in net income ................................... - - (34) Add: reclassification adjustment for impairment write-downs included in net income ................................................................................................ 2 3 105 Net unrealized gains (losses) on debt securities ......................................... 141 77 (174) Net unrealized gains (losses) on equity investments arising during the year ........... 388 919 (1,114) Less: reclassification adjustment for realized gains included in net income ......... (405) (390) (810) Add: reclassification adjustment for impairment write-downs included in net income ................................................................................................ 131 77 453 Net unrealized gains (losses) on equity investments .................................. 114 606 (1,471) Unrecognized net actuarial gains (losses) and unrecognized prior service credits (costs) on benefit plans ........................................................................ 86 (192) (346) Total other comprehensive income (loss) ........................................................... 341 491 (1,991) Total comprehensive income (loss) ...........................................................$ 1,920 $ 2,237 $ (2,142) The notes to the Consolidated Financial Statements are an integral part of these statements. 37 INTERNATIONAL FINANCE CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL for each of the three years ended June 30, 2011 (US$ millions) Retained earnings Accumulated other comprehensive Capital Undesignated Designated Total income - Note O stock † Total capital At June 30, 2008 $ 12,367 $ 826 $ 13,193 $ 2,702 $ 2,366 $ 18,261 Year ended June 30, 2009 Net loss (151) (151) (151) Other comprehensive loss ................... (1,991) (1,991) Designations of retained earnings - Note O ... (550) 550 - - Expenditures against designated retained earnings - Note O ... 585 (585) - - Payments received for capital stock subscribed ... - 3 3 At June 30, 2009 ... $ 12,251 $ 791 $ 13,042 $ 711 $ 2,369 $ 16,122 Year ended June 30, 2010 Net income . 1,746 1,746 1,746 Other comprehensive income ............. 491 491 Expenditures against designated retained earnings - Note O ... 310 (310) - - At June 30, 2010 ... $ 14,307 $ 481 $ 14,788 $ 1,202 $ 2,369 $ 18,359 Year ended June 30, 2011 Net income . 1,579 1,579 1,579 Other comprehensive income 341 341 Designations of retained earnings - Note O ... (610) 610 - - Expenditures against designated retained earnings - Note O ... 756 (756) - - At June 30, 2011 ... $ 16,032 $ 335 $ 16,367 $ 1,543 $ 2,369 $ 20,279 † Capital stock includes payments received on account of pending subscriptions. The notes to the Consolidated Financial Statements are an integral part of these statements. 38 INTERNATIONAL FINANCE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS for each of the three years ended June 30, 2011 (US$ millions) 2011 2010 2009 Cash flows from investing activities Loan disbursements .................................................................................................$ (4,519) $ (4,907) $ (4,356) Investments in equity securities ................................................................................ (1,884) (1,617) (1,153) Investments in debt securities .................................................................................. (312) (269) (131) Loan repayments ..................................................................................................... 3,297 3,016 2,274 Equity redemptions .................................................................................................. 1 1 4 Debt securities repayments ...................................................................................... 72 92 31 Proceeds from sales of loans .................................................................................... 26 11 - Proceeds from sales of equity investments ............................................................... 1,432 1,633 1,382 Proceeds from sales of debt securities .................................................................... 12 13 8 Net cash used in investing activities ............................................................ (1,875) (2,027) (1,941) Cash flows from financing activities Medium and long-term borrowings New issues ........................................................................................................... 9,882 8,566 8,980 Retirement ............................................................................................................ (5,139) (5,819) (3,017) Medium and long-term borrowings related derivatives, net .................................. 410 261 117 Short-term borrowings, net ........................................................................................ 43 1,404 - Capital subscriptions ................................................................................................. - - 3 Net cash provided by financing activities ................................................... 5,196 4,412 6,083 Cash flows from operating activities Net income (loss) ...................................................................................................... 1,579 1,746 (151) Adjustments to reconcile net income (loss) to net cash used in operating activities: Gains on non-monetary exchanges of loans ........................................................ (9) - - Realized gains on debt securities and gains on non-monetary exchanges .......... (2) (46) (8) Realized gains on equity investments and gains on non-monetary exchanges ... (954) (1,318) (1,004) Unrealized (gains) losses on loans accounted for at fair value under the Fair Value Option ....................................................................... ..... (79) (42) 62 Unrealized losses (gains) on debt securities accounted for at fair value under the Fair Value Option .................................................................... ..... 2 (23) - Unrealized (gains) losses on equity investments accounted for at fair value under the Fair Value Option .............................................................................. (454) (240) 299 (Release of provision) provision for losses on loans and guarantees .................. (40) 155 438 Impairment losses on debt securities ................................................................... 2 3 8 Other-than-temporary impairment losses on equity investments ......................... 218 203 1,058 Net discounts paid on retirement of borrowings ..... (3) (7) (17) Net realized gains on extinguishment of borrowings ...................................... ..... (10) (62) (61) Foreign currency transaction losses (gains) on non-trading activities .................. 33 82 (10) Net (gains) losses on other non-trading financial instruments accounted for at fair value ................................................................................ (155) 339 (452) Change in accrued income on loans, time deposits and securities ..................... 51 (37) (21) Change in payables and other liabilities .............................................................. 354 634 (3,210) Change in receivables and other assets ............................................................... 138 (162) 2,705 Change in trading securities and securities purchased and sold under resale and repurchase agreements .................................................................. (4,722) (2,085) (8,156) Net cash used in operating activities .......................................................... (4,051) (860) (8,520) Change in cash and cash equivalents ......................................................................... (730) 1,525 (4,378) Effect of exchange rate changes on cash and cash equivalents ................................. 234 181 (127) Net change in cash and cash equivalents .................................................................... (496) 1,706 (4,505) Beginning cash and cash equivalents .......................................................................... 5,963 4,257 8,762 Ending cash and cash equivalents ..........................................................................$ 5,467 $ 5,963 $ 4,257 Composition of cash and cash equivalents Cash and due from banks .........................................................................................$ 642 $ 528 $ 380 Time deposits ........................................................................................................... 4,825 5,435 3,877 Total cash and cash equivalents ..........................................................................$ 5,467 $ 5,963 $ 4,257 The notes to the Consolidated Financial Statements are an integral part of these statements. 39 INTERNATIONAL FINANCE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS for each of the three years ended June 30, 2011 (US$ millions) 2011 2010 2009 Supplemental disclosure Change in ending balances resulting from currency exchange rate fluctuations: Loans outstanding ...............................................................................................$ 601 $ (267) $ (535) Debt securities ..................................................................................................... 142 59 (131) Loan and debt security-related currency swaps .................................................. (699) 128 702 Borrowings ............................................................................................................ (2,358) (411) 414 Borrowing-related currency swaps ...................................................................... 2,327 410 (391) Client risk management-related currency swaps .................................................. (6) (1) 2 Charges on borrowings paid, net ..............................................................................$ 159 $ 209 $ 527 Non-cash item: Loan and debt securities conversion to equity, net ...............................................$ 75 $ 172 $ 41 The notes to the Consolidated Financial Statements are an integral part of these statements. 40 INTERNATIONAL FINANCE CORPORATION CONSOLIDATED STATEMENT OF CAPITAL STOCK AND VOTING POWER as of June 30, 2011 (US$ thousands) Capital stock Voting power Capital stock Voting power Amount Percent Number Percent Amount Percent Number Percent Members paid of total of votes of total Members paid of total of votes of total Afghanistan ....................... $ 111 * 361 0.01 Lebanon ............................ $ 135 0.01 385 0.02 Albania .............................. 1,302 0.05 1,552 0.06 Lesotho ............................. 71 * 321 0.01 Algeria .............................. 5,621 0.24 5,871 0.24 Liberia ............................... 83 * 333 0.01 Angola .............................. 1,481 0.06 1,731 0.07 Libya ................................. 55 * 305 0.01 Antigua and Barbuda ........ 13 * 263 0.01 Lithuania ........................... 2,341 0.10 2,591 0.11 Argentina .......................... 38,129 1.61 38,379 1.59 Luxembourg ...................... 2,139 0.09 2,389 0.10 Armenia ............................ 992 0.04 1,242 0.05 Macedonia, FYR of ........... 536 0.02 786 0.03 Australia ............................ 47,329 2.00 47,579 1.97 Madagascar ...................... 432 0.02 682 0.03 Austria .............................. 19,741 0.83 19,991 0.83 Malawi ............................... 1,822 0.08 2,072 0.09 Azerbaijan ......................... 2,367 0.10 2,617 0.11 Malaysia ............................ 15,222 0.64 15,472 0.64 Bahamas, The .................. 335 0.01 585 0.02 Maldives ............................ 16 * 266 0.01 Bahrain ............................. 1,746 0.07 1,996 0.08 Mali ................................... 451 0.02 701 0.03 Bangladesh ....................... 9,037 0.38 9,287 0.38 Malta ................................. 1,615 0.07 1,865 0.08 Barbados .......................... 361 0.02 611 0.03 Marshall Islands ................ 663 0.03 913 0.04 Belarus ............................. 5,162 0.22 5,412 0.22 Mauritania ......................... 214 0.01 464 0.02 Belgium ............................. 50,610 2.14 50,860 2.11 Mauritius ........................... 1,665 0.07 1,915 0.08 Belize ................................ 101 * 351 0.01 Mexico .............................. 27,589 1.16 27,839 1.15 Benin ................................ 119 0.01 369 0.02 Micronesia, Fed. States of . 744 0.03 994 0.04 Bhutan ............................... 720 0.03 970 0.04 Moldova ............................ 1,192 0.05 1,442 0.06 Bolivia ............................... 1,902 0.08 2,152 0.09 Mongolia ........................... 144 0.01 394 0.02 Bosnia and Herzegovina .. 620 0.03 870 0.04 Montenegro ....................... 1,035 0.04 1,285 0.05 Botswana .......................... 113 * 363 0.02 Morocco ............................ 9,037 0.38 9,287 0.38 Brazil ................................. 39,479 1.67 39,729 1.65 Mozambique ..................... 322 0.01 572 0.02 Bulgaria ............................ 4,867 0.21 5,117 0.21 Myanmar ........................... 666 0.03 916 0.04 Burkina Faso .................... 836 0.04 1,086 0.04 Namibia ............................. 404 0.02 654 0.03 Burundi ............................. 100 * 350 0.01 Nepal ................................ 822 0.03 1,072 0.04 Cambodia ......................... 339 0.01 589 0.02 Netherlands ...................... 56,131 2.37 56,381 2.33 Cameroon ......................... 885 0.04 1,135 0.05 New Zealand ..................... 3,583 0.15 3,833 0.16 Canada ............................. 81,342 3.43 81,592 3.38 Nicaragua ......................... 715 0.03 965 0.04 Cape Verde ...................... 15 * 265 0.01 Niger ................................. 147 0.01 397 0.02 Central African Republic ... 119 0.01 369 0.02 Nigeria .............................. 21,643 0.91 21,893 0.91 Chad .................................. 1,364 0.06 1,614 0.07 Norway .............................. 17,599 0.74 17,849 0.74 Chile ................................. 11,710 0.49 11,960 0.50 Oman ................................ 1,187 0.05 1,437 0.06 China ................................ 24,500 1.03 24,750 1.02 Pakistan ............................ 19,380 0.82 19,630 0.81 Colombia .......................... 12,606 0.53 12,856 0.53 Palau ................................. 25 * 275 0.01 Comoros ........................... 14 * 264 0.01 Panama ............................ 1,007 0.04 1,257 0.05 Congo, Dem. Rep. of .... 2,159 0.09 2,409 0.10 Papua New Guinea ........... 1,147 0.05 1,397 0.06 Congo, Republic of ........... 131 0.01 381 0.02 Paraguay .......................... 436 0.02 686 0.03 Costa Rica ........................ 952 0.04 1,202 0.05 Peru .................................. 6,898 0.29 7,148 0.30 Côte d'Ivoire ...................... 3,544 0.15 3,794 0.16 Philippines ........................ 12,606 0.53 12,856 0.53 Croatia .............................. 2,882 0.12 3,132 0.13 Poland ............................... 7,236 0.31 7,486 0.31 Cyprus .............................. 2,139 0.09 2,389 0.10 Portugal ............................ 8,324 0.35 8,574 0.36 Czech Republic ................ 8,913 0.38 9,163 0.38 Qatar ................................. 1,650 0.07 1,900 0.08 Denmark ........................... 18,554 0.78 18,804 0.78 Romania ........................... 2,661 0.11 2,911 0.12 Djibouti .............................. 21 * 271 0.01 Russian Federation ........... 81,342 3.43 81,592 3.38 Dominica ........................... 42 * 292 0.01 Rwanda ............................. 306 0.01 556 0.02 Dominican Republic .......... 1,187 0.05 1,437 0.06 Samoa .............................. 35 * 285 0.01 Ecuador ............................ 2,161 0.09 2,411 0.10 Sao Tome and Principe .... 439 0.02 689 0.03 Egypt, Arab Republic of .... 12,360 0.52 12,610 0.52 Saudi Arabia ..................... 30,062 1.27 30,312 1.26 El Salvador ....................... 29 * 279 0.01 Senegal ............................. 2,299 0.10 2,549 0.11 Equatorial Guinea ............. 43 * 293 0.01 Serbia ................................ 1,803 0.08 2,053 0.09 Eritrea ............................... 935 0.04 1,185 0.05 Seychelles ........................ 27 * 277 0.01 Estonia .............................. 1,434 0.06 1,684 0.07 Sierra Leone ..................... 223 0.01 473 0.02 Ethiopia ............................. 127 0.01 377 0.02 Singapore ......................... 177 0.01 427 0.02 Fiji ..................................... 287 0.01 537 0.02 Slovak Republic ................ 4,457 0.19 4,707 0.19 Finland .............................. 15,697 0.66 15,947 0.66 Slovenia ............................ 1,585 0.07 1,835 0.08 France ............................. 121,015 5.11 121,265 5.02 Solomon Islands ............... 37 * 287 0.01 Gabon ............................... 1,268 0.05 1,518 0.06 Somalia ............................. 83 * 333 0.01 Gambia, The ..................... 94 * 344 0.01 South Africa ...................... 15,948 0.67 16,198 0.67 Georgia ............................. 1,380 0.06 1,630 0.07 Spain ................................. 37,026 1.56 37,276 1.54 Germany .......................... 128,908 5.44 129,158 5.35 Sri Lanka ........................... 7,135 0.30 7,385 0.31 Ghana ............................... 5,071 0.21 5,321 0.22 St. Kitts and Nevis ............ 638 0.03 888 0.04 Greece .............................. 6,898 0.29 7,148 0.30 St. Lucia ............................ 74 * 324 0.01 Grenada ............................ 74 * 324 0.01 Sudan ............................... 111 * 361 0.01 Guatemala ........................ 1,084 0.05 1,334 0.06 Swaziland ......................... 684 0.03 934 0.04 Guinea .............................. 339 0.01 589 0.02 Sweden ............................. 26,876 1.13 27,126 1.12 Guinea-Bissau .................. 18 * 268 0.01 Switzerland ....................... 41,580 1.75 41,830 1.73 Guyana ............................. 1,392 0.06 1,642 0.07 Syrian Arab Republic ........ 194 0.01 444 0.02 Haiti .................................. 822 0.03 1,072 0.04 Tajikistan ........................... 1,212 0.05 1,462 0.06 Honduras .......................... 495 0.02 745 0.03 Tanzania ........................... 1,003 0.04 1,253 0.05 Hungary ............................ 10,932 0.46 11,182 0.46 Thailand ............................ 10,941 0.46 11,191 0.46 Iceland .............................. 42 * 292 0.01 Timor-Leste ....................... 777 0.03 1,027 0.04 India .................................. 81,342 3.43 81,592 3.38 Togo .................................. 808 0.03 1,058 0.04 Indonesia .......................... 28,539 1.20 28,789 1.19 Tonga ................................ 34 * 284 0.01 Iran, Islamic Republic of ... 1,444 0.06 1,694 0.07 Trinidad and Tobago ......... 4,112 0.17 4,362 0.18 Iraq ................................... 147 0.01 397 0.02 Tunisia .............................. 3,566 0.15 3,816 0.16 Ireland ............................... 1,290 0.05 1,540 0.06 Turkey ............................... 14,545 0.61 14,795 0.61 Israel ................................. 2,135 0.09 2,385 0.10 Turkmenistan .................... 810 0.03 1,060 0.04 Italy ................................... 81,342 3.43 81,592 3.38 Uganda ............................. 735 0.03 985 0.04 Jamaica ............................ 4,282 0.18 4,532 0.19 Ukraine ............................. 9,505 0.40 9,755 0.40 Japan ............................... 141,174 5.96 141,424 5.86 United Arab Emirates ........ 4,033 0.17 4,283 0.18 Jordan ............................... 941 0.04 1,191 0.05 United Kingdom ................ 121,015 5.11 121,265 5.02 Kazakhstan ....................... 4,637 0.20 4,887 0.20 United States .................... 569,379 24.03 569,629 23.59 Kenya ............................... 4,041 0.17 4,291 0.18 Uruguay ............................ 3,569 0.15 3,819 0.16 Kiribati ............................... 12 * 262 0.01 Uzbekistan ........................ 3,873 0.16 4,123 0.17 Korea, Republic of ............ 15,946 0.67 16,196 0.67 Vanuatu ............................ 55 * 305 0.01 Kosovo .............................. 1,454 0.06 1,704 0.07 Venezuela, Rep. Boliv. de 27,588 1.16 27,838 1.15 Kuwait ............................... 9,947 0.42 10,197 0.42 Vietnam ............................. 446 0.02 696 0.03 Kyrgyz Republic ................ 1,720 0.07 1,970 0.08 Yemen, Republic of .......... 715 0.03 965 0.04 Lao People's Dem. Rep. ... 278 0.01 528 0.02 Zambia .............................. 1,286 0.05 1,536 0.06 Latvia ................................ 2,150 0.09 2,400 0.10 Zimbabwe ......................... 2,120 0.09 2,370 0.10 * Less than .005 percent Total June 30, 2011 $ 2,369,396 100.00+ 2,414,896 100.00+ + May differ from the sum of the individual percentages shown because of rounding Total June 30, 2010 $ 2,369,396 100.00+ 2,414,896 100.00+ The notes to the Consolidated Financial Statements are an integral part of these statements. 41 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS PURPOSE The International Finance Corporation (IFC), an international organization, was established in 1956 to further economic development in its member countries by encouraging the growth of private enterprise. IFC is a member of the World Bank Group, which also comprises the International Bank for Reconstruction and Development (IBRD), the International Development Association (IDA), the Multilateral Investment Guarantee Agency (MIGA), and the International Centre for Settlement of Investment Disputes (ICSID). Each member is legally and financially independent. Transactions with other World Bank Group members are disclosed in the notes that follow. IFC’s activities are closely coordinated with and complement the overall development objectives of the other World Bank Group institutions. IFC, together with private investors, assists in financing the establishment, improvement and expansion of private sector enterprises by making loans, equity investments and investments in debt securities where sufficient private capital is not otherwise available on reasonable terms. IFC’s share capital is provided by its member countries. It raises most of the funds for its investment activities through the issuance of notes, bonds and other debt securities in the international capital markets. IFC also plays a catalytic role in mobilizing additional funding from other investors and lenders through parallel loans, loan participations, partial credit guarantees, securitizations, loan sales, risk sharing facilities, and fund investments through the IFC Asset Management Company, LLC and other IFC crisis initiatives. In addition to project finance and mobilization, IFC offers an array of financial and technical advisory services to private businesses in the developing world to increase their chances of success. It also advises governments on how to create an environment hospitable to the growth of private enterprise and foreign investment. NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING AND RELATED POLICIES The Consolidated Financial Statements include the financial statements of IFC and consolidated subsidiaries as detailed in Note B. The accounting and reporting policies of IFC conform with accounting principles generally accepted in the United States of America (US GAAP). On August 4, 2011, the Board of Directors of IFC (the Board) approved these Consolidated Financial Statements for issue. Consolidated Financial Statements presentation – Certain amounts in the prior years have been reclassified to conform to the current year’s presentation. Functional currency – IFC’s functional currency is the United States dollar (US dollars or $). Use of estimates – The preparation of the Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of income and expense during the reporting periods. Actual results could differ from these estimates. A significant degree of judgment has been used in the determination of: the reserve against losses on loans and impairment of debt securities and equity investments; estimated fair values of financial instruments accounted for at fair value (including equity investments, debt securities, loans, trading securities and derivative instruments); projected benefit obligations, fair value of pension and other postretirement benefit plan assets, and net periodic pension income or expense. There are inherent risks and uncertainties related to IFC’s operations. The possibility exists that changing economic conditions could have an adverse effect on the financial position of IFC. IFC uses internal models to determine the fair values of derivative and other financial instruments and the aggregate level of the reserve against losses on loans and impairment of equity investments. IFC undertakes continuous review and respecification of these models with the objective of refining its estimates, consistent with evolving best practices appropriate to its operations. Changes in estimates resulting from refinements in the assumptions and methodologies incorporated in the models are reflected in net income in the period in which the enhanced models are first applied. Fair Value Option and Fair Value Measurements – IFC has adopted the Financial Accounting Standards Board’s (FASB) Accounting Standards Codification (ASC) Topic 820, Fair Value Measurements and Disclosures (ASC 820) and the Fair Value Option subsections of ASC Topic 825, Financial Instruments (ASC 825 or the Fair Value Option). ASC 820 defines fair value, establishes a framework for measuring fair value and a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels and applies to all items measured at fair value, including items for which impairment measures are based on fair value. ASC 825 permits the measurement of eligible financial assets, financial liabilities and firm commitments at fair value on an instrument-by-instrument basis, that are not otherwise permitted to be accounted for at fair value under other accounting standards. The election to use the Fair Value Option is available when an entity first recognizes a financial asset or liability or upon entering into a firm commitment. The Fair Value Option IFC has elected the Fair Value Option for the following financial assets and financial liabilities existing at the time of adoption of ASC 820 and subsequently entered into: i) investees in which IFC has significant influence: a) direct investments in securities and other financial interests (e.g. loans); b) investments in Limited Liability Partnerships (LLPs), Limited Liability Companies (LLCs) and other investment fund structures that maintain specific ownership accounts and loans or guarantees to such; ii) direct equity investments representing 20 percent or more ownership but in which IFC does not have significant influence; and iii) certain hybrid instruments in the investment portfolio; and iv) all market borrowings, except for such borrowings having no associated derivative instruments. Beginning July 1, 2010, IFC has elected the Fair Value Option for all new equity interests in funds. All borrowings for which the Fair Value Option has been elected are associated with existing derivative instruments used to create an economic hedge. Measuring at fair value those borrowings for which the Fair Value Option has been elected mitigates the earnings volatility caused by measuring the borrowings and related derivative differently (in the absence of a designated accounting hedge) without having to apply ASC 42 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Topic 815’s, Derivatives and Hedging (ASC 815) complex hedge accounting requirements. The Fair Value Option was not elected for all borrowings from IBRD and all other market borrowings because such borrowings fund assets with similar characteristics. Measuring at fair value those equity investments that would otherwise require equity method accounting simplifies the accounting and renders a carrying amount on the consolidated balance sheet based on a measure (fair value) that IFC considers superior to equity method accounting. For the investments that otherwise would require equity method accounting for which the Fair Value Option is elected, ASC 825 requires the Fair Value Option to also be applied to all eligible financial interests in the same entity. IFC has disbursed loans to certain of such investees; therefore, the Fair Value Option is also applied to those loans. IFC elected the Fair Value Option for equity investments with 20% or more ownership where it does not have significant influence so that the same measurement method (fair value) will be applied to all equity investments with more than 20% ownership. Fair Value Measurements ASC 820 defines fair value as the price that would be received to sell an asset or transfer a liability (i.e., an exit price) in an orderly transaction between independent, knowledgeable and willing market participants at the measurement date assuming the transaction occurs in the entity’s principal (or most advantageous) market. Fair value must be based on assumptions market participants would use (inputs) in determining the price and measured assuming the highest and best use for the asset by market participants. The highest and best use of the IFC assets and liabilities measured at fair value is considered to be in exchange, therefore, their fair values are determined based on a transaction to sell or transfer the asset or liability on a standalone basis. Under ASC 820, fair value measurements are not adjusted for transaction costs. Pursuant to ASC Topic 320, Investments - Debt and Equity Securities (ASC 320), IFC reports equity investments that are listed in markets that provide readily determinable fair values at fair value, with unrealized gains and losses being reported in other comprehensive income. The fair value hierarchy established by ASC 820 gives the highest priority to unadjusted quoted prices in active markets for identical unrestricted assets and liabilities (Level 1), the next highest priority to observable market based inputs or unobservable inputs that are corroborated by market data from independent sources (Level 2) and the lowest priority to unobservable inputs that are not corroborated by market data (Level 3). Fair value measurements are required to maximize the use of available observable inputs. Level 1 primarily consists of financial instruments whose values are based on unadjusted quoted market prices. It includes IFC’s equity investments which are listed in markets that provide readily determinable fair values, government issues and money market funds in the liquid assets portfolio, and market borrowings that are listed on exchanges. Level 2 includes financial instruments that are valued using models and other valuation methodologies. These models consider various assumptions and inputs, including time value, yield curves, volatility factors, prepayment speeds, default rates, loss severity and current market and contractual pricing for the underlying asset, as well as other relevant economic measures. Substantially all of these inputs are observable in the market place, can be derived from observable data or are supported by observable levels at which market transactions are executed. Financial instruments categorized as Level 2 include non-exchange-traded derivatives such as interest rate swaps, cross-currency swaps, certain asset-backed securities, as well as the majority of trading securities in the liquid asset portfolio, and the portion of IFC’s borrowings accounted for at fair value not included in Level 1. Level 3 consists of financial instruments whose fair value is estimated based on internally developed models or methodologies utilizing significant inputs that are non-observable. It also includes financial instruments whose fair value is estimated based on price information from independent sources that cannot be corroborated by observable market data. Level 3 includes equity investments that are not listed in markets that provide readily determinable fair values, all loans for which IFC has elected the Fair Value Option, all of IFC’s debt securities in the investment portfolio, and certain hard-to-price securities in the liquid assets portfolio. Remeasurement of foreign currency transactions – Assets and liabilities not denominated in US dollars, other than disbursed equity investments, are expressed in US dollars at the exchange rates prevailing at June 30, 2011 and June 30, 2010. Disbursed equity investments, other than those accounted for at fair value, are expressed in US dollars at the prevailing exchange rates at the time of disbursement. Income and expenses are recorded based on the rates of exchange prevailing at the time of the transaction. Transaction gains and losses are credited or charged to income. Loans – IFC originates loans to facilitate project finance, restructuring, refinancing, corporate finance, and/or other developmental objectives. Loans are recorded as assets when disbursed. Loans are generally carried at the principal amounts outstanding adjusted for net unamortized loan origination costs and fees. It is IFC’s practice to obtain collateral security such as, but not limited to, mortgages and third-party guarantees. Certain loans are carried at fair value in accordance with the Fair Value Option as discussed above. Unrealized gains and losses on loans accounted for at fair value under the Fair Value Option are reported in income from loans and guarantees on the consolidated income statement. Certain loans originated by IFC contain income participation, prepayment and conversion features. These features are bifurcated and separately accounted for in accordance with ASC 815 if IFC has not elected the Fair Value Option for the loan host contracts and they meet the definition of a derivative, and are not considered to be clearly and closely related to their host loan contracts. Otherwise, these features are accounted for as part of their host loan contracts in accordance with IFC’s accounting policies for loans as indicated herein. Loans held for sale are carried at the lower of cost or fair value. The excess, if any, of amortized cost over fair value is accounted for as a valuation allowance. Changes in the valuation allowance are recognized in net income as they occur. Revenue recognition on loans – Interest income and commitment fees on loans are recorded as income on an accrual basis. Loan origination fees and direct loan origination costs are deferred and amortized over the estimated life of the originated loan; such amortization is determined using the interest method unless the loan is a revolving credit facility in which case amortization is determined using the straight-line method. 43 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Prepayment fees are recorded as income when received in freely convertible currencies. IFC does not recognize income on loans where collectability is in doubt or payments of interest or principal are past due more than 60 days unless management anticipates that collection of interest will occur in the near future. Any interest accrued on a loan placed in nonaccrual status is reversed out of income and is thereafter recognized as income only when the actual payment is received. Interest not previously recognized but capitalized as part of a debt restructuring is recorded as deferred income, included in the consolidated balance sheet in payables and other liabilities, and credited to income only when the related principal is received. Such capitalized interest is considered in the computation of the reserve against losses on loans in the consolidated balance sheet. Reserve against losses on loans – IFC recognizes impairment on loans not carried at fair value in the consolidated balance sheet through the reserve against losses on loans, recording a provision or release of provision for losses on loans in net income, which increases or decreases the reserve against losses on loans. Individually impaired loans are measured based on the present value of expected future cash flows to be received, observable market prices, or for loans that are dependent on collateral for repayment, the estimated fair value of the collateral. The reserve against losses on loans reflects management’s estimates of both identified probable losses on individual loans (specific reserves) and probable losses inherent in the portfolio but not specifically identifiable (portfolio reserves). The determination of identified probable losses represents management’s judgment of the creditworthiness of the borrower. Reserves against losses are established through a review of individual loans undertaken on a quarterly basis. IFC considers a loan as impaired when, based on current information and events, it is probable that IFC will be unable to collect all amounts due according to the loan’s contractual terms. Information and events, with respect to the borrower and/or the economic and political environment in which it operates, considered in determining that a loan is impaired include, but not limited to, the borrower’s financial difficulties, breach of contract, bankruptcy/reorganization, credit rating downgrade as well as geopolitical conflict, financial/economic crisis, commodity price decline, adverse local government action and natural disaster. Unidentified probable losses are the losses incurred at the reporting date that have not yet been specifically identified. The risks inherent in the portfolio that are considered in determining unidentified probable losses are those proven to exist by past experience and include: country systemic risk; the risk of correlation or contagion of losses between markets; uninsured and uninsurable risks; nonperformance under guarantees and support agreements; and opacity of, or misrepresentation in, financial statements. There were no changes, during the periods presented herein, to IFC’s accounting policies and methodologies used to estimate its reserve against loan losses. For purposes of providing certain disclosures about IFC’s entire reserve against losses on loans, IFC considers its entire loan portfolio to comprise one portfolio segment. A portfolio segment is the level at which the method for estimating the reserve against losses on loans is developed and documented. Loans are written-off when IFC has exhausted all possible means of recovery, by reducing the reserve against losses on loans. Such reductions in the reserve are partially offset by recoveries associated with previously written-off loans. Equity investments – IFC invests primarily for developmental impact; IFC does not seek to take operational, controlling, or strategic equity positions within its investees. Equity investments are acquired through direct ownership of equity instruments of investees, as a limited partner in LLPs and LLCs, and/or as an investor in private equity funds. Revenue recognition on equity investments – Equity investments which are listed in markets that provide readily determinable fair values are accounted for as available-for-sale securities at fair value with unrealized gains and losses being reported in other comprehensive income in accordance with ASC 320. As noted above under “Fair Value Option and Fair Value Measurements�, direct equity investments and investments in LLPs and LLCs that maintain ownership accounts in which IFC has significant influence, direct equity investments representing 20 percent or more ownership but in which IFC does not have significant influence and, beginning July 1, 2010, all new equity interests in funds are accounted for at fair value under the Fair Value Option. Direct equity investments in which IFC does not have significant influence and which are not listed in markets that provide readily determinable fair values are carried at cost, less impairment. IFC’s investments in certain private equity funds in which IFC is deemed to have a controlling financial interest ,as the presumption of control by the fund manager or the general partner has been overcome, are fully consolidated into IFC’s books. Certain equity investments, for which recovery of invested capital is uncertain, are accounted for under the cost recovery method, such that receipts of freely convertible currencies are first applied to recovery of invested capital and then to income from equity investments. The cost recovery method is principally applied to IFC's investments in its oil and gas unincorporated joint ventures (UJVs). IFC’s share of conditional asset retirement obligations related to investments in UJVs are recorded when the fair value of the obligations can be reasonably estimated. The obligations are capitalized and systematically amortized over the estimated economic useful lives. Unrealized gains and losses on equity investments accounted for at fair value under the Fair Value Option are reported in income from equity investments on the consolidated income statement. Unrealized gains and losses on equity investments listed in markets that provide readily determinable fair values which are accounted for as available-for-sale are reported in other comprehensive income. Realized gains on the sale or redemption of equity investments are measured against the average cost of the investments sold and are generally recorded as income from equity investments when received in freely convertible currencies. Capital losses are recognized when incurred. Gains and losses on nonmonetary exchanges - Nonmonetary transactions typically arise through: (1) the exchange of nonmonetary assets by exercising a conversion option that results in the exchange of one financial instrument (i.e., loan, equity, or debt security) for another financial instrument (i.e., debt securities or equity shares); or (2) a nonreciprocal transfer where IFC receives a nonmonetary asset for which no assets are relinquished in exchange. Generally, accounting for exchanges of nonmonetary assets should be based on the fair values of the assets involved. Thus, the amount initially recorded for a nonmonetary asset received in exchange for another nonmonetary asset is the fair value of the asset received. The difference between the fair value of the asset received and the recorded amount of the asset surrendered (immediately prior to the exchange transaction) is recorded as a gain or loss on non-monetary exchanges in the income statement. 44 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Dividends and profit participations received on equity investments are generally recorded as income when received in freely convertible currencies. Realized gains on the sale or redemption of equity investments are measured against the average cost of the investments sold and are generally recorded as income in income from equity investments when received in freely convertible currencies. Capital losses are recognized when incurred. IFC enters into put and call option 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. Impairment of equity investments – Equity investments accounted for at cost, less impairment and available-for-sale are assessed for impairment each quarter. When impairment is identified, it is generally deemed to be other than temporary, and the equity investment is written down to the impaired value, which becomes the new cost basis in the equity investment. Such other than temporary impairments are recognized in net income. Subsequent increases in the fair value of available-for-sale equity investments are included in other comprehensive income - subsequent decreases in fair value, if not other than temporary impairment, also are included in other comprehensive income. Debt securities – Debt securities in the investment portfolio are classified as available-for-sale and carried at fair value on the consolidated balance sheet with unrealized gains and losses included in accumulated other comprehensive income until realized. Realized gains on sales of debt securities and interest on debt securities is included in income from debt securities on the consolidated income statement. Certain debt securities are carried at fair value in accordance with the Fair Value Option as discussed above. Unrealized gains and losses on debt securities accounted for at fair value under the Fair Value Option are reported in income from debt securities on the consolidated income statement. IFC invests in certain debt securities with conversion features; these features are accounted for in accordance with ASC 815 to the extent they meet the definition of a derivative. Impairment of debt securities – In determining whether an unrealized loss on debt securities is temporary, IFC considers all relevant information including the length of time and the extent to which fair value has been less than amortized cost, whether IFC intends to sell the debt security or whether it is more likely than not that IFC will be required to sell the debt security, the payment structure of the obligation and the ability of the issuer to make scheduled interest or principal payments, any changes to the ratings of a security, and relevant adverse conditions specifically related to the security, an industry or geographic sector. Debt securities in the investment portfolio are assessed for impairment each quarter. Beginning April 1, 2009, when impairment is identified, the entire impairment is recognized in net income if (1) IFC intends to sell the security, or (2) it is more likely than not that IFC will be required to sell the security before recovery. However, if IFC does not intend to sell the security and it is not more likely than not that IFC will be required to sell the security but the security has suffered a credit loss, the impairment charge will be separated into the credit loss component, which is recognized in net income, and the remainder which is recorded in other comprehensive income. The impaired value becomes the new amortized cost basis of the debt security. Subsequent increases and decreases - if not an additional other-than-temporary impairment - in the fair value of debt securities are included in other comprehensive income. The difference between the new amortized cost basis of debt securities for which an other-than-temporary impairment has been recognized in net income and the cash flows expected to be collected is accreted to interest income using the effective yield method. Significant subsequent increases in the expected or actual cash flows previously expected are recognized as a prospective adjustment of the yield. Prior to April 1, 2009, an identified impairment was generally deemed to be other-than-temporary unless IFC was able to demonstrate it had the ability and intent to hold the debt security for the period for which recovery was anticipated. Debt securities that were impaired and for which the impairment was deemed to be other than temporary were written down to the impaired value, which became the new cost basis in the debt security. Other-than-temporary impairments were recognized in net income. Guarantees – IFC extends financial guarantee facilities to its clients to provide credit enhancement for their debt securities and trade obligations. IFC offers partial credit guarantees to clients covering, on a risk-sharing basis, client obligations on bonds or loans. Under the terms of IFC's guarantees, IFC agrees to assume responsibility for the client’s financial obligations in the event of default by the client (i.e., failure to pay when payment is due). Guarantees are regarded as issued when IFC commits to the guarantee. Guarantees are regarded as outstanding when the underlying financial obligation of the client is incurred, and this date is considered to be the “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: (1) the stand-ready obligation to perform and (2) the contingent liability. The fair value of the stand-ready obligation to perform is recognized at the inception of the guarantee unless a contingent liability exists at that time or is expected to exist in the near term. The contingent liability associated with the financial guarantee is recognized when it is probable the guarantee will be called and when the amount of guarantee called can be reasonably estimated. All liabilities associated with guarantees are included in payables and other liabilities, and the receivables are included in other assets on the consolidated balance sheet. When the guarantees are called, the amount disbursed is recorded as a new loan, and specific reserves against losses are established, based on the estimated probable loss. Guarantee fees are recorded in income as the stand-ready obligation to perform is fulfilled. Commitment fees on guarantees are recorded as income on an accrual basis. Designations of retained earnings – IFC establishes funding mechanisms for specific Board approved purposes through designations of retained earnings. Designations of retained earnings for grants to IDA are recorded as a transfer from undesignated retained earnings to designated retained earnings when the designation is approved by the Board of Governors. All other designations are recorded as a transfer from undesignated retained earnings to designated retained earnings when the designation is noted with approval by the Board of Directors. Total designations of retained earnings are determined based on IFC’s annual income before expenditures against designated retained earnings and net gains and losses on other non-trading financial instruments accounted for at fair value in excess of $150 million, and contemplating the financial capacity and strategic priorities of IFC. 45 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Expenditures resulting from such designations are recorded as expenses in IFC’s consolidated income statement in the year in which they are incurred, also having the effect of reducing the respective designated retained earnings for such purposes. Expenditures are deemed to have been incurred when IFC has ceded control of the funds to the recipient. If the recipient is deemed to be controlled by IFC, the expenditure is deemed to have been incurred only when the recipient disburses the funds to a non-related party. On occasion, recipients which are deemed to be controlled by IFC make investments. In such cases, IFC includes those assets on its consolidated balance sheet until the recipient disposes of or transfers the asset or IFC is deemed to no longer be in control of the recipient. These investments have had no material impact on IFC’s financial position, results of operations, or cash flows. Investments resulting from such designations are recorded on IFC’s consolidated balance sheet in the year in which they occur, also having the effect of reducing the respective designated retained earnings for such purposes. Liquid asset portfolio – IFC’s liquid funds are invested in government, agency and government-sponsored agency obligations, time deposits and asset-backed, including mortgage-backed, securities. Government and agency obligations include positions in high quality fixed rate bonds, notes, bills, and other obligations issued or unconditionally guaranteed by governments of countries or other official entities including government agencies and instrumentalities or by multilateral organizations. Asset-backed and mortgage-backed securities include agency and non-agency residential mortgage-backed securities, commercial mortgage-backed securities, consumer, auto- and student loans-backed securities, commercial real estate collateralized debt obligations and collateralized loan obligations. The liquid asset portfolio, as defined by IFC, consists of: time deposits and securities; related derivative instruments; securities purchased under resale agreements, securities sold under repurchase agreements and payable for cash collateral received; receivables from sales of securities and payables for purchases of securities; and related accrued income and charges. Securities and related derivative instruments within IFC’s liquid asset portfolio are classified as trading and are carried at fair value with any changes in fair value reported in income from liquid asset trading activities. Interest on securities and amortization of premiums and accretion of discounts are also reported in income from liquid asset trading activities. Gains and losses realized on the sale of trading securities are computed on a specific security basis. IFC classifies cash and due from banks and time deposits (collectively, cash and cash equivalents) as cash and cash equivalents in the consolidated statement of cash flows because they are generally readily convertible to known amounts of cash within 90 days of acquisition. Repurchase and resale agreements – Repurchase agreements are contracts under which a party sells securities and simultaneously agrees to repurchase the same securities at a specified future date at a fixed price. Resale agreements are contracts under which a party purchases securities and simultaneously agrees to resell the same securities at a specified future date at a fixed price. It is IFC’s policy to take possession of securities purchased under resale agreements, which are primarily liquid government securities. The market value of these securities is monitored and, within parameters defined in the agreements, additional collateral is obtained when their value declines. IFC also monitors its exposure with respect to securities sold under repurchase agreements and, in accordance with the terms of the agreements, requests the return of excess securities held by the counterparty when their value increases. Repurchase and resale agreements are accounted for as collateralized financing transactions and recorded at the amount at which the securities were acquired or sold plus accrued interest. Borrowings – To diversify its access to funding, and reduce its borrowing costs, IFC borrows in a variety of currencies and uses a number of borrowing structures, including foreign exchange rate-linked, inverse floating rate and zero coupon notes. Generally, IFC simultaneously converts such borrowings into variable rate US dollar borrowings through the use of currency and interest rate swap transactions. Under certain outstanding borrowing agreements, IFC is not permitted to mortgage or allow a lien to be placed on its assets (other than purchase money security interests) without extending equivalent security to the holders of such borrowings. Substantially all borrowings are carried at fair value under the Fair Value Option with changes in fair value reported in net gains and losses on other non-trading financial instruments accounted for at fair value in the consolidated income statement. Interest on borrowings and amortization of premiums and accretion of discounts are reported in charges on borrowings. Risk management and use of derivative instruments – IFC enters into transactions in various derivative instruments for financial risk management purposes in connection with its principal business activities, including lending, investing in debt securities and equity investments, client risk management, borrowing, liquid asset portfolio management and asset and liability management. There are no derivatives designated as accounting hedges. All derivative instruments are recorded on the consolidated balance sheet at fair value as derivative assets or derivative liabilities. Where they are not clearly and closely related to the host contract, certain derivative instruments embedded in loans, debt securities and equity investments are bifurcated from the host contract and recorded at fair value as derivative assets and liabilities. The fair value at inception of such embedded derivatives is excluded from the carrying value of the host contracts on the consolidated balance sheet. Changes in fair values of derivative instruments used in the liquid asset portfolio are recorded in income from liquid asset trading activities. Changes in fair values of derivative instruments other than those in the liquid asset portfolio are recorded in net gains and losses on other non-trading financial instruments accounted for at fair value. The risk management policy for each of IFC’s principal business activities and the accounting policies particular to them are described below. Lending activities IFC’s policy is to closely match the currency, interest rate basis, and maturity of its loans and borrowings. Derivative instruments are used to convert the cash flows from fixed rate US dollar or non-US dollar loans into variable rate US dollars. IFC has elected not to designate any hedging relationships for all lending-related derivatives. 46 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Client risk management activities IFC enters into derivatives transactions with its clients to help them hedge their own currency, interest rate, or commodity risk, which, in turn, improves the overall quality of IFC’s loan portfolio. To hedge the market risks that arise from these transactions with clients, IFC enters into offsetting derivative transactions with matching terms with authorized market counterparties. Changes in fair value of all derivatives associated with these activities are reported in net income in net gains and losses on other non-trading financial instruments accounted for at fair value. Fees and spreads charged on these transactions are recorded in other income in the consolidated income statement on an accrual basis. Borrowing activities IFC issues debt securities in various capital markets with the objectives of minimizing its borrowing costs, diversifying funding sources, and developing member countries’ capital markets, sometimes using complex structures. These structures include borrowings payable in multiple currencies, or borrowings with principal and/or interest determined by reference to a specified index such as a stock market index, a reference interest rate, a commodity index, or one or more foreign exchange rates. IFC uses derivative instruments with matching terms, primarily currency and interest rate swaps, to convert such borrowings into variable rate US dollar obligations, consistent with IFC’s matched funding policy. IFC elected to carry at fair value, under the Fair Value Option, all market borrowings for which a derivative instrument is used to create an economic hedge. Changes in the fair value of such borrowings and the associated derivatives are reported in net gains and losses on other non-trading financial instruments accounted for at fair value in the consolidated income statement. Liquid asset portfolio management activities IFC manages the interest rate, currency and other market risks associated with certain of the time deposits and securities in its liquid asset portfolio by entering into derivative transactions to convert the cash flows from those instruments into variable rate US dollars, consistent with IFC’s matched funding policy. The derivative instruments used include short-term, over-the-counter foreign exchange forwards (covered forwards), interest rate and currency swaps, and exchange-traded interest rate futures and options. As the entire liquid asset portfolio is classified as a trading portfolio, all securities (including derivatives) are carried at fair value with changes in fair value reported in income from liquid asset trading activities. No derivatives in the liquid asset portfolio have been designated as hedging instruments under ASC 815. Asset and liability management In addition to the risk managed in the context of its business activities detailed above, IFC faces residual market risk in its overall asset and liability management. Residual currency risk is managed by monitoring the aggregate position in each lending currency and reducing the net excess asset or liability position through sales or purchases of currency. Interest rate risk arising from mismatches due to write-downs, prepayments and re-schedulings, and residual reset date mismatches is monitored by measuring the sensitivity of the present value of assets and liabilities in each currency to each basis point change in interest rates. IFC monitors the credit risk associated with these activities by careful assessment and monitoring of prospective and actual clients and counterparties. In respect of liquid assets and derivatives transactions, credit risk is managed by establishing exposure limits based on the credit rating and size of the individual counterparty. In addition, IFC has entered into master agreements governing derivative transactions that contain close-out and netting provisions and collateral arrangements. Under these agreements, if IFC’s credit exposure to a counterparty, on a mark-to- market basis, exceeds a specified level, the counterparty must post collateral to cover the excess, generally in the form of liquid government securities or cash. IFC does not offset the fair value amounts of derivatives and obligations to return cash collateral associated with these master netting agreements. Loan participations – IFC mobilizes funds from commercial banks and other financial institutions (Participants) by facilitating loan participations, without recourse. These loan participations are administered and serviced by IFC on behalf of the Participants. The disbursed and outstanding balances of loan participations that meet the applicable accounting criteria are accounted for as sales and are not included in IFC’s consolidated balance sheet. All other loan participations are accounted for as secured borrowings and are included in loans on IFC’s consolidated balance sheet, with the related secured borrowings included in payables and other liabilities on IFC’s consolidated balance sheet. Pension and other postretirement benefits – IBRD has a defined benefit Staff Retirement Plan (SRP), a Retired Staff Benefits Plan (RSBP) and a Post-Employment Benefits Plan (PEBP) that cover substantially all of its staff members as well as the staff of IFC and of MIGA. The SRP provides regular pension benefits and includes a cash balance plan. The RSBP provides certain health and life insurance benefits to eligible retirees. The PEBP provides pension benefits administered outside the SRP. All costs associated with these plans are allocated between IBRD, IFC, and MIGA based upon their employees’ respective participation in the plans. In addition, IFC and MIGA reimburse IBRD for their share of any contributions made to these plans by IBRD. The net periodic pension and other postretirement benefit income or expense allocated to IFC is included in income or expense from pension and other postretirement benefit plans in the consolidated income statement. IFC includes a receivable from IBRD in receivables and other assets, representing prepaid pension and other postretirement benefit costs. Variable Interest Entities – The Variable Interest Entities Subsections of ASC Topic 810, Consolidation (the ASC 810 VIE Subsections), defines certain variable interest entities and require parties to such entities to assess and measure variable interests in the VIEs for the purposes of determining possible consolidation of the VIEs. Variable interests can arise from financial instruments, service contracts, guarantees, leases or other arrangements with a VIE. An entity is subject to the ASC 810 VIE Subsections and is a variable interest entity if it lacks: (1) equity that is sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties; or (2) equity investors who have decision-making rights about the entity’s operations or if it has equity investors who do not absorb the expected losses or receive the expected returns of the entity proportionally to their voting rights. Except as noted in the following paragraph, IFC consolidates a VIE if it has the power to direct the VIE’s activities that most significantly impact its economic performance and the obligation to absorb losses of or the right to receive benefits from the VIE that could potentially be significant to the VIE. 47 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS IFC consolidates certain VIEs if it will absorb a majority of a VIE’s expected losses or expected residual returns. Such VIEs are entities that (1) have all the attributes of an investment company as specified in the ASC or for which it is industry practice to account for their assets at fair value through earnings, (2) IFC does not have an explicit or implicit obligation to fund losses of the entity that could be potentially significant to that entity, and (3) are not a securitization entity, an asset-backed financing entity, or an entity that was formerly considered a qualifying special purpose entity, as well as entities that are required to comply with or operate in accordance with requirements that are similar to those included in Rule 2a-7 of the Investment Company Act of 1940. IFC has a number of investments in VIEs that it manages and supervises in a manner consistent with other portfolio investments. Note U provides further details regarding IFC’s variable interests in VIEs. Recently adopted accounting standards – In June 2009, the FASB issued SFAS No. 166, Accounting for Transfers of Financial Assets - an amendment of FASB Statement No. 140 (SFAS No. 166). SFAS No. 166 removes the concept of a qualifying special-purpose entity (QSPE) from Statement 140 and removes the exception from applying FIN 46 to QSPEs. It clarifies Statement 140’s objective of determining whether a transferor has surrendered control over transferred financial assets, and limits the circumstances in which a financial asset, or portion of a financial asset, should be derecognized when the entire financial asset has not been transferred and/or when the transferor has continuing involvement with the transferred financial asset. SFAS No. 166 defines the term participating interest to establish specific conditions for reporting a transfer of a portion of a financial asset as a sale. If the transfer does not meet those conditions, a transferor may account for the transfer as a sale only if it transfers an entire financial asset and surrenders control over the entire transferred assets in accordance with the conditions in Statement 140, as amended. SFAS No. 166 requires that a transferor recognize and initially measure at fair value all assets obtained and liabilities incurred as a result of a transfer of a financial asset. SFAS No. 166 also requires enhanced financial statement disclosures about transfers of financial assets and a transferor’s continuing involvement in transferred financial assets. SFAS No. 166 is effective as of the beginning of the reporting entity’s first annual reporting period that begins after November 15, 2009 (which is the year ending June 30, 2011 for IFC) and for interim periods within that first annual reporting period. IFC adopted the provisions of SFAS No. 166 for the three months ended September 30, 2010 without a material impact on IFC’s financial position, results of operations or cash flows. SFAS No. 166 is now ASC Topic 860, Transfers and Servicing. In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R) (SFAS No. 167). SFAS No. 167 amends FIN 46(R) to require the analysis of whether the reporting entity’s variable interests give it a controlling financial interest in a VIE. If so, the reporting entity is considered to be the primary beneficiary and must consolidate the VIE. SFAS No. 167 defines a controlling interest as an interest having both the power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb losses of or the right to receive benefits from the VIE that could potentially be significant to the VIE. SFAS No. 167 requires on-going assessments of whether the reporting entity is the primary beneficiary of a VIE and eliminates the quantitative approach previously required for determining the primary beneficiary of a VIE. SFAS No. 167 also amends FIN 46(R) to require a troubled debt restructuring to be considered an event that requires reconsideration of whether an entity is a VIE and whether a reporting entity is the primary beneficiary of a VIE. SFAS No. 167 requires enhanced disclosures aimed at providing more transparent information about an enterprise’s involvement in VIE’s and nullifies FASB FSP 140-4 and FIN 46(R)-8. However, the content of the enhanced disclosures is generally consistent with that previously required by FSP FAS 140-4 and FIN 46(R)-8. SFAS No. 167 is effective as of the beginning of the reporting entity’s first annual reporting period that begins after November 15, 2009 (which is the year ending June 30, 2011 for IFC) and for interim periods within that first annual reporting period. IFC adopted the provisions of SFAS No. 167 for the three months ended September 30, 2010 without a material impact on IFC’s financial position, results of operations or cash flows. The provisions of SFAS No. 167 are included in the VIE Subsections of ASC 810. In December 2009, the FASB issued ASU No. 2009-16, Transfers and Servicing (Topic 860): Accounting for Transfers of Financial Assets (ASU 2009-16) and ASU No. 2009-17, Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities (ASU 2009-17). ASU 2009-16 and ASU 2009-17 formally update the ASC for the provisions of SFAS No. 166 and SFAS No. 167, respectively. In January 2010, the FASB issued ASU No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements (ASU 2010-06). ASU 2010-06 amends ASC 820 to require new disclosures for transfers in and out of Level 1 and 2 measurements and separate disclosures about gross purchases, sales, issuances, and settlements relating to Level 3 measurements. It also clarifies existing fair value disclosure requirements about the level of disaggregation and about inputs and valuation techniques used to measure fair value. ASU 2010-06 is effective for the first interim or annual period beginning after December15, 2009 (which was the three months ended March 31, 2010 for IFC) except for the requirement to provide the Level 3 activity of gross purchases, sales, issuances and settlements, which was effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. IFC adopted the requirements of ASC 2010-06 for the three months ended March 31, 2010 (including the requirement to provide Level 3 activity) without a material impact on IFC’s financial position, results of operations or cash flows. In February 2010, the FASB issued ASU No. 2010-09, Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements (ASU 2010-09) and ASU No. 2010-10, Consolidation (Topic 810): Amendments for Certain Investment Funds (ASU 2010-10), and in March 2010 issued ASU 2010-11, Derivatives and Hedging (Topic 815): Scope Exception Related to Embedded Credit Derivatives (ASU 2010- 11). ASU 2010-09 adds the term “SEC filer� to the ASC Master Glossary; requires (1) SEC filers and (2) certain other entities to evaluate subsequent events through the date the financial statements are issued; requires all other entities to evaluate subsequent events through the date the financial statements are available to be issued; and exempts SEC filers from disclosing the date through which subsequent events have been evaluated. ASU 2010-09 was effective upon issuance and had no material impact on IFC’s financial position, results of operations or cash flows. ASU 2010-10 defers application of SFAS No. 167 for a reporting enterprise’s interest in certain entities if (1) the entity either has all the attributes of an investment company as specified in the ASC or is an entity for which it is industry practice to account for its assets at fair value through earnings, (2) the reporting enterprise does not have an explicit or implicit obligation to fund losses of the entity that could be potentially significant 48 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS to that entity, and (3) the entity is not a securitization entity, an asset-backed financing entity, or an entity that was formerly considered a qualifying special purpose entity, as well as interests in entities that are required to comply with or operate in accordance with requirements that are similar to those included in Rule 2a-7 of the Investment Company Act of 1940. ASU 2010-10 is effective beginning as of the first annual reporting period that begins after November 15, 2009 (which is the year ending June 30, 2011 for IFC). IFC adopted the provisions of ASU 2010- 10 for the three months ended September 30, 2010 without a material impact on IFC’s financial position, results of operations or cash flows. ASU 2010-11 addresses application of the scope exception for certain embedded credit derivatives contained in ASC 815-15-15-8 and 15-9 and is effective on the first day of the first fiscal quarter beginning after June 15, 2010 (which was the three months ended September 30, 2010, for IFC). IFC adopted the provisions of ASU 2010-11 for the three months ended September 30, 2010 without a material impact on IFC’s financial position, results of operations or cash flows. In July 2010, the FASB issued ASU 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses (ASU 2010-20). ASU 2010-20 amends ASC Topic 310 by requiring additional disaggregated disclosures about the credit quality of an entity’s financing receivables (loans) and its allowance for credit losses. The objective of the new disclosures is to improve the financial statement user’s understanding of (1) the nature of an entity’s credit risks associated with its financing receivables and (2) the entity’s assessment of that risk in estimating its allowance for credit losses as well as the changes in the allowance and the reasons for those changes. The new disclosures that relate to information as of the end of a reporting period are effective for the first interim or annual reporting period ending on or after December 15, 2010 (which was the three months ended December 31, 2010 for IFC). The new disclosures that include information for activity that occurs during a reporting period will be effective for the first interim or annual periods beginning after December 15, 2010 (which was the three months ending March 31, 2011 for IFC). IFC has provided those disclosures in the Notes to these Consolidated Financial Statements Accounting and financial reporting developments – In March 2010, the Patient Protection and Affordable Care Act (the PPACA) and the Health Care Education Reconciliation Act of 2010 (HCERA), became law (collectively, the “Act�). The Act seeks to reform the U.S. health care system and its various provisions will become effective over the next eight years. IFC is currently evaluating the impact of the Act. In January 2011, the FASB issued ASU 2011-01, Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No.2010-20 (ASU 2011-01). ASU 2011-01 amends ASC Topic 310 and ASU 2010-20 to defer indefinitely the effective date of the disclosures required by ASU 2010-20 pertaining to troubled debt restructurings. The original effective date for those disclosures was for the first interim or annual period beginning after December 15, 2010 (which was the three months ended March 31, 2011 for IFC). In April 2011, the FASB issued ASU 2011-02, A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring (ASU 2011-02). ASU 2011-02 provides additional guidance clarifying when the restructuring of a loan should be considered a troubled debt restructuring, including determining whether the lender has granted a concession and whether the borrower is experiencing financial difficulty. The ASU also reestablishes an effective date for ASU 2010-20’s previously deferred disclosure requirements for troubled debt restructurings. ASU 2011-02 is effective for interim and annual periods ending after June 15, 2011 (which is the three months ending September 30, 2011 for IFC) and applies retroactively to restructurings occurring on or after the beginning of the annual period of adoption (which is July 1, 2011 for IFC), ASU 2010-20’s previously deferred disclosure requirements for troubled debt restructurings are effective for the first interim or annual period beginning after June 15, 2011 (which is the three months ending September 30, 2011 for IFC). In April 2011, the FASB also issued ASU 2011-03, Reconsideration of Effective Control for Repurchase Agreements (ASU 2011-03). ASU 2011- 03 amends ASC Topic 860, Transfers and Servicing, to remove from the assessment of whether a transferor of a financial asset has given up effective control of that asset (1) the criterion requiring the transferor to have the ability to repurchase or redeem transferred financial assets on substantially the agreed terms, even in the event of a default by the transferee, and (2) the collateral maintenance implementation guidance related to that criterion. ASU 2011-03 is effective prospectively for transactions, or modifications of existing transactions, that occur in or after the first interim or annual period beginning after December 15, 2011 (which is the three months ending March 31, 2012 for IFC). IFC is currently evaluating the impact of ASU 2011-03. In May 2011, the FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (ASU 2011-04). ASU 2011-04 is largely consistent with current fair value measurements principles in U.S. GAAP, expands ASC 820’s existing disclosure requirements and makes other amendments, many of which are made to eliminate unnecessary wording differences between U.S. GAAP and IFRS. ASU 2011-04 is effective for interim and annual periods beginning after December 15, 2011 (which is the three months ending March 31, 2012 for IFC). ASU 2011-04 is not expected to have a material impact on IFC’s financial position, results of operations or cash flows. In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income (ASU 2011-05). ASU 2011-05 revises the manner in which entities must present comprehensive income in their financial statements by requiring either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements of income and comprehensive income, respectively. ASU 2011-05 does not change the items that must be reported in other comprehensive income, does not require any additional disclosures and is effective for fiscal years ending after December 15, 2011 (which is the year ending June 30, 2012 for IFC) and interim and annual periods thereafter. IFC currently presents two separate but consecutive consolidated statements of income and comprehensive income, respectively. In addition, during the year ended June 30, 2011, the FASB issued and/or approved various other ASUs. IFC analyzed and implemented the new guidance, as appropriate, with no material impact on either the financial position, results of operations or cash flows of IFC. 49 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE B – SCOPE OF CONSOLIDATION IFC Asset Management Company, LLC (AMC) IFC has established a wholly owned subsidiary, AMC, to mobilize capital from outside IFC’s traditional investor pool and to manage third-party capital. AMC is consolidated into IFC’s financial statements. At June 30, 2011, IFC has provided $2 million of capital to AMC ($2 million - June 30, 2010). At June 30, 2011, AMC managed four funds (collectively referred to as the AMC Funds): IFC Capitalization (Equity) Fund, L.P. (the Equity Capitalization Fund); IFC Capitalization (Subordinated Debt) Fund, L.P. (the Sub-Debt Capitalization Fund); IFC African, Latin American and Caribbean Fund, L.P. (the ALAC Fund); and Africa Capitalization Fund, Ltd. (the Africa Capitalization Fund). IFC is a limited partner of the Equity Capitalization Fund and the Sub-Debt Capitalization Fund, and IFC Founder Partner LLC, a wholly owned subsidiary of IFC, is a limited partner of the ALAC Fund. IFC accounts for these limited partner interests at fair value under the Fair Value Option. IFC has no direct financial interest in the Africa Capitalization Fund. In addition, wholly owned subsidiaries of AMC have general partnership interests in the Equity Capitalization Fund, the Sub-Debt Capitalization Fund and the ALAC Fund. These general partnerships are ultimately consolidated into IFC’s financial statements but are immaterial individually and in the aggregate to IFC’s Consolidated Financial Statements. The Africa Capitalization Fund is structured as a limited liability company and AMC is its manager. As a result of the consolidation of AMC and the general partnership interests in the AMC Funds, IFC’s consolidated balance sheet at June 30, 2011 includes $18 million in cash, receivables and other assets ($6 million - June 30, 2010), less than $0.5 million in equity investments (less than $0.5 million - June 30, 2010) and less than $0.5 million in payables and other liabilities (less than $0.5 million - June 30, 2010). Other income in IFC’s consolidated income statement includes $28 million during year ended June 30, 2011 ($7 million - year ended June 30, 2010 and less than $0.5 million - year ended June 30, 2009) and other expenses includes $5 million during the year ended June 30, 2011 ($2 million - year ended June 30, 2010 and $0 - year ended June 30, 2009). Consolidated VIEs IFC has consolidated three VIEs into these Consolidated Financial Statements. In October 2009, IFC created a special purpose vehicle, Hilal Sukuk Company, to facilitate a $100 million Sukuk under IFC’s borrowings program. Hilal Sukuk Company is a variable interest entity and has been consolidated into these Consolidated Financial Statements. The consolidation of Hilal Sukuk Company had no material impact on these Consolidated Financial Statements. The other two consolidated VIEs are in the collective investment vehicles sector in the Latin America and Caribbean region. As a result of their consolidation, IFC’s consolidated balance sheet at June 30, 2011 includes additional assets of $7 million in equity investments ($14 million - June 30, 2010), $3 million in receivables and other assets ($1 million - June 30, 2010), and additional liabilities of $3 million in payables and other liabilities ($4 million - June 30, 2010). Related to the consolidation of these VIEs, other income includes $2 million during the year ended June 30, 2011 ($10 million - year ended June 30, 2010 and $2 million - year ended June 30, 2009). Other expenses include $7 million during the year ended June 30, 2011 ($6 million - year ended June 30, 2010 and $12 million - year ended June 30, 2009). Other consolidated entities Beginning July 1, 2010, IFC has consolidated three entities in the collective investment vehicles sector in the Asia and Sub-Saharan African regions into these Consolidated Financial Statements under the voting interest model. During the year ended June 30, 2011, IFC disbursed $4 million to these entities. 50 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE C – LIQUID ASSET PORTFOLIO The composition of IFC’s liquid asset portfolio included in the consolidated balance sheet captions is as follows (US$ millions): June 30, 2011 June 30, 2010 Assets Cash and due from banks $ 73 $ 74 Time deposits 4,275 5,060 Trading securities 24,761 23,428 Securities purchased under resale agreements 1,549 539 Derivative assets 65 153 Receivables and other assets: Receivables from unsettled security trades 1,004 1,075 Accrued interest income on time deposits and securities 94 130 Accrued income on derivative instruments 23 9 Total assets 31,844 30,468 Liabilities Securities sold under repurchase agreements and payable for cash collateral received 5,787 8,393 Derivative liabilities 513 181 Payables and other liabilities: Payables for unsettled security trades 970 857 Accrued charges on derivative instruments 57 36 Total liabilities 7,327 9,467 Total net liquid asset portfolio $ 24,517 $ 21,001 The liquid asset portfolio is denominated primarily in US dollars; investments in other currencies, net of the effect of associated derivative instruments that convert non-US dollar securities into US dollar securities, represent 1.7% of the portfolio at June 30, 2011 (2.2% - June 30, 2010). Trading securities Trading securities comprises: Year ended June 30, 2011 At June 30, 2011 Fair value Weighted average average daily balance Fair value contractual (US$ millions) (US$ millions) maturity (years) Government, agency and government-sponsored agency obligations $ 8,419 $ 7,288 3.2 Asset-backed securities 7,287 8,329 25.0 Corporate securities 8,611 7,772 2.4 Money market funds 524 1,372 1.0 Total trading securities $ 24,841 $ 24,761 Year ended June 30, 2010 At June 30, 2010 Fair value Weighted average average daily balance Fair value contractual (US$ millions) (US$ millions) maturity (years) Government, agency and government-sponsored agency obligations $ 7,910 $ 8,207 2.4 Asset-backed securities 6,172 5,757 19.2 Corporate securities 8,097 9,008 2.6 Money market funds 1,077 456 1.0 Total trading securities $ 23,256 $ 23,428 The expected maturity of the asset-backed securities may be significantly shorter than the contractual maturity, as reported above, due to prepayment features. 51 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Income from liquid asset trading portfolio Income from the liquid asset trading portfolio for the years ended June 30, 2011, June 30, 2010 and June 30, 2009 comprises (US$ millions): 2011 2010 2009 Interest income $ 473 $ 358 $ 510 Net gains and losses on trading activities: Realized gains (losses) (12) 127 334 Unrealized gains (losses) 101 328 (368) Net gains (losses) on trading activities 89 455 (34) Foreign currency transaction gains (losses) (33) 2 (2) Total income from liquid asset trading portfolio $ 529 $ 815 $ 474 Net gains and losses on trading activities comprises net gains on asset-backed and mortgage-backed securities of $159 million in the year ended June 30, 2011 ($419 million gains - year ended June 30, 2010; $368 million losses - year ended June 30, 2009) and net losses on other trading securities of $70 million in the year ended June 30, 2011 ($36 million gains - year ended June 30, 2010; $334 million gains - year ended June 30, 2009). The annualized rate of return on the trading liquid asset portfolio, calculated as total income from the liquid asset trading portfolio divided by fair value average daily balance, during the year ended June 30, 2011, was 2.1% (3.5% - year ended June 30, 2010; 3.2% - year ended June 30, 2009). After the effect of associated derivative instruments, the liquid asset portfolio generally reprices within one year. Collateral The estimated fair value of securities held by IFC at June 30, 2011 as collateral in connection with derivatives transactions and purchase and resale agreements that may be sold or repledged was $3,568 million ($1,476 million - June 30, 2010). Collateral given by IFC to counterparties in connection with repurchase agreements that may be sold or repledged by the counterparty approximates the amounts classified as Securities sold under repurchase agreements and payable for cash collateral received. NOTE D – INVESTMENTS The carrying value of investments at June 30, 2011 and June 30, 2010 comprises (US$ millions): June 30, 2011 June 30, 2010 Loans Loans at amortized cost $ 19,038 $ 17,559 Less: Reserve against losses on loans (1,307) (1,349) Net loans 17,731 16,210 Loans held for sale at lower of amortized cost or fair value 87 - Loans accounted for at fair value under the Fair Value Option (outstanding principal balance $596 - June 30, 2011, $488 - June 30, 2010) 637 450 Total Loans 18,455 16,660 Equity investments Equity investments at cost less impairment* 2,748 2,551 Equity investments accounted for at fair value as available-for-sale (cost $1,824 - June 30, 2011, $1,450 - June 30, 2010) 3,484 3,012 Equity investments accounted for at fair value under the Fair Value Option (cost $ 2,112 - June 30, 2011, $1,391 - June 30, 2010) 3,081 1,906 Total equity investments 9,313 7,469 Debt securities Debt securities accounted for at fair value as available-for-sale (amortized cost $1,702 - June 30, 2011, $1,491 - June 30, 2010) 1,961 1,609 Debt securities accounted for at fair value under the Fair Value Option (amortized cost $184 - June 30, 2011, $183 - June 30, 2010) 205 206 Total debt securities 2,166 1,815 Total carrying value of investments $ 29,934 $ 25,944 * Equity investments at cost less impairment at June 30, 2011 includes unrealized gains of $36 million ($20 million at June 30, 2010) related to equity investments accounted for as available-for- sale in previous periods and for which readily determinable fair vales are no longer available. 52 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The distribution of the investment portfolio by sector and by geographical region and a reconciliation of total disbursed portfolio to carrying value of investments is as follows (US$ millions): June 30, 2011 June 30, 2010 Sector Equity Debt Equity Debt Loans investments securities Total Loans investments securities Total Manufacturing, agribusiness and services Asia $ 2,001 $ 391 $ 192 $ 2,584 $ 1,864 $ 331 $ 192 $ 2,387 Europe, Middle East and North Africa 2,882 460 36 3,378 2,569 389 36 2,994 Sub-Saharan Africa, Latin America and Caribbean 1,929 345 39 2,313 2,050 258 31 2,339 Other 34 - - 34 48 - - 48 Total manufacturing, agribusiness and services 6,846 1,196 267 8,309 6,531 978 259 7,768 Financial markets Asia 1,104 1,074 235 2,413 866 769 190 1,825 Europe, Middle East and North Africa 3,051 1,542 378 4,971 2,752 1,309 223 4,284 Sub-Saharan Africa, Latin America and Caribbean 1,465 1,291 944 3,700 1,504 1,074 848 3,426 Other 363 426 66 855 305 189 66 560 Total financial markets 5,983 4,333 1,623 11,939 5,427 3,341 1,327 10,095 Infrastructure and natural resources Asia 1,812 236 57 2,105 1,629 209 60 1,898 Europe, Middle East and North Africa 2,099 460 6 2,565 1,539 373 7 1,919 Sub-Saharan Africa, Latin America and Caribbean 2,966 394 156 3,516 2,940 443 118 3,501 Other 178 113 6 297 131 87 1 219 Total infrastructure and natural resources 7,055 1,203 225 8,483 6,239 1,112 186 7,537 Total disbursed portfolio $ 19,884 $ 6,732 $ 2,115 $ 28,731 $ 18,197 $ 5,431 $ 1,772 $ 25,400 Reserves against losses on loans (1,307) (1,307) (1,349) (1,349) Unamortized deferred loan origination fees, net and other (123) (123) (108) (108) Disbursed amount allocated to a related financial instrument reported separately in other assets or derivative assets (40) (55) (8) (103) (42) (53) (7) (102) Unrealized gains on equity investments held by consolidated VIEs 7 7 14 14 Unrealized gains on investments accounted for at fair value as available-for-sale 1,660 38 1,698 1,562 27 1,589 Unrealized gains (losses) on investments accounted for at fair value under the Fair Value Option 41 969 21 1,031 (38) 515 23 500 Carrying value of investments $ 18,455 $ 9,313 $ 2,166 $ 29,934 $ 16,660 $ 7,469 $ 1,815 $ 25,944 53 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE E – LOANS AND GUARANTEES Loans The currency composition and average contractual rate of the disbursed loan portfolio are summarized below: June 30, 2011 June 30, 2010 Average Average Amount contractual Amount contractual (US$ millions) rate (%) (US$ millions) rate (%) US dollar $ 14,167 3.9 $ 13,409 3.9 Euro 3,009 4.7 2,311 3.9 Indian rupee 455 9.5 340 8.5 Russian ruble 411 9.7 362 11.6 Chinese renminbi 331 5.2 294 5.2 Philippine pesos 246 8.2 247 8.6 Indonesian rupiah 228 10.2 194 11.2 Colombian pesos 189 10.4 207 10.4 South African rand 171 9.4 156 10.1 Brazilian real 118 11.2 135 10.1 New Turkish lira 49 13.1 51 13.2 Mexican peso 8 6.0 80 5.7 Other currencies: OECD currencies 243 4.4 180 4.6 Non-OECD currencies 259 7.5 231 7.6 Total disbursed loan portfolio $ 19,884 4.6 $ 18,197 4.6 After the effect of interest rate swaps and currency swaps, IFC’s loans are principally denominated in variable rate US dollars. Loans in all currencies are repayable during the years ending June 30, 2012 through June 30, 2016 and thereafter, as follows (US$ millions): 2012 2013 2014 2015 2016 Thereafter Total Fixed rate loans $ 685 $ 613 $ 737 $ 466 $ 572 $ 1,274 $ 4,347 Variable rate loans 3,017 2,256 2,346 1,977 1,754 4,187 15,537 Total disbursed loan portfolio $ 3,702 $ 2,869 $ 3,083 $ 2,443 $ 2,326 $ 5,461 $ 19,884 At June 30, 2011, 22% of the disbursed loan portfolio consisted of fixed rate loans (22% - June 30, 2010), while the remainder was at variable rates. At June 30, 2011, the disbursed loan portfolio included $199 million of loans serving as collateral under secured borrowing arrangements ($130 million - June 30, 2010). IFC’s disbursed variable rate loans generally reprice within one year. Income from loans and guarantees for the years ended June 30, 2011, June 30, 2010 and June 30, 2009, comprise the following (US$ millions): 2011 2010 2009 Interest income $ 704 $ 676 $ 879 Commitment fees 33 33 29 Other financial fees 52 50 25 Gains on non-monetary exchanges 9 - - Unrealized gains (losses) on loans accounted for at fair value under the Fair Value Option 79 42 (62) Income from loans and guarantees $ 877 $ 801 $ 871 During the year ended June 30, 2011, IFC received mortgage loans with an initial carrying amount of $86 million in conjunction with the settlement of a borrower’s obligation to IFC. These loans are classified as held-for-sale. 54 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Reserves against losses on loans Changes in the reserve against losses on loans for the years ended June 30, 2011, June 30, 2010 and June 30, 2009, as well as the related recorded investment in loans at June 30, 2011, evaluated for impairment individually (specific reserves) and on a pool basis (portfolio reserves) respectively, are summarized below (US$ millions): Year ended June 30, 2011 Specific Portfolio Total reserve reserves reserves Beginning balance $ 432 $ 917 $ 1,349 Release of provision for losses on loans, net (16) (24) (40) Write offs (56) - (56) Recoveries of previously written off loans 4 - 4 Foreign currency transaction adjustments 10 32 42 Other adjustments* 8 - 8 Ending balance $ 382 $ 925 $ 1,307 Related recorded investment in loans at June 30, 2011 evaluated for impairment** $ 19,038 $ 18,120 $ 19,038 *Other adjustments comprise reserves against interest capitalized as part of a debt restructuring. **IFC individually evaluates all loans for impairment. Portfolio reserves are established for losses incurred, but not specifically identifiable, on loans for which no specific reserve is established. Year ended June 30, 2010 Specific Portfolio Total reserves reserves reserves Beginning balance $ 300 $ 938 $ 1,238 Provision for (release of provision for) losses on loans, net 153 (8) 145 Write offs (18) - (18) Recoveries of previously written off loans 5 - 5 Foreign currency transaction adjustments (9) (13) (22) Other adjustments 1 - 1 Ending balance $ 432 $ 917 $ 1,349 Year ended June 30, 2009 Specific Portfolio Total reserves reserves reserves Beginning balance $ 219 $ 629 $ 848 Provision for losses on loans, net 109 332 441 Write offs (41) - (41) Recoveries of previously written off loans 15 - 15 Foreign currency transaction adjustments (1) (23) (24) Other adjustments (1) - (1) Ending balance $ 300 $ 938 $ 1,238 Guarantees IFC extends financial guarantee facilities to its clients to provide full or partial credit enhancement for their debt securities and trade obligations. Under the terms of IFC’s guarantees, IFC agrees to assume responsibility for the client’s financial obligations in the event of default by the client, where default is defined as failure to pay when payment is due. Guarantees entered into by IFC generally have maturities consistent with those of the loan portfolio. Guarantees signed at June 30, 2011 totaled $4,081 million ($2,721 million - June 30, 2010). Guarantees of $2,932 million that were outstanding (i.e., not called) at June 30, 2011 ($1,889 million - June 30, 2010), 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. Provision for losses on loans and guarantees The provision for losses on loans and guarantees in the consolidated income statement for the year ended June 30, 2011 includes $0 in respect of guarantees ($10 million provision - year ended June 30, 2010; $3 million release of provision - year ended June 30, 2009). At June 30, 2011 the accumulated reserve for losses on guarantees, included in the consolidated balance sheet in payables and other liabilities, was $24 million ($24 million - June 30, 2010). Other adjustments comprise reserves against interest capitalized as part of a debt restructuring. 55 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Impaired loans The average recorded investment during the year ended June 30, 2011, in loans at amortized cost that are impaired was $940 million ($768 million - year ended June 30, 2010). The recorded investment in loans at amortized cost that are impaired at June 30, 2011 was $918 million ($984 million - June 30, 2010). Loans at amortized cost that are impaired with specific reserves are summarized by industry sector and geographic region as follows (US$ millions): June 30, 2011 Unpaid Related Average Interest Recorded principal specific recorded income investment balance reserve investment recognized Manufacturing, agribusiness and services Asia $ 132 $ 139 $ 57 $ 142 $ 3 Europe, Middle East and North Africa 466 475 189 466 13 Sub-Saharan Africa, Latin America and Caribbean 187 264 62 200 6 Total manufacturing, agribusiness and services 785 878 308 808 22 Financial markets Asia 28 30 6 30 3 Europe, Middle East and North Africa 21 27 13 21 1 Sub-Saharan Africa, Latin America and Caribbean 8 32 8 4 - Total financial markets 57 89 27 55 4 Infrastructure and natural resources Asia 7 7 3 6 - Europe, Middle East and North Africa 15 15 5 16 1 Sub-Saharan Africa, Latin America and Caribbean 54 54 39 55 1 Total infrastructure and natural resources 76 76 47 77 2 Total $ 918 $ 1,043 $ 382 $ 940 $ 28 IFC had no impaired loans at June 30, 2011 with no specific reserves. Nonaccruing loans Loans on which the accrual of interest has been discontinued amounted to $943 million at June 30, 2011 ($877 million - June 30, 2010). Interest income not recognized on nonaccruing loans during the year ended June 30, 2011 totaled $61 million ($59 million - year ended June 30, 2010; $47 million - year ended June 30, 2009). Interest income recognized on loans in nonaccrual status, related to current and prior years, during the year ended June 30, 2011 was $22 million ($22 million - year ended June 30, 2010; $18 million - year ended June 30, 2009) on a cash basis. The recorded investment in nonaccruing loans at amortized cost is summarized by industry sector and geographic region as follows (US$ millions): June 30, 2011 Manufacturing, Total recorded agribusiness and Infrastructure and investment in services Financial markets natural resources nonaccruing loans Asia $ 100 $ 28 $ - $ 128 Europe, Middle East and North Africa 462 6 13 481 Sub-Saharan Africa, Latin America and Caribbean 123 1 53 177 Total disbursed loans at amortized cost $ 685 $ 35 $ 66 $ 786 56 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Past due loans An age analysis, based on contractual terms, of IFC’s loans at amortized cost by industry sector and geographic region follows (US$ millions): June 30, 2011 90 days or 30-59 days 60-89 days greater Total Total past due past due past due past due Current loans Manufacturing, agribusiness and services Asia $ - $ - $ 90 $ 90 $ 1,870 $ 1,960 Europe, Middle East and North Africa 1 - 420 421 2,333 2,754 Sub-Saharan Africa, Latin America and Caribbean - 33 83 116 1,801 1,917 Other - - - - 34 34 Total manufacturing, agribusiness and services 1 33 593 627 6,038 6,665 Financial markets Asia - - 28 28 1,041 1,069 Europe, Middle East and North Africa - - 6 6 2,993 2,999 Sub-Saharan Africa, Latin America and Caribbean - - 1 1 1,330 1,331 Other - - - - 339 339 Total financial markets - - 35 35 5,703 5,738 Infrastructure and natural resources Asia - - - - 1,596 1,596 Europe, Middle East and North Africa - - 14 14 2,085 2,099 Sub-Saharan Africa, Latin America and Caribbean - - 52 52 2,874 2,926 Other - - - - 177 177 Total Infrastructure and natural resources - - 66 66 6,732 6,798 Total disbursed loans at amortized cost $ 1 $ 33 $ 694 $ 728 $ 18,473 $ 19,201 Unamortized deferred loan origination fees, net and other (123) Disbursed amount allocated to a related financial instrument reported separately in other assets or derivative assets (40) Recorded investment in loans at amortized cost $ 19,038 At June 30, 2011, there are no loans 90 days or greater past due still accruing. 57 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Loan Credit Quality Indicators IFC utilizes a rating system to classify loans according to credit worthiness and risk. Each loan is categorized as very good, good, average, watch, substandard, doubtful or loss. A description of each category (credit quality indicator), in terms of the attributes of the borrower, the business environment in which the borrower operates or the loan itself, follows: Credit quality indicator Description Very good Excellent debt service capacity; superior management; market leader; very favorable operating environment; may also have strong collateral and/or guaranteed arrangements. Good Strong debt service capacity: good liquidity; stable performance, very strong management, high market share; minimal probability of financial deterioration. Average Satisfactory balance sheet ratios, average liquidity; good debt service capacity; good management; average size and market share. Watch Tight liquidity; financial performance below expectations; higher than average leverage ratio; week management in certain aspects; uncompetitive products and operations; unfavorable or unstable macroeconomic factors. Substandard Poor financial performance; difficulty servicing debt; inadequate net worth and debt service capacity; loan not fully secured: partial past due amounts of interest and/or principal; well defined weaknesses may adversely impact collection but no loss of principal is expected. Doubtful Bad financial performance; serious liquidity and debt service capacity issues: large and increasing past due amounts: partial loss is very likely. Loss Close to or already in bankruptcy; serious regional geopolitical issues/conflicts; default and total loss highly likely. 58 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A summary of IFC’s loans at amortized cost by credit quality indicator, as updated during the three months ended June 30, 2011, as well as by industry sector and geographic region follows (US$ millions): At June 30, 2011 Very good Good Average Watch Substandard Doubtful Loss Total Manufacturing, agribusiness and services Asia $ - $ 490 $ 851 $ 438 $ 130 $ 43 $ 8 $ 1,960 Europe, Middle East and North Africa - 305 664 1,208 143 280 154 2,754 Sub-Saharan Africa, Latin America and Caribbean Europe - 311 814 512 177 68 35 1,917 Other - - 34 - - - - 34 Total manufacturing, agribusiness and services - 1,106 2,363 2,158 450 391 197 6,665 Financial markets Asia - 682 287 72 - 28 - 1,069 Europe, Middle East and North Africa - 520 1,570 617 287 - 5 2,999 Sub-Saharan Africa, Latin America and Caribbean - 384 731 186 22 7 1 1,331 Other - 9 - 330 - - - 339 Total financial markets - 1,595 2,588 1,205 309 35 6 5,738 Infrastructure and natural resources Asia - 309 959 315 6 7 - 1,596 Europe, Middle East and North Africa - 111 968 831 174 12 3 2,099 Sub-Saharan Africa, Latin America and Caribbean - 269 981 1,472 142 36 26 2,926 Other - 53 74 50 - - - 177 Total infrastructure and natural resources - 742 2,982 2,668 322 55 29 6,798 Total disbursed loans at amortized cost $ - $ 3,443 $ 7,933 $ 6,031 $ 1,081 $ 481 $ 232 $19,201 Unamortized deferred loan origination fees, net and (123) other Disbursed amount allocated to a related financial instrument reported separately in other assets or derivative assets (40) Recorded investment in loans at amortized cost $19,038 59 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE F – DEBT SECURITIES Debt securities accounted for as available-for-sale at June 30, 2011 and June 30, 2010 comprise (US$ millions): June 30, 2011 June 30, 2010 Amortized Unrealized Fair Amortized Unrealized Fair Cost Gains Losses Value Cost Gains Losses Value Corporate debt securities $ 1,306 $ 243 $ (47) $ 1,502 $ 1,150 $ 107 $ (64) $ 1,193 Preferred shares 371 64 (1) 434 309 102 (26) 385 Asset-backed securities 22 - - 22 29 - - 29 Other debt securities 3 - - 3 3 - (1) 2 Total $ 1,702 $ 307 $ (48) $ 1,961 $ 1,491 $ 209 $ (91) $ 1,609 Unrealized losses on debt securities accounted for as available-for-sale at June 30, 2011 are summarized below (US$ millions): Less than 12 months 12 months or greater Total Fair Unrealized Fair Unrealized Fair Unrealized value losses value losses value losses Corporate debt securities $ 67 $ (2) $ 830 $ (45) $ 897 $ (47) Preferred shares 3 (1) - - 3 (1) Total $ 70 $ (3) $ 830 $ (45) $ 900 $ (48) Unrealized losses on debt securities accounted for as available-for-sale at June 30, 2010 are summarized below (US$ millions): Less than 12 months 12 months or greater Total Fair Unrealized Fair Unrealized Fair Unrealized value losses value losses value losses Corporate debt securities $ 380 $ (14) $ 615 $ (50) $ 995 $ (64) Preferred shares 76 (16) 53 (10) 129 (26) Other debt securities 2 (1) - - 2 (1) Total $ 458 $ (31) $ 668 $ (60) $ 1,126 $ (91) Corporate debt securities comprise investments in bonds and notes. Unrealized losses associated with corporate debt securities are primarily attributable to movements in the credit default swap spread curve applicable to the issuer. Based upon IFC’s assessment of expected credit losses, IFC has determined that the issuer is expected to make all contractual principal and interest payments. Accordingly, IFC expects to recover the cost basis of these securities. Preferred shares comprise investments in preferred equity investments that are redeemable at the option of IFC or mandatorily redeemable by the issuer. Unrealized losses associated with preferred shares are primarily driven by changes in discount rates associated with changes in credit spreads or interest rates, minor changes in exchange rates and comparable market valuations in the applicable sector. Based upon IFC’s assessment of the expected credit losses, IFC expects to recover the cost basis of these securities. Debt securities with contractual maturities that are accounted for as available-for-sale have contractual maturities during the years ending June 30, 2012 through June 30, 2016 and thereafter, as follows (US$ millions): 2012 2013 2014 2015 2016 Thereafter Total Corporate debt securities* $ 81 $ 252 $ 362 $ 333 $ 52 $ 453 $ 1,533 Asset-backed securities - - - - - 22 22 Total disbursed portfolio of debt securities with contractual maturities $ 81 $ 252 $ 362 $ 333 $ 52 $ 475 $ 1,555 * excluding $9 million disbursed amount allocated to a related financial instrument reported separately in other assets or derivative assets. The expected maturity of asset-backed securities may differ from the contractual maturity, as reported above, due to prepayment features. In addition, IFC has $437 million of redeemable preferred shares and other debt securities with undefined maturities ($387 million - June 30, 2010). 60 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The currency composition and average contractual rate of debt securities with contractual maturities that are accounted for as available-for-sale are summarized below: June 30, 2011 June 30, 2010 Average Average Amount contractual Amount contractual (US$ millions) rate (%) (US$ millions) rate (%) Brazilian real $ 861 10.7 $ 806 9.0 US dollar 293 3.3 205 3.7 Euro 79 3.4 6 3.5 Other non-OECD currencies 322 6.3 260 6.4 Total disbursed portfolio of debt securities with contractual maturities $ 1,555 8.0 $ 1,277 7.6 After the effect of interest rate swaps and currency swaps, IFC’s debt securities with contractual maturities that are accounted for as available- for-sale are principally denominated in variable rate US dollars. Income from debt securities for the years ended June 30, 2011, June 30, 2010 and June 30, 2009, comprise the following (US$ millions): 2011 2010 2009 Interest income $ 39 $ 35 $ 64 Realized (losses) gains on debt securities (2) 14 6 Gains on non-monetary exchanges 4 32 2 Unrealized (losses) gains on debt securities accounted for at fair value under the Fair Value Option (2) 23 - Impairment losses on debt securities: Total other-than-temporary impairment losses (2) (3) (42) Portion of losses recognized in other comprehensive income - - 34 Net impairment losses recognized in net income (2) (3) (8) Dividends 9 7 7 Total income from debt securities $ 46 $ 108 $ 71 NOTE G – EQUITY INVESTMENTS Income (loss) from equity investments for the years ended June 30, 2011, June 30, 2010 and June 30, 2009 comprises the following (US$ millions): 2011 2010 2009 Realized gains on equity investments $ 737 $ 1,290 $ 990 Gains on non-monetary exchanges 217 28 14 Unrealized gains (losses) on equity investments accounted for at fair value under the Fair Value Option 454 240 (299) Dividends and profit participations 280 285 311 Other-than-temporary impairment losses: Equity investments at cost less impairment (87) (126) (605) Equity investments available-for-sale (131) (77) (453) Total other- than-temporary impairment losses on equity investments (218) (203) (1,058) Release (amortization) of UJVs conditional asset retirement obligations (1) 3 (2) Custody, fees and other (5) (5) 2 Total income (loss) from equity investments $ 1,464 $ 1,638 $ (42) Dividends and profit participations include $57 million at June 30, 2011 ($60 million - year ended June 30, 2010; $56 million - year ended June 30, 2009) of receipts received in freely convertible currency, net of cash disbursements, in respect of investments accounted for under the cost recovery method, for which cost has been fully recovered. 61 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Equity investments include several private equity funds that invest primarily in emerging markets across a range of sectors and that are accounted for at fair value under the Fair Value Option. These investments cannot be redeemed with the funds. Instead, the nature of the investments in this class is that distributions are received through the liquidation of the underlying assets of the funds. IFC estimates that the underlying assets of the funds would be liquidated over five to eight years. The fair values of all these funds have been determined using the net asset value of IFC’s ownership interest in partners’ capital and totaled $2,107 million as of June 30, 2011 ($1,175 million as of June 30, 2010). The unfunded commitment obligations related to these funds totaled $1,369 million as of June 30, 2011 ($1,006 million as of June 30, 2010). NOTE H – INVESTMENT TRANSACTIONS COMMITTED BUT NOT DISBURSED OR UTILIZED Loan, equity and debt security commitments signed but not yet disbursed, and guarantee and client risk management facilities signed but not yet utilized are summarized below (US$ millions): June 30, 2011 June 30, 2010 Investment transactions committed but not disbursed: Loans, equity investments and debt securities $ 9,698 $ 10,491 Investment transactions committed but not utilized: Guarantees 1,149 832 Client risk management facilities 174 124 Total investment transactions committed but not disbursed or utilized $ 11,021 $ 11,447 The disbursements of investment transactions committed but not disbursed or utilized are generally subject to fulfillment of conditions of disbursement. NOTE I – LOAN PARTICIPATIONS Loan participations signed as commitments for which disbursement has not yet been made and loan participations disbursed and outstanding which are serviced by IFC for participants are as follows (US$ millions): June 30, 2011 June 30, 2010 Loan participations signed as commitments but not disbursed $ 2,460 $ 759 Loan participations disbursed and outstanding which are serviced by IFC $ 5,865 $ 6,336 NOTE J – RECEIVABLES AND OTHER ASSETS Receivables and other assets are summarized below (US$ millions): June 30, 2011 June 30, 2010 Receivables from unsettled security trades $ 1,004 $ 1,075 Accrued interest income on time deposits and securities 107 135 Accrued income on derivative instruments 484 400 Accrued interest income on loans 238 238 Prepaid pension and other postretirement benefit costs 142 59 Headquarters building: Land 89 89 Building 221 218 Less: Accumulated building depreciation (89) (73) Headquarters building, net 221 234 Deferred charges and other assets 406 372 Total receivables and other assets $ 2,602 $ 2,513 62 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE K – BORROWINGS Market borrowings and associated derivatives IFC's borrowings outstanding from market sources and currency and interest rate swaps, net of unamortized issue premiums and discounts, are summarized below: June 30, 2011 Interest rate swaps Currency swaps notional principal Market borrowings payable (receivable) payable (receivable) Net currency obligation Weighted Weighted Notional Weighted Weighted Amount (US average Amount (US average amount (US average Amount (US average $ millions) rate (%) $ millions) rate (%) $ millions) rate (%) $ millions) rate (%) US dollar $ 18,055 2.9 $ 15,664 (0.2) $ 30,739 0.4 $ 33,443 0.3 (31,015) (1.9) Australian dollar 7,518 5.6 (7,518) (5.6) - - - - Japanese yen 4,083 2.1 (4,083) (2.1) - - - - New Turkish lira 1,688 10.0 (1,688) (10.0) - - - - Brazilian real 1,498 8.6 (1,498) (8.6) - - - - New Zealand dollar 1,022 6.2 (1,022) (6.2) - - - - South African rand 956 6.8 (956) (6.8) - - - - Canadian dollar 826 4.6 (826) (4.6) - - - - Pound sterling 528 3.2 (528) (3.2) - - - - Chinese renminbi 332 3.2 - - - - 332 3.2 Euro 329 6.6 (320) (6.7) 9 1.8 9 1.8 (9) (1.6) Singapore dollar 163 1.1 (163) (1.1) Mexican peso 141 6.0 (141) (6.0) - - - - Moroccan dirham 128 4.5 (128) (4.5) - - - - Hong Kong dollar 127 5.1 (127) (5.1) - - - - C.F.A. franc 92 4.5 (44) (4.8) - - 48 4.3 Russian ruble 36 5.8 (36) (5.8) - - - - 36 3.6 36 3.6 South Korean won 33 1.8 (33) (1.8) - - - - Principal at face value 37,555 $ (3,411) $ (276) $ 33,868 0.3 Borrowings under the short-term Discount Note Program 1,499 39,054 Unamortized discounts, net (650) Total market borrowings 38,404 Fair value adjustments (243) Carrying value of market borrowings $ 38,161 63 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS IFC's borrowings outstanding from market sources and currency and interest rate swaps, net of unamortized issue premiums and discounts, are summarized below: June 30, 2010 Interest rate swaps Currency swaps notional principal Market borrowings payable (receivable) payable (receivable) Net currency obligation Weighted Weighted Notional Weighted Weighted Amount (US average Amount (US average amount (US average Amount (US average $ millions) rate (%) $ millions) rate (%) $ millions) rate (%) $ millions) rate (%) US dollar $ 15,227 3.6 $ 13,380 (0.2) $ 22,998 0.6 $ 28,291 0.4 (23,314) (2.6) Australian dollar 4,691 5.7 (4,691) (5.7) - - - - Japanese yen 4,139 2.6 (4,139) (2.6) - - - - New Turkish lira 1,553 11.7 (1,553) (11.7) - - - - Brazilian real 1,077 9.4 (967) (9.1) - - 110 12.0 New Zealand dollar 822 6.5 (822) (6.5) - - - - South African rand 780 8.3 (780) (8.3) - - - - Canadian dollar 762 4.6 (762) (4.6) - - - - Chinese renminbi 295 3.3 - - - - 295 3.3 Euro 288 6.8 (281) (6.9) 7 1.0 7 1.0 (7) (0.8) Pound sterling 195 5.4 (195) (5.4) - - - - Singapore dollar 143 1.1 (143) (1.1) Hong Kong dollar 127 5.1 (127) (5.1) - - - - Moroccan dirham 111 4.5 (111) (4.5) - - - - Swiss franc 93 4.8 (93) 0.2 92 (0.2) - - (92) (4.8) C.F.A. franc 79 4.5 (38) (4.8) - - 41 4.3 Mexican peso 9 6.1 (9) (6.1) - - - - Principal at face value 30,391 $ (1,331) $ (316) $ 28,744 0.5 Borrowings under the short-term Discount Note Program 1,404 31,795 Unamortized discounts, net (639) Total market borrowings 31,156 Fair value adjustments (100) Carrying value of market borrowings $ 31,056 The net currency obligations in Chinese renminbi and C.F.A. franc at June 30, 2011 have funded on-balance sheet loans with similar characteristics in such currencies. The weighted average remaining maturity of IFC’s borrowings from market sources was 5.9 years at June 30, 2011 (6.5 years - June 30, 2010). Charges on borrowings for the year ended June 30, 2011 include $4 million of interest expense on secured borrowings ($4 million - year ended June 30, 2010; $7 million - year ended June 30, 2009) and is net of $10 million of gains on buybacks of market borrowings ($62 million - June 30, 2010; $61 million - year ended June 30, 2009). The net nominal amount receivable from currency swaps of $3,411 million and the net notional amount receivable from interest rate swaps of $276 million at June 30, 2011 ($1,331 million and $316 million - June 30, 2010), shown in the above table, are represented by currency and interest rate swap assets at fair value of $3,562 million and currency and interest rate swap liabilities at fair value of $357 million ($1,798 million and $575 million - June 30, 2010), 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, 2011 is $1,499 million ($1,404 million at June 30, 2010). Charges on borrowings for the year ended June 30, 2011, includes $3 million in respect of this program ($2 million - June 30, 2010). 64 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Borrowings from IBRD Borrowings outstanding from IBRD are summarized below: June 30, 2011 June 30, 2010 Principal Weighted Principal Weighted amount average amount average (US$ millions) cost (%) (US$ millions) cost (%) Saudi Arabian riyal $ 50 4.0 $ 50 4.0 Total borrowings outstanding from IBRD $ 50 $ 50 The weighted average remaining maturity of borrowings from IBRD was 3.2 years at June 30, 2011 (4.2 years - June 30, 2010). Charges on borrowings for the year ended June 30, 2011, includes $2 million ($2 million - year ended June 30, 2010; $2 million - year ended June 30, 2009) in respect of borrowings from IBRD. Maturity of borrowings The principal amounts repayable on borrowings outstanding in all currencies, gross of any premiums or discounts, during the years ending June 30, 2012, through June 30, 2016, and thereafter are summarized below (US$ millions): 2012 2013 2014 2015 2016 Thereafter Total Borrowings from market sources $ 2,808 $ 6,165 $ 9,093 $ 5,689 $ 4,109 $ 9,691 $ 37,555 Borrowings under the short-term Discount Note Program 1,499 - - - - - 1,499 Borrowings from IBRD 8 8 8 8 9 9 50 Total borrowings, gross $ 4,315 $ 6,173 $ 9,101 $ 5,697 $ 4,118 $ 9,700 39,104 Unamortized discounts, net (650) Fair value adjustments (243) Carrying value of borrowings $ 38,211 After the effect of interest rate and currency swaps, IFC’s borrowings generally reprice within one year. NOTE L – PAYABLES AND OTHER LIABILITIES Payables and other liabilities are summarized below (US$ millions): June 30, 2011 June 30, 2010 Accrued charges on borrowings $ 465 $ 421 Accrued charges on derivative instruments 193 138 Payables for unsettled security trades 970 857 Secured borrowings 199 130 Accounts payable, accrued expenses and other liabilities 545 442 Deferred income 84 89 Total payables and other liabilities $ 2,456 $ 2,077 NOTE M – CAPITAL TRANSACTIONS IFC's authorized share capital was increased to $2,450 million through two capital increases in 1992. No subscribed shares remain unpaid at June 30, 2011. During the year ended June 30, 2011, no shares, at a par value of $1,000 each, were subscribed and paid by member countries (0 shares at a par value of $1,000 each - year ended June 30, 2009; 3,104 shares at a par value of $1,000 each - year ended June 30, 2009). Under IFC’s Articles of Agreement, in the event a member withdraws from IFC, IFC and the member may negotiate on the repurchase of the member’s capital stock on such terms as may be appropriate under the circumstances. Such agreement may provide, among other things, for a final settlement of all obligations of the member to IFC. If such an agreement is not made within six months after the member withdraws or such other time as IFC and the member may agree, the repurchase price of the member’s capital stock shall be the value thereof shown by the books of IFC on the day when the member withdraws. The repurchase of capital stock is subject to certain conditions including payments in installments, at such times and in such available currency or currencies as IFC reasonably determines, taking into account the financial position of IFC. IFC’s Articles of Agreement also provide for the withdrawing member to repay losses on loans and equity investments in excess of reserves provided on the date of withdrawal. 65 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE N – OTHER INCOME Other income for the year ended June 30, 2011, predominantly comprises $24 million of fees collected from clients ($26 million - year ended June 30, 2010; $22 million - year ended June 30, 2009), $29 million of income from consolidated entities after eliminations ($17 million - year ended June 30, 2010; $3 million - year ended June 30, 2009) and income under other reimbursable arrangements of $6 million ($7 million - year ended June 30, 2010; $5 million - year ended June 30, 2009). NOTE O – RETAINED EARNINGS DESIGNATIONS AND RELATED EXPENDITURES AND ACCUMULATED OTHER COMPREHENSIVE INCOME Designated retained earnings The components of designated retained earnings and related expenditures are summarized below (US$ millions): Global SME Infrastructure Total Ventures for Project designated Grants to Advisory Performance- IDA Development retained IDA services based grants countries Fund earnings At June 30, 2008 $ - $ 438 $ 188 $ 100 $ 100 $ 826 Year ended June 30, 2009 Designations of retained earnings 450 100 550 Expenditures against designated retained earnings (450) (129) (5) (1) - (585) At June 30, 2009 $ - $ 409 $ 183 $ 99 $ 100 $ 791 Year ended June 30, 2010 Designations/Reallocations of retained earnings 200 (70) (60) (70) - Transfers 5 (5) - Expenditures against designated retained earnings (200) (101) (7) (2) - (310) At June 30, 2010 $ - $ 313 $ 101 $ 37 $ 30 $ 481 Year ended June 30, 2011 Designations of retained earnings 600 10 610 Expenditures against designated retained earnings (600) (106) (47) (3) - (756) At June 30, 2011 $ - $ 217 $ 54 $ 34 $ 30 $ 335 On August 5, 2010, IFC’s Board of Directors approved a designation of $600 million of IFC’s retained earnings for grants to IDA and $10 million of IFC’s retained earnings for advisory services. On October 8, 2010, IFC’s Board of Governors noted with approval these designations. Accumulated other comprehensive income The components of accumulated other comprehensive income at June 30, 2011 and June 30, 2010 are summarized as follows (US$ millions): June 30, 2011 June 30, 2010 Net unrealized gains on debt securities $ 259 $ 118 Net unrealized gains on equity investments 1,696 1,582 Unrecognized net actuarial losses and unrecognized prior service costs on benefit plans (412) (498) Total accumulated other comprehensive income $ 1,543 $ 1,202 66 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE P – NET GAINS AND LOSSES ON OTHER NON-TRADING FINANCIAL INSTRUMENTS ACCOUNTED FOR AT FAIR VALUE Net gains and losses on other non-trading financial instruments accounted for at fair value for the years ended June 30, 2011, June 30, 2010 and June 30, 2009, comprises (US$ millions): 2011 2010 2009 Realized gains and losses on derivatives associated with investments: Net realized gains on derivatives associated with loans $ 4 $ - $ - Net realized gains on derivatives associated with debt securities 11 - - Net realized gains on derivatives associated with equity investments 48 5 - Total realized gains on derivatives associated with investments 63 5 - Gains on non-monetary exchanges of derivatives associated with investments: Gains on non-monetary exchanges of derivatives associated with loans - - - Gains on non-monetary exchanges of derivatives associated with debt securities 8 4 - Gains on non-monetary exchanges of derivatives associated with equity investments 14 2 45 Total non monetary gains on derivatives associated with investments 22 6 45 Unrealized gains and losses on other non-trading financial instruments: Unrealized gains and losses on derivative associated with investments: Net unrealized losses on derivatives associated with loans (68) (102) (65) Net unrealized (losses) gains on derivatives associated with debt securities (30) 28 25 Net unrealized gains (losses) on derivatives associated with equity investments 75 (50) 66 Total unrealized (losses) gains on derivatives associated with investments (23) (124) 26 Unrealized gains and losses on market borrowings accounted for at fair value: Credit spread component (44) (324) 668 Interest rate, foreign exchange and other components 187 (451) (452) Total unrealized gains (losses) on market borrowings 143 (775) 216 Unrealized (losses) gains on derivatives associated with market borrowings (50) 549 165 Net unrealized gains (losses) on market borrowings and associated derivatives 93 (226) 381 Total unrealized gains (losses) on other non-trading financial instruments 70 (350) 407 Net gains (losses) on other non-trading financial instruments accounted for at fair value $ 155 $ (339) $ 452 As discussed in Note A, “Summary of significant accounting and related policies�, market borrowings with associated derivatives are accounted for at fair value under the Fair Value Option. Differences arise between the movement in the fair value of market borrowings and the fair value of the associated derivatives primarily due to the different credit characteristics. The change in fair value reported in “Net unrealized gains (losses) on market borrowings and associated derivatives� includes the impact of changes in IFC's own credit spread. As credit spreads widen, unrealized gains are recorded and when such credit spreads narrow, unrealized losses are recorded (notwithstanding the impact of other factors, such as changes in risk-free interest and foreign currency exchange rates). The magnitude and direction (gain or loss) can be volatile from period to period but do not alter the cash flows on the market borrowings. 67 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE Q – DERIVATIVE AND OTHER FINANCIAL INSTRUMENTS As discussed in Note A, “Summary of significant accounting and related policies�, IFC enters into transactions in various derivative instruments for financial risk management purposes in connection with its principal business activities, including lending, investing in debt securities, equity investments, client risk management, borrowing, liquid asset management and asset and liability management. None of these derivative instruments are designated as hedging instruments under ASC Topic 815. Note A describes how and why IFC uses derivative instruments. The fair value of derivative instrument assets and liabilities by risk type at June 30, 2011 and June 30, 2010 is summarized as follows (US$ millions): June 30, 2011 June 30, 2010 Consolidated balance sheet location Fair value Fair value Derivative assets Interest rate $ 649 $ 647 Foreign exchange 5 50 Interest rate and currency 3,126 1,653 Equity 390 337 Other derivative 7 1 Total derivative assets $ 4,177 $ 2,688 Derivative liabilities Interest rate $ 428 $ 327 Foreign exchange 73 36 Interest rate and currency 1,256 777 Total derivative liabilities $ 1,757 $ 1,140 The effect of derivative instruments contracts on the consolidated income statement for the years ended June 30, 2011 and June 30, 2010 is summarized as follows (US$ millions): Derivative instrument category Consolidated income statement location June 30, 2011 June 30, 2010 Interest rate Income from loans and guarantees $ (50) $ (44) Income from liquid asset trading activities (238) (298) Charges on borrowings 464 403 Other income 11 5 Net gains and losses on other non-trading financial instruments accounted for at fair value (38) 331 Foreign exchange Foreign currency transaction (losses) gains on non-trading activities 46 4 Income from liquid asset trading activities (33) 88 Net gains and losses on other non-trading financial instruments accounted for at fair value (11) (5) Interest rate and currency Income from loans and guarantees (198) (173) Income from debt securities (79) (65) Income from liquid asset trading activities (32) (11) Charges on borrowings 943 715 Foreign currency transaction gains and losses on non-trading activities 993 539 Net gains and losses on other non-trading financial instruments accounted for at fair value (81) 146 Service Fees and Other (5) 7 Equity Net gains and losses on other non-trading financial instruments accounted for at fair value 135 (30) Other derivative instruments Income (loss) from equity investments - - Net gains and losses on other non-trading financial instruments accounted for at fair value 7 (6) Total $ 1,834 $ 1,606 The income related to each derivative instrument category includes realized and unrealized gains and losses. At June 30, 2011, the outstanding volume, measured by US$ equivalent notional, of interest rate contracts was $48,534 million ($36,446 million at June 30, 2010), foreign exchange contracts was $4,376 million ($3,201 million at June 30, 2010) and interest rate and currency contracts was $27,337 million ($20,356 million at June 30, 2010). At June 30, 2011, there were 173 equity contracts related to IFC’s loan and equity investment portfolio recognized as derivatives assets or liabilities under ASC Topic 815 (138 equity contracts at June 30, 2010). 68 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS IFC enters into interest rate and currency derivative instruments under standard industry contracts that contain credit risk-linked contingent features with respect to collateral requirements. Should IFC’s credit rating be downgraded from the current AAA, the credit support annexes of these standard swap agreements detail, by swap counterparty, the collateral requirements IFC must satisfy in this event. The aggregate fair value of derivatives containing a credit risk-linked contingent feature in a net liability position was $658 million at June 30, 2011 ($157 million at June 30, 2010). At June 30, 2011, IFC had no collateral posted under these agreements. If IFC was downgraded from the current AAA to AA+, then collateral in the amount of $208 million would be required to be posted against net liability positions with counterparties at June 30, 2011 (less than $1 million at June 30, 2010). As of June 30, 2011, IFC had $45 million of outstanding obligations to return cash collateral under master netting agreements. NOTE R – FAIR VALUE MEASUREMENTS Many of IFC’s financial instruments are not actively traded in any market. Accordingly, estimates and present value calculations of future cash flows are used to estimate the fair values. Determining future cash flows for fair value estimation is subjective and imprecise, and minor changes in assumptions or methodologies may materially affect the estimated values. The excess or deficit resulting from the difference between the carrying amounts and the fair values presented does not necessarily reflect the values which will ultimately be realized, since IFC generally holds loans, borrowings and other financial instruments with contractual maturities with the aim of realizing their historical values. The estimated fair values reflect the interest rate environments as of June 30, 2011 and June 30, 2010. In different interest rate environments, the fair value of IFC’s financial assets and liabilities could differ significantly, especially the fair value of certain fixed rate financial instruments. Reasonable comparability of fair values among financial institutions is not likely, because of the wide range of permitted valuation techniques and numerous estimates that must be made in the absence of secondary market prices. This lack of objective pricing standards introduces a greater degree of subjectivity and volatility to these derived or estimated fair values. Therefore, while disclosure of estimated fair values of financial instruments is required, readers are cautioned in using these data for purposes of evaluating the financial condition of IFC. The fair values of the individual financial instruments do not represent the fair value of IFC taken as a whole. The methodologies used and key assumptions made to estimate fair values as of June 30, 2011, and June 30, 2010, are summarized below. Liquid assets - The primary pricing source for the liquid assets is valuations obtained from external pricing services (vendor prices). The most liquid securities in the liquid asset portfolio are exchange traded futures and options and US Treasuries. For exchange traded futures and options, exchange quoted prices are obtained and these are classified as Level 1 in accordance with ASC 820. Liquid assets valued using quoted market prices are also classified as Level 1. Securities valued using vendor prices for which there is evidence of high market trade activity may also be classified as Level 1. US Treasuries are valued using index prices and also classified as Level 1. The remaining liquid assets valued using vendor prices are classified as Level 2 or Level 3 based on the results of IFC’s evaluation of the vendor's pricing methodologies. Most vendor prices use some form of matrix pricing methodology to derive the inputs for projecting cash flows or to derive prices. When vendor prices are not available, liquid assets are valued internally by IFC using yield pricing approach or comparables model approach and these are classified as Level 2 or Level 3 depending on the degree that the inputs are observable in the market. The critical factors in valuing liquid assets in both Level 2 and Level 3 are the estimation of cash flows and yield. Other significant inputs for valuing corporate securities, quasi-government securities and sovereign or sovereign-guaranteed securities include reported trades, broker/dealer quotes, benchmark securities, option adjusted spread curve, volatilities, and other reference data. In addition to these inputs, valuation models for securitized or collateralized securities use collateral performance inputs, such as weighted average coupon rate, weighted average maturity, conditional prepayment rate, constant default rate, vintage, and credit enhancements. 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 are presented below: Classes Significant Inputs Interest rate contracts Inter-bank yield curves, foreign exchange basis curve and yield curves specified to index floating rates. Foreign exchange Foreign exchange rate, inter-bank yield curves and foreign exchange basis curve. Interest rate and currency rates Foreign exchange rate, inter-bank yield curves, foreign exchange basis curve and yield curves specified to index floating rates. Equity Equity spot price, volatility, risk free rate, dividend yield, expiry date, discount rate, strike price, discount rate and option period. Other derivative contracts Foreign exchange rate, inter-bank yield curves, foreign exchange basis curve, yield curves specified to index, floating rates and inflation curve, swaption volatility matrix, equity spot price, volatility and dividend yield. 69 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Loans and loan commitments - Fair values of loans were determined on the basis of discounted cash flows, incorporating credit default swap spreads, expected recovery rates, risk free interest rates, amortization schedules and investment risk rating and are classified as Level 3. Certain loans contain embedded conversion and/or income participation features. If not bifurcated as standalone derivatives, these features were 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. Equity investments - Equity investments valued using quoted prices in active markets are classified as Level 1. Investments in funds were valued using net asset values and classified as Level 3 . Equity investments, other than investments in funds, without available market prices were valued using valuation techniques appropriate to the investment such as recent transactions ( IFC’s purchase price, price that is in the process of negotiation, or recent trade price from third party transactions), discounted cash flows, and relative valuation through the use of comparables. Such equity investments are classified as Level 3. The below table presents the significant inputs for the discounted cash flow model and the relative valuation through use of comparables approach: Valuation techniques Banking and non-banking Insurance companies Others financial institutions Discounted cash flow model Asset growth rate, discount rate, terminal value multiple or perpetual growth rate, cost of equity, return on assets, target leverage and recovery rate. Relative valuations through Price/Book Value, and Price/Book Value, Enterprise Value/EBITDA, the use of comparables Price/Earnings. Price/Embedded Value, and Enterprise Value/Sales, Appraisal Value Price /Book Value, Price/Earnings, Price/EBITDA, and Price/Sales. Debt securities - Debt securities in IFC’s investment portfolio do not have available market prices and are valued using discounted cash flow approaches. All debt securities are classified as Level 3. Significant inputs used for valuations of significant classes of debt securities are presented below: Classes Significant Inputs Corporate debt securities Risk free rate, amortization schedule, investment risk rating, Credit Default Swap (CDS) spreads and recovery rate. Asset Backed Securities Risk free rate, asset risk rating, CDS spreads, recovery rate and correlation parameter, CDS spread, ratings of class notes, index rates, default rate, prepayment rate, recovery rate, recovery lag, delinquency rate and optional redemption option. Borrowings - Fair values derived by using quoted prices in active markets are classified as Level 1. Fair values derived by determining the present value of estimated future cash flows using appropriate discount rates and option specific models where appropriate are classified as Level 2. The significant inputs used in valuing borrowings classified as Level 2 are presented below: Classes Significant Inputs Structured bonds Foreign exchange rate and inter-bank yield curves, IFC's credit curve and swaption volatility matrix, foreign exchange rate volatility, equity spot price, volatility and dividend yield. Unstructured bonds Inter-bank yield curve and IFC's credit curve. 70 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fair value of assets and liabilities Estimated fair values of IFC’s financial assets and liabilities and off-balance sheet financial instruments at June 30, 2011 and June 30, 2010 are summarized below (US$ millions). IFC’s credit exposure is represented by the estimated fair values of its financial assets. Note A provides a summary of IFC’s significant accounting policies. June 30, 2011 June 30, 2010 Carrying Carrying amount Fair value amount Fair value Financial assets Cash and due from banks, time deposits, trading securities and securities purchased under resale agreements $ 31,777 $ 31,777 $ 29,930 $ 29,930 Investments: Loans at amortized cost, net of reserves against losses 17,731 18,769 16,210 16,722 Loans held for sale at lower of amortized cost or fair value 87 90 - - Loans accounted for at fair value under the Fair Value Option 637 637 450 450 Total loans 18,455 19,496 16,660 17,172 Equity investments at cost less impairment 2,748 6,561 2,551 5,228 Equity investments accounted for at fair value as available-for-sale 3,484 3,484 3,012 3,012 Equity investments accounted for at fair value under the Fair Value Option 3,081 3,081 1,906 1,906 Total equity investments 9,313 13,126 7,469 10,146 Debt securities accounted for at fair value as available-for-sale 1,961 1,961 1,609 1,609 Debt securities accounted for at fair value under the Fair Value Option 205 205 206 206 Total debt securities 2,166 2,166 1,815 1,815 Total investments 29,934 34,788 25,944 29,133 Derivative assets: Borrowings-related 3,562 3,562 1,798 1,798 Liquid asset portfolio-related and other 65 65 154 154 Investment-related 462 462 658 658 Client risk management-related 88 88 78 78 Total derivative assets 4,177 4,177 2,688 2,688 Other investment-related financial assets 33 174 33 244 Financial liabilities Securities sold under repurchase agreements and payable for cash collateral received 5,787 5,787 8,393 8,393 Market and IBRD borrowings outstanding 38,211 38,211 31,106 31,117 Derivative liabilities: Borrowings-related 357 357 575 575 Liquid asset portfolio-related and other 513 513 181 181 Investment-related 799 799 306 306 Client risk management-related 88 88 78 78 Total derivative liabilities 1,757 1,757 1,140 1,140 Other investment-related financial assets comprise standalone options and warrants that do not meet the definition of a derivative. The fair value of loan commitments amounted to $21 million at June 30, 2011 ($20 million - June 30, 2010). Fair values of loan commitments are based on present value of loan commitment fees. 71 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fair value hierarchy The following tables provide information as of June 30, 2011 and June 30, 2010, about IFC’s financial assets and financial liabilities measured at fair value on a recurring basis. As required by ASC 820, financial assets and financial liabilities are classified in their entirety based on the lowest level input that is significant to the fair value measurement (US$ millions): At June 30, 2011 Level 1 Level 2 Level 3 Total Trading securities: Money market funds $ 1,372 $ - $ - $ 1,372 Treasury securities 5,313 - - 5,313 Foreign government bonds 1,363 5 - 1,368 Government guaranteed bonds 3,991 930 - 4,921 Supranational bonds 187 25 - 212 Foreign municipal bonds 242 - - 242 Agency bonds 24 5 - 29 Foreign agency bonds 726 173 - 899 Agency residential mortgage-backed securities 138 107 9 254 Asset-backed securities - 3,065 43 3,108 Foreign asset-backed securities 2 664 - 666 Corporate bonds 1,695 175 - 1,870 Commercial mortgage-backed securities - 1,473 - 1,473 Foreign residential mortgage-backed securities 46 2,251 - 2,297 Non-agency residential mortgage-backed securities - 558 55 613 Collateralized debt and collateralized loan obligations - 21 103 124 Total trading securities 15,099* 9,452 210 24,761 Loans (outstanding principal balance $596) - - 637 637 Equity investments: Banking and non-banking financial institutions 1,885 - 566 2,451 Insurance companies 79 - 14 93 Funds - - 2,104 2,104 Others 1,369 - 548 1,917 Total equity investments 3,333 - 3,232 6,565 Debt securities: Corporate debt securities - - 1,620 1,620 Preferred shares - - 516 516 Asset-backed securities - - 22 22 Other debt securities - - 8 8 Total debt securities - - 2,166 2,166 Derivative assets: Interest rate contracts - 649 - 649 Foreign exchange - 5 - 5 Interest rate and currency rates - 3,126 - 3,126 Equity - - 390 390 Other - - 7 7 Total derivative assets - 3,780 397 4,177 Total assets at fair value $ 18,432 $ 13,232 $ 6,642 $ 38,306 Borrowings: Structured bonds $ - $ 4,878 $ - $ 4,878 Unstructured bonds 18,562 12,841 - 31,403 Total borrowings (outstanding principal balance $37,174**) 18,562 17,719 - 36,281 Derivative liabilities: Interest rate contracts - 428 - 428 Foreign exchange - 73 - 73 Interest rate and currency rates - 1,256 - 1,256 Total derivative liabilities - 1,757 - 1,757 Total liabilities at fair value $ 18,562 $ 19,476 $ - $ 38,038 * includes securities priced at par plus accrued interest, which approximates fair value, with a fair value of $1,372 million at June 30, 2011. ** includes discount notes (not under the short-term Discount Note Program), with original maturities greater than one year, with principal due at maturity of $2,907 million, with a fair value of $2,295 million as of June 30, 2011. Note: For the year ended June 30, 2011 securities with a fair value of $3,463 million were transferred from level 2 to level 1 due to improved indications of market activity and changing classification approach for some sectors from vendor-based methodology to sector based methodology corroborated with observation of market activities. 72 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS At June 30, 2010 Level 1 Level 2 Level 3 Total Trading securities: Money market funds $ 456 $ - $ - $ 456 Treasury securities 7,052 173 - 7,225 Foreign government bonds 131 273 - 404 Government guaranteed bonds 314 6,252 - 6,566 Supranational bonds - 150 14 164 Foreign municipal bonds - 480 - 480 Agency bonds 3 26 - 29 Foreign agency bonds - 932 - 932 Agency residential mortgage-backed securities - 657 - 657 Asset-backed securities - 2,625 55 2,680 Foreign asset-backed securities - 86 - 86 Corporate bonds - 1,359 - 1,359 Commercial mortgage-backed securities - 750 - 750 Foreign residential mortgage-backed securities - 570 - 570 Non-agency residential mortgage-backed securities - 822 - 822 Collateralized debt and collateralized loan obligations - 106 108 214 Other 34 - - 34 Total trading securities 7,990* 15,261 177 23,428 Loans (outstanding principal balance $488) - - 450 450 Equity investments: Banking and non-banking financial institutions 1,201 - 835 2,036 Insurance companies - - 33 33 Funds 2 - 1,177 1,179 Others 1,226 - 444 1,670 Total equity investments 2,429 - 2,489 4,918 Debt securities: Corporate debt securities - - 1,316 1,316 Preferred shares - - 464 464 Asset-backed securities - - 29 29 Other debt securities - - 6 6 Total debt securities - - 1,815 1,815 Derivative assets: Interest rate contracts - 647 - 647 Foreign exchange - 50 - 50 Interest rate and currency rates - 1,653 - 1,653 Equity - - 337 337 Other derivative contracts - - 1 1 Total derivative assets - 2,350 338 2,688 Total assets at fair value $ 10,419 $ 17,611 $ 5,269 $ 33,299 Borrowings: Structured bonds $ - $ 4,439 $ - $ 4,439 Unstructured bonds 12,020 12,746 - 24,766 Total borrowings (outstanding principal balance $29,944**) 12,020 17,185 - 29,205 Derivative liabilities: Interest rate contracts - 327 - 327 Foreign exchange - 36 - 36 Interest rate and currency rates - 777 - 777 Total derivative liabilities - 1,140 - 1,140 Total liabilities at fair value $ 12,020 $ 18,325 $ - $ 30,345 * includes securities priced at par plus accrued interest, which approximates fair value, with a fair value of $561 million at June 30, 2010. ** includes discount notes (not under the short-term Discount Note Program), with original maturities greater than one year, with principal due at maturity of $2,499 million, with a fair value of $1,958 million as of June 30, 2010. Note: For the year ended June 30, 2010 there were no transfers between Level 1 and Level 2 or vice versa. 73 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following tables present the changes in the carrying value of IFC’s Level 3 financial assets and financial liabilities for the year ended June 30, 2011 and year ended June 30, 2010 (US$ millions): Level 3 trading securities for the year ended June 30, 2011 Asset Mortgage Supranational Collateralized Total backed backed bonds loan and debt securities securities obligations Balance as of July 1, 2010 $ 55 $ - $ 14 $ 108 $ 177 Transfers into Level 3 (***) 2 53 - - 55 Transfers out of Level 3 (****) (15) - (14) (5) (34) Net gains (realized and unrealized) for the year ended June 30, 2011 in net income - 4 - 1 5 Purchases, issuances, sales and settlements: Purchases 10 9 - - 19 Proceeds from sales (9) - - - (9) Settlements and others - (2) - (1) (3) Balance as of June 30, 2011 $ 43 $ 64 $ - $ 103 $ 210 For the year ended June 30, 2011: Net unrealized gains included in net income $ - $ 16 $ - $ 1 $ 17 Level 3 loans and debt securities for year ended June 30, 2011 Loans Debt securities Corporate Preferred Asset Others Total securities shares backed securities Balance as of July 1, 2010 $ 450 $ 1,316 $ 464 $ 29 $ 6 $ 1,815 Net gains (realized and unrealized) for the year ended June 30, 2011 in: Net income 96 11 (6) - 1 6 Other comprehensive income - 152 (12) - 1 141 Purchases, issuances, sales and settlements: Purchases - 214 98 - - 312 Issuances 163 - - - - - Proceeds from sales - - (12) - - (12) Settlements and others (72) (73) (16) (7) - (96) Balance as of June 30, 2011 $ 637 $ 1,620 $ 516 $ 22 $ 8 $ 2,166 For the year ended June 30, 2011: Net unrealized gains (losses) included in net income $ 94 $ (1) $ (4) $ - $ 1 $ (4) Net unrealized gains included in other comprehensive income $ - $ 164 $ (17) $ - $ 1 $ 148 Level 3 equity investments for the year ended June 30, 2011 Banking and Insurance Funds Others Total non-banking companies institutions Balance as of July 1, 2010 $ 835 $ 33 $ 1,177 $ 444 $ 2,489 Transfers out of Level 3 (****) (442) (30) - (114) (586) Net gains (losses) (realized and unrealized) for the year ended June 30, 2011 in: Net income 15 (1) 407 88 509 Other comprehensive income (7) - - (3) (10) Purchases, issuances, sales and settlements: Purchases 91 12 637 92 832 Proceeds from sales (5) - (215) (3) (223) Settlements and others 79 - 98 44 221 Balance as of June 30, 2011 $ 566 $ 14 $ 2,104 $ 548 $ 3,232 For the year ended June 30, 2011: Net unrealized gains (losses) included in net income $ 28 $ (1) $ 348 $ 75 $ 450 Net unrealized gains included in other comprehensive income $ (7) $ - $ - $ (3) $ (10) 74 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Level 3 derivative assets for year ended June 30, 2011 Derivative assets Equity Others Total Balance as of July 1, 2010 $ 337 $ 1 $ 338 Net gains (realized and unrealized) for the year ended June 30, 2011 in net income 134 7 141 Purchases, issuances, sales and settlements: Purchases 7 - 7 Settlements and others (88) (1) (89) Balance as of June 30, 2011 $ 390 $ 7 $ 397 For the year ended June 30, 2011: Net unrealized gains included in net income $ 104 $ 6 $ 109 (***) Transfers into Level 3 are due to lack of observable market data resulting from a decrease in market activity for these securities as of June 30, 2011. (****)Transfers out of Level 3 are due to availability of observable market data resulting from an increase in market activity for these securities or sales of some securities that were part of June 2010 beginning balance as of June 30, 2011. Note: IFC’s policy is to recognize transfers in and transfers out as of the beginning of the reporting period in which the transfer occurred. Level 3 trading securities for the year ended June 30, 2010 Asset Mortgage Supranational Collateralized Total backed backed bonds loan and debt securities securities obligations Balance as of July 1, 2009 $ 293 $ 382 $ $ 181 $ 856 Transfers into Level 3 (***) - - 17 - 17 Transfers out of Level 3 (****) (293) (382) - (55) (730) Net gains (losses) (realized and unrealized) for the year ended June 30, 2010 in: Net income (loss) - - (3) 2 (1) Purchases, issuances, sales and settlements: Purchases 55 - - - 55 Settlements and others - - - (20) (20) Balance as of June 30, 2010 $ 55 $ - $ 14 $ 108 $ 177 For the year ended June 30, 2010: Net unrealized (losses) gains included in net income $ - $ - $ (4) $ 2 $ (2) Level 3 loans and debt securities for the year ended June 30, 2010 Loans Debt securities Corporate Preferred Asset Others Total securities shares backed securities Balance as of July 1, 2009 $ 386 $ 1,171 $ 258 $ 67 $ 46 $ 1,542 Net gains (realized and unrealized) for the year ended June 30, 2010 in: Net income (loss) 37 34 31 6 - 71 Other comprehensive income (loss) - 27 22 (4) - 45 Purchases, issuances, sales and settlements: Purchases - 150 115 - 4 269 Issuances 106 - - - - - Sales - - (13) - - (13) Settlements and others (79) (66) 51 (40) (44) (99) Balance as of June 30, 2010 $ 450 $ 1,316 $ 464 $ 29 $ 6 $ 1,815 For the year ended June 30, 2010: Net unrealized gains included in net income $ 36 $ 13 $ 6 $ - $ - $ 19 Net unrealized gains included in other comprehensive income $ - $ 37 $ 39 $ - $ - $ 76 75 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Level 3 equity investments for the year ended June 30, 2010 Banking and Insurance Funds Others Total non-banking companies institutions Balance as of July 1, 2009 $ 555 $ 3 $ 719 $ 299 $ 1,576 Transfers into Level 3 (***) - - - - - Transfers out of Level 3 (****) (226) - - (30) (256) Net gains (losses) (realized and unrealized) for the year ended June 30, 2010 in: Net income (loss) 56 - 186 93 335 Other comprehensive income (loss) 372 27 - (9) 390 Purchases, issuances, sales and settlements: Purchases 25 - 373 110 508 Sales (7) - (101) (11) (119) Settlements and others 60 3 - (8) 55 Balance as of June 30, 2010 $ 835 $ 33 $ 1,177 $ 444 $ 2,489 For the year ended June 30, 2010: Net unrealized gains included in net income $ 49 $ - $ 122 $ 74 $ 245 Net unrealized gains (losses) included in other comprehensive income $ 379 $ 27 $ - $ (9) $ 397 Level 3 derivative assets for year ended June 30, 2010 Derivative assets Equity Others Total Balance as of July 1, 2009 $ 328 $ 7 $ 335 Net gains (losses) (realized and unrealized) for the year ended June 30, 2010 in: Net income (loss) (29) (6) (35) Purchases, issuances, sales and settlements: Purchases 66 - 66 Settlements and others (28) - (28) Balance as of June 30, 2010 $ 337 $ 1 $ 338 For the year ended June 30, 2010: Net unrealized gains included in net income $ 3 $ 1 $ 4 (***) 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, 2010. (****)Transfers out of Level 3 are due to availability of observable market data resulting from an increase in market activity for these securities as of June 30, 2010. Note: IFC’s policy is to recognize transfers in and transfers out as of the beginning of the reporting period in which the transfer occurred. Gains and losses (realized and unrealized) from trading securities, loans, equity investments and debt securities included in net income for the period are reported on the consolidated income statement in income from liquid asset trading activities, income from loans and guarantees, income from equity investments and income from debt securities, respectively. As of June 30, 2011, equity investments, accounted for at cost less impairment, with a carrying amount of $490 million were written down to their fair value of $405 million ($607 million and $469 million - June 30, 2010), resulting in a loss of $85 million, which was included in income from equity investments in the consolidated income statement during the year ended June 30, 2011 (loss of $138 million - year ended June 30, 2010). The amount of the write down was based on a Level 3 measure of fair value. 76 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE S – CURRENCY POSITION IFC conducts its operations for loans, debt securities, equity investments, time deposits, trading securities, and borrowings in multiple currencies. IFC’s policy is to minimize the level of currency risk by closely matching the currency of its assets (other than equity investments and quasi-equity investments) and liabilities by using hedging instruments. IFC’s equity investments in enterprises located in its developing member countries are typically made in the local currency of the country. As a matter of policy, IFC carries the currency risk of equity investments and funds these investments from its capital and retained earnings. The following table summarizes IFC’s exposure in major currencies at June 30, 2011 and June 30, 2010 (US$ millions): June 30, 2011 Fair value Japanese Other and other US dollar Euro yen currencies adjustments Total Assets Cash and cash equivalents $ 2,818 $ 1,217 $ 7 $ 1,425 $ - $ 5,467 Trading securities 19,264 2,101 305 3,091 - 24,761 Securities purchased under resale agreements 1,549 - - - - 1,549 Investments: Loans 14,056 2,978 35 2,693 - 19,762 Less: Reserve against losses on loans (1,014) (187) (2) (104) - (1,307) Net loans 13,042 2,791 33 2,589 - 18,455 Equity investments - - - 9,313 - 9,313 Debt securities 911 79 - 1,176 - 2,166 Total investments 13,953 2,870 33 13,078 - 29,934 Derivative assets 5,434 446 4,083 15,108 (20,894) 4,177 Receivables and other assets 1,944 233 50 375 - 2,602 Total assets $ 44,962 $ 6,867 $ 4,478 $ 33,077 $ (20,894) $ 68,490 Liabilities Securities sold under repurchase agreements and payable for cash collateral received $ 5,605 $ 128 $ - $ 54 $ - $ 5,787 Borrowings 19,024 328 4,085 14,774 - 38,211 Derivative liabilities 12,862 4,508 35 5,345 (20,993) 1,757 Payables and other liabilities 1,500 85 50 821 - 2,456 Total liabilities $ 38,991 $ 5,049 $ 4,170 $ 20,994 $ (20,993) $ 48,211 June 30, 2010 Fair value Japanese Other and other US dollar Euro yen currencies adjustments Total Assets Cash and cash equivalents $ 2,600 $ 2,007 $ 3 $ 1,353 $ - $ 5,963 Trading securities 21,332 1,484 - 612 - 23,428 Securities purchased under resale agreements 448 - - 91 - 539 Investments: Loans 13,258 2,284 38 2,429 - 18,009 Less: Reserve against losses on loans (1,013) (173) (2) (161) - (1,349) Net loans 12,245 2,111 36 2,268 - 16,660 Equity investments - - - 7,469 - 7,469 Debt securities 677 79 - 1,059 - 1,815 Total investments 12,922 2,190 36 10,796 - 25,944 Derivative assets 5,691 316 4,137 10,061 (17,517) 2,688 Receivables and other assets 1,546 306 59 602 - 2,513 Total assets $ 44,539 $ 6,303 $ 4,235 $ 23,515 $ (17,517) $ 61,075 Liabilities Securities sold under repurchase agreements and payable for cash collateral received $ 7,754 $ 550 $ - $ 89 $ - $ 8,393 Borrowings 16,235 288 4,141 10,442 - 31,106 Derivative liabilities 10,759 4,077 36 4,048 (17,780) 1,140 Payables and other liabilities 1,367 90 55 565 - 2,077 Total liabilities $ 36,115 $ 5,005 $ 4,232 $ 15,144 $ (17,780) $ 42,716 77 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE T – SEGMENT REPORTING For management purposes, IFC’s business comprises two segments: client services and treasury services. The client services segment consists primarily of lending, investing in debt and equity securities, and advisory services activities. Operationally, the treasury services segment consists of the borrowing, liquid asset management, asset and liability management and client risk management activities. Consistent with internal reporting, net income or expense from asset and liability management and client risk management activities in support of client services is allocated to the client services segment. The assessment of segment performance by Senior Management includes net income for each segment, return on assets, and return on capital employed. IFC’s management reporting system and policies are used to determine revenues and expenses attributable to each segment. Consistent with internal reporting, administrative expenses are allocated to each segment based largely upon personnel costs and segment headcounts. Transactions between segments are immaterial and, thus, are not a factor in reconciling to the consolidated data. An analysis of IFC’s major components of income and expense by business segment for the years ended June 30, 2011, June 30, 2010 and June 30, 2009, is given below (US$ millions): 2011 2010 2009 Client Treasury Client Treasury Client Treasury services services Total services services Total services services Total Income from loans and guarantees $ 869 $ 8 $ 877 $ 786 $ 15 $ 801 $ 857 $ 14 $ 871 Release of provision (provision) for losses on loans and guarantees 40 - 40 (155) - (155) (438) - (438) Income (loss) from equity investments 1,464 - 1,464 1,638 - 1,638 (42) - (42) Income from debt securities 46 - 46 108 - 108 71 - 71 Income from liquid asset trading activities - 529 529 - 815 815 - 474 474 Charges on borrowings (109) (31) (140) (117) (46) (163) (303) (185) (488) Other income 222 - 222 176 - 176 153 - 153 Other expenses (816) (9) (825) (730) (13) (743) (617) (12) (629) Foreign currency transaction gains and losses on non-trading activities (33) - (33) (82) - (82) 10 - 10 Expenditures for advisory services and against other retained earning designations (156) - (156) (110) - (110) (135) - (135) Net gains and losses on other non-trading financial instruments accounted for at fair value 62 93 155 (113) (226) (339) 71 381 452 Grants to IDA (600) - (600) (200) - (200) (450) - (450) Net income (loss) $ 989 $ 590 $ 1,579 $ 1,201 $ 545 $ 1,746 $ (823) $ 672 $ (151) Geographical segment data in respect of client services is disclosed in Note D, and the composition of Liquid Assets is provided in Note C. 78 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE U – VARIABLE INTEREST ENTITIES Significant variable interests IFC has identified 93 investments in VIEs which are not consolidated by IFC but in which it is deemed to hold significant variable interests at June 30, 2011 (104 investments - June 30, 2010). The majority of these VIEs do not involve securitizations or other types of structured financing. IFC is usually the minority investor in these VIEs. These VIEs are mainly: (a) investment funds, where the general partner or fund manager does not have substantive equity at risk, which IFC does not consolidate because it does not absorb the majority of funds’ expected losses or expected residual returns and (b) entities whose total equity investment is considered insufficient to permit such entity to finance its activities without additional subordinated financial support or whose activities are so narrowly defined by contracts that equity investors are considered to lack decision making ability, which IFC does not consolidate because it does not have the power to control the activities that most significantly impact their economic performance. IFC’s involvement with these VIEs includes investments in equity interests and senior or subordinated interests, guarantees and risk management arrangements. IFC’s interests in these VIEs are recorded on IFC’s consolidated balance sheet primarily in equity investments, loans, debt securities, and other liabilities, as appropriate. Based on the most recent available data of these VIEs, the balance sheet size, including committed funding, in which IFC is deemed to hold significant variable interests, totaled $16,009 million at June 30, 2011 ($12,424 million - June 30, 2010). IFC’s maximum exposure to loss as a result of its investments in these VIEs, comprising both carrying value of investments and amounts committed but not yet disbursed, was $3,197 million at June 30, 2011 ($3,260 million - June 30, 2010). The sector and geographical regional analysis of IFC’s maximum exposures as a result of its investment in these VIEs at June 30, 2011 and June 30, 2010 is as follows (US$ millions): June 30, 2011 Equity Debt Risk Loans investments securities Guarantees management Total Manufacturing, agribusiness and services Asia $ 55 $ 2 $ 8 $ - $ - $ 65 Europe, Middle East and North Africa 97 69 - - - 166 Sub-Saharan Africa, Latin America and Caribbean 408 30 2 - - 440 Total manufacturing, agribusiness and services 560 101 10 - - 671 Financial markets Asia 10 12 41 - - 63 Europe, Middle East and North Africa 92 71 88 133 - 384 Sub-Saharan Africa, Latin America and Caribbean 62 44 6 - - 112 Other 111 9 69 - 16 205 Total financial markets 275 136 204 133 16 764 Infrastructure and natural resources Asia 740 51 20 - - 811 Europe, Middle East and North Africa 489 12 5 16 8 530 Sub-Saharan Africa, Latin America and Caribbean 348 34 - - 39 421 Total infrastructure and natural resources 1,577 97 25 16 47 1,762 Maximum exposure to VIEs $ 2,412 $ 334 $ 239 $ 149 $ 63 $ 3,197 The carrying value of investments and maximum exposure to VIEs at June 30, 2011 is as follows (US$ millions): June 30, 2011 Investment Portfolio Carrying value Committed but Maximum of investments not yet disbursed exposure Loans $ 1,745 $ 667 $ 2,412 Equity investments 209 125 334 Debt securities 239 - 239 Guarantees 149 - 149 Risk management 44 19 63 Maximum exposure to VIEs $ 2,386 $ 811 $ 3,197 79 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2010 Equity Debt Risk Loans investments securities Guarantees management Total Manufacturing, agribusiness and services Asia $ 100 $ 33 $ 5 $ - $ - $ 138 Europe, Middle East and North Africa 144 27 - - - 171 Sub-Saharan Africa, Latin America and Caribbean 410 97 5 - - 512 Total manufacturing, agribusiness and services 654 157 10 - - 821 Financial markets Asia 20 29 44 - - 93 Europe, Middle East and North Africa 32 95 - 3 - 130 Sub-Saharan Africa, Latin America and Caribbean 18 66 7 - - 91 Other 2 204 62 - 15 283 Total financial markets 72 394 113 3 15 597 Infrastructure and natural resources Asia 946 57 13 - - 1,016 Europe, Middle East and North Africa 408 97 14 7 8 534 Sub-Saharan Africa, Latin America and Caribbean 206 86 - - - 292 Total infrastructure and natural resources 1,560 240 27 7 8 1,842 Maximum exposure to VIEs $ 2,286 $ 791 $ 150 $ 10 $ 23 $ 3,260 The carrying value of investments and maximum exposure to VIEs at June 30, 2010 is as follows (US$ millions): June 30, 2011 Investment Portfolio Carrying value Committed but Maximum of investments not yet disbursed exposure Loans $ 1,757 $ 529 $ 2,286 Equity investments 287 504 791 Debt securities 150 - 150 Guarantees 9 1 10 Risk management 11 12 23 Maximum exposure to VIEs $ 2,214 $ 1,046 $ 3,260 NOTE V – PENSION AND OTHER POSTRETIREMENT BENEFITS IBRD, IFC and MIGA participate in a defined benefit Staff Retirement Plan (SRP), a Retired Staff Benefits Plan (RSBP) and a Post-Employment Benefits Plan (PEBP) that cover substantially all of their staff members. The SRP provides pension benefits and includes a cash balance plan. The RSBP provides certain health and life insurance benefits to eligible retirees. The PEBP provides certain pension benefits administered outside the SRP. IFC uses a June 30 measurement date for its pension and other postretirement benefit plans. The amounts presented below reflect IFC’s respective share of the costs, assets and liabilities of the plans. All costs, assets and liabilities associated with these plans are allocated between IBRD, IFC and MIGA based upon their employees’ respective participation in the plans. Costs allocated to IBRD are then shared between IBRD and IDA based on an agreed cost sharing ratio. IDA, IFC and MIGA reimburse IBRD for their proportionate share of any contributions made to these plans by IBRD. Contributions to these plans are calculated as a percentage of salary. 80 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table summarizes the benefit costs associated with the SRP, RSBP, and PEBP allocated to IFC for the fiscal years ended June 30, 2011, June 30, 2010 and June 30 2009 (US$ millions): SRP RSBP PEBP 2011 2010 2009 2011 2010 2009 2011 2010 2009 Benefit cost Service cost $ 78 $ 60 $ 69 $ 16 $ 12 $ 12 $ 8 $ 6 $ 5 Interest cost 109 107 109 16 14 14 5 5 5 Expected return on plan assets (137) (141) (172) (16) (14) (16) - - - Amortization of prior service cost 1 2 2 * * * * * * Amortization of unrecog- nized net loss 20 11 - 6 5 3 3 2 3 Net periodic pension cost (income) $ 71 $ 39 $ 8 $ 22 $ 17 $ 13 $ 16 $ 13 $ 13 * Less than $0.5 million The expenses for the SRP, RSBP, and PEBP are included in expense from pension and other postretirement benefit plans. For the fiscal years ended June 30, 2011, June 30, 2010 and June 30, 2009, expenses for these plans of $109 million, $69 million and $34 million, respectively, were allocated to IFC. The following table summarizes the projected benefit obligations, fair value of plan assets, and funded status associated with the SRP, RSBP, and PEBP for IFC for the fiscal years ended June 30, 2011 and June 30, 2010 (US$ millions). Since the assets for the PEBP are not held in an irrevocable trust separate from the assets of IBRD, they do not qualify for off-balance sheet accounting and are therefore included in IBRD's investment portfolio. IFC has recognized a receivable (prepaid asset) from IBRD and a payable (liability) to IBRD equal to the amount required to support the plan. The assets of the PEBP are invested in fixed income instruments. SRP RSBP PEBP 2011 2010 2011 2010 2011 2010 Projected benefit obligations Beginning of year $ 1,927 $ 1,555 $ 268 $ 208 $ 100 $ 77 Service cost 78 60 15 12 8 6 Interest cost 109 107 16 14 6 5 Participant contributions 26 24 1 2 - - Retiree Drug Subsidy received - - 1 - - - Benefits paid (88) (78) (6) (5) (5) (4) Actuarial loss (gain) 114 259 10 36 18 16 End of year 2,166 1,927 305 267 127 100 Fair value of plan assets Beginning of year 2,042 1,815 213 176 - - Participant contributions 26 24 1 2 - - Actual return on assets 317 232 34 21 - - Employer contributions 50 48 24 18 - - Benefits paid (88) (78) (6) (5) - - End of year 2,347 2,041 266 212 - - Funded status 181 114 (39) (55) (127) (100) Accumulated benefit obligations $ 1,461 $ 1,388 $ 304 $ 267 $ 108 $ 91 The following tables present the amounts included in Accumulated Other Comprehensive Income relating to Pension and Other Postretirement Benefits (US$ millions): Amounts included in Accumulated Other Comprehensive Loss in the year ended June 30, 2011: SRP RSBP PEBP Total Net actuarial loss $ 244 $ 87 $ 75 $ 406 Prior service cost 5 - 1 6 Net amount recognized in accumulated other comprehensive loss $ 249 $ 87 $ 76 $ 412 81 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Amounts included in Accumulated Other Comprehensive Loss in the year ended June 30, 2010: SRP RSBP PEBP Total Net actuarial loss $ 329 $ 102 $ 60 $ 490 Prior service cost 7 - 1 8 Net amount recognized in accumulated other comprehensive loss $ 336 $ 102 $ 61 $ 498 The estimated amounts that will be amortized from Accumulated Other Comprehensive Income (Loss) into net periodic benefit cost in the fiscal year ending June 30, 2012 are as follows (US$ millions): SRP RSBP PEBP Total Net actuarial loss $ 6 $ 4 $ 4 $ 14 Prior service cost 2 - - 2 Amount estimated to be amortized into net periodic benefit cost $ 8 $ 4 $ 4 $ 16 Assumptions The actuarial assumptions used are based on financial market interest rates, past experience, and management’s best estimate of future benefit changes and economic conditions. Changes in these assumptions will impact future benefit costs and obligations. The expected long-term rate of return for the SRP assets is a weighted average of the expected long-term (10 years or more) returns for the various asset classes, weighted by the portfolio allocation. Asset class returns are developed using a forward-looking building block approach and are not strictly based on historical returns. Equity returns are generally developed as the sum of expected inflation, expected real earnings growth and expected long-term dividend yield. Bond returns are generally developed as the sum of expected inflation, real bond yield, and risk premium/spread (as appropriate). Other asset class returns are derived from their relationship to equity and bond markets. The expected long- term rate of return for the RSBP is computed using procedures similar to those used for the SRP. The discount rate used in determining the benefit obligation is selected by reference to the year-end yield of AA corporate bonds. Actuarial gains and losses occur when actual results are different from expected results. Amortization of these unrecognized gains and losses will be included in income if, at the beginning of the fiscal year, they exceed 10 percent of the greater of the projected benefit obligation or the market-related value of plan assets. If required, the unrecognized gains and losses are amortized over the expected average remaining service lives of the employee group. The following tables present the weighted-average assumptions used in determining the projected benefit obligations and the net periodic pension costs for the fiscal years ended June 30, 2011, June 30, 2010 and June 30, 2009: Weighted average assumptions used to determine projected benefit obligation (%) SRP RSBP PEBP 2011 2010 2009 2011 2010 2009 2011 2010 2009 Discount rate 5.30 5.75 7.00 5.50 6.00 7.00 5.20 5.75 7.00 Rate of compensation increase 5.90 6.20 6.70 5.90 6.20 6.70 Health care growth rates - at end of fiscal year 6.90 7.00 7.00 Ultimate health care growth rate 4.00 4.25 4.75 Year in which ultimate rate is reached 2022 2022 2017 Weighted average assumptions used to determine net periodic pension cost (%) SRP RSBP PEBP 2011 2010 2009 2011 2010 2009 2011 2010 2009 Discount rate 5.75 7.00 6.75 6.00 7.00 6.75 5.75 7.00 6.75 Expected return on plan assets 6.75 7.75 7.75 7.75 7.75 8.25 Rate of compensation increase 6.20 6.70 7.00 6.20 6.70 7.00 Health care growth rates: -at end of fiscal year 7.00 7.00 7.25 Ultimate health care growth rate 4.25 4.75 5.50 Year in which ultimate rate Is reached 2022 2017 2016 82 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The medical cost trend rate can significantly affect the reported postretirement benefit income or costs and benefit obligations for the RSBP. The following table shows the effects of a one-percentage-point change in the assumed healthcare cost trend rate (US$ millions): One-percentage-point increase One-percentage-point decrease Effect on total service and interest cost $ 8 $ (6) Effect on postretirement benefit obligation 59 (46) Investment strategy The investment policies establish the framework for investment of the plan assets based on long-term investment objectives and the trade-offs inherent in seeking adequate investment returns within acceptable risk parameters. A key component of the investment policy is to establish a strategic asset allocation (SAA) representing the policy portfolio (i.e., neutral mix of assets) around which the plans are invested. The SAA for the plans are reviewed in detail and reset about every three to five years, with an annual review of key assumptions. The key long-term objective is to target and secure asset performance that is reasonable in relation to the growth rate of the underlying liabilities and the assumed sponsor contribution rates. This is particularly so in the case of the SRP, which has liabilities that can be projected with a reasonable level of confidence based on the actuarial assumptions. Given the relatively long investment horizons of the SRP and RSBP of approximately 10 years, and the relatively modest liquidity needs over the short-term to pay benefits and meet other cash requirements, the focus of the investment strategy is on generating sustainable long-term investment returns through various assets classes and strategies including equity, quasi-equity, private equity and real estate. The SAA is derived using a mix of quantitative analysis that incorporates expected returns and volatilities by asset class as well as correlations across the asset classes, and qualitative considerations such as the desired liquidity needs of the plans. The strategic asset allocation is comprised of a diversified portfolio drawn from among fixed-income, equity, real assets and absolute return strategies. The revised target asset allocations for the SRP and RSBP were approved in December 2010 and April 2011, respectively and the portfolio is currently in transition to the new SAA. The following table presents the actual and target asset allocation at June 30, 2011 and June 30, 2010 by asset category for the SRP and RSBP: SRP RSBP Target Target Allocation Allocation Effective % of Plan Assets Effective % of Plan Assets January 2011 (%) 2011 2010 May 2011 (%) 2011 2010 Asset class Fixed income & cash 31.0 32.6 40.6 24.0 33.2 35.7 Public equity 27.0 23.9 15.5 29.0 26.6 22.6 Private equity 15.0 20.2 19.8 20.0 24.9 25.6 Hedge funds and active overlay 15.0 10.8 13.3 15.0 8.1 10.4 Real assets 12.0 12.5 10.8 12.0 7.2 5.7 Total 100.0 1 00.0 100.0 100.0 100.0 100.0 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 Plan’s overall return volatility. Risk management practices Risk management is an integral part of managing the assets of the plans. Liability driven management and asset diversification are central to the overall investment strategy and risk management approach for the SRP. The surplus volatility risk (defined as annualized standard deviation of asset returns relative to that of liabilities) is considered the primary indicator of the SRP overall investment risk in the asset allocation process. The investment risk is regularly monitored at the absolute level, as well as at the relative levels with respect to policy benchmarks and in the case of the SRP, to the liabilities. To access the impact of extreme market events, stress tests are performed periodically using relevant market scenarios. Credit risk is controlled through the application of the eligibility criteria and concentration limits for transactions with individual issues. Counterparty risk exposure on over-the-counter derivatives is mitigated through the use of master netting arrangements and collateral. The Plan manages its liquidity risk primarily by investing a portion of the asset base in securities that are either very liquid or can be liquidated at a fairly short notice and at a reasonable price and by maintaining an adequate cash cushion. The level of illiquid asset classes appropriate in the portfolio also takes into account projected liquidity requirements. Risk management for different asset classes is tailored to their specific characteristics and is an integral part of external manager due diligence. In addition, monitoring of performance (both manager and asset class) against benchmarks and compliance with investment guidelines are carried out as part of the risk monitoring process. 83 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fair value measurements and disclosures All plan assets are measured at fair value on recurring basis. The following table presents the fair value hierarchy of major categories of plans assets as of June 30, 2011 and June 30, 2010 (US$ millions): June 30, 2011 Fair value measurements on a recurring basis SRP RSBP Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Debt securities Time Deposits $ - $ 43 $ - $ 43 $ - $ 4 $ - $ 4 Securities purchased under resale agreements 54 - - 54 4 - - 4 Government and agency securities 470 178 - 648 11 48 - 59 Corporate and convertible bonds - 47 - 47 - 21 - 21 Asset-backed securities - 22 5 27 - 1 * 1 Mortgage-backed securities - 77 3 80 - 1 * 1 Total Debt securities 524 367 8 899 15 75 * 90 Equity securities US common stocks 62 - - 62 6 - - 6 Non-US common stocks 219 - - 219 26 - - 26 Mutual funds 47 - - 47 7 - - 7 Real estate investment trusts (REITS) 48 - - 48 * - - * Total Equity securities 376 - - 376 39 - - 39 Commingled funds - 138 - 138 - 31 - 31 Private equity - - 475 475 - - 66 66 Hedge funds - 218 61 279 - 16 6 22 Derivative assets /liabilities 3 (5) - (2) * (1) - (1) Real estate (including Infrastructure and timber - 59 139 198 - 2 17 19 Other assets /liabilities**, net - * - (17) - - - * Total Assets $ 903 $ 777 $ 683 $ 2,346 $ 54 $ 123 $ 89 $ 266 June 30, 2010 Fair value measurements on a recurring basis SRP RSBP Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Debt securities Time Deposits $ - $ 32 $ - $ 32 $ - $ 3 $ - $ 3 Securities purchased under resale agreements 42 - - 42 6 - - 6 Government and agency securities 508 39 - 547 19 29 - 48 Corporate and convertible bonds - 86 1 87 - 16 - 16 Asset-backed securities - 22 9 31 - 1 * 1 Mortgage-backed securities - 127 4 131 - 3 * 3 Total Debt securities 550 306 14 870 25 52 * 77 Equity securities US common stocks 51 - - 51 5 - - 5 Non-US common stocks 162 - - 162 19 - - 19 Mutual funds 9 - - 9 1 - - 1 Real estate investment trusts (REITS) 33 - - 33 * - - * Total Equity securities 255 - - 255 25 - - 25 Commingled funds - 104 - 104 - 22 - 22 Private equity - - 406 406 - - 55 55 Hedge funds - 213 78 291 - 15 7 22 Derivative assets /liabilities 1 (1) - - - 1 - 1 Short sales - (2) - (2) - - - - Real estate (including Infrastructure and timber - - 136 136 - - 12 12 Other assets /liabilities**, net - - - (19) - - - (1) Total Assets $ 806 $ 620 $ 634 $ 2,041 $ 50 $ 90 $ 74 $ 213 * Less than $0.5 million. ** Includes receivables and payables carried at amounts that approximate fair value. 84 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Valuation methods and assumptions The following are general descriptions of asset categories, as well as the valuation methodologies and inputs used to determine the fair value of each major category of Plan assets. It is important to note that the investment amounts in the asset categories shown in the table above may be different from the asset category allocation shown in the Investment Strategy section of the note. Asset classes in the table above are grouped by the characteristics of the investments held. The asset class break-down in the Investment Strategy section is based on management’s view of the economic exposures after considering the impact of derivatives and certain trading strategies. Debt securities Debt securities include time deposits, U.S. treasuries and agencies, debt obligations of foreign governments and debt obligations in corporations of domestic and foreign issuers. Fixed income also includes investments in asset backed securities such as collateralized mortgage obligations and mortgage backed securities. These securities are valued by independent pricing vendors at quoted market prices for the same or similar securities, where available. If quoted market prices are not available, fair values are based on discounted cash flow models using market-based parameters such as yield curves, interest rates, volatilities, foreign exchange rates and credit curves. Some debt securities are valued using techniques which require significant unobservable inputs. The selection of these inputs may involve some judgment. Plan management believes its estimates of fair value are reasonable given its processes for obtaining securities prices from multiple independent third-party vendors, ensuring that valuation models are reviewed and validated, and applying its approach consistently from period to period. Unless quoted prices are available, money market instruments and securities purchased under resale agreements are reported at face value which approximates fair value. Equity securities Equity securities (including REITS) are invested in companies in various industries and countries. Investments in public equity listed on securities exchanges are valued at the last reported sale price on the last business day of the fiscal year. Commingled funds Commingled funds are typically common or collective trusts reported at net asset value (NAV) as provided by the investment manager or sponsor of the fund based on valuation of underlying investments, and reviewed by management. Private equity Private equity includes investments primarily in leveraged buyouts, distressed investments and venture capital funds across North America, Europe and Asia in a variety of sectors. A large number of these funds are in the investment phase of their life cycle. Private Equity investments do not have a readily determinable fair market value and are reported at NAV provided by the fund managers, and reviewed by management, taking into consideration the latest audited financial statements of the funds. The underlying investments are valued using inputs such as cost, operating results, discounted future cash flows and trading multiples of comparable public securities. Real estate Real estate includes several funds which invest in core real estate as well as non-core type of real estate investments such as debt, value add, and opportunistic equity investments. Real estate investments do not have a readily determinable fair market value and are reported at NAV provided by the fund managers, and reviewed by management, taking into consideration the latest audited financial statements of the funds. The valuations of underlying investments are based on income and/or cost approaches or comparable sales approach, and taking into account discount and capitalization rates, financial conditions, local market conditions among others. Hedge fund investments Hedge fund investments include those seeking to maximize absolute returns using a broad range of strategies to enhance returns and provide additional diversification. Hedge Funds include investments in equity, event driven, fixed income, multi strategy and macro relative value strategies. These investments do not have a readily determinable fair market value and are reported at NAVs provided by external managers or fund administrators (based on the valuations of underlying investments) on a monthly basis, and reviewed by management, taking into consideration the latest audited financial statements of the funds. Investments in hedge funds and commingled funds can typically be redeemed at NAV within the near term while investments in private equity and most real estate are inherently long term and illiquid in nature with a quarter lag in reporting by the fund managers. For the June 30, 2011 reporting of those asset classes with a reporting lag, management estimates are based on the latest available information taking into account underlying market fundamentals and significant events through the balance sheet date. Investment in derivatives Investment in derivatives such as equity or bond futures, TBA securities, swaps, options and currency forwards are used to achieve a variety of objectives that include hedging interest rates and currency risks, gaining desired market exposure of a security, an index or currency exposure and rebalancing the portfolio. Over-the-counter derivatives are reported using valuations based on discounted cash flow methods incorporating market observable inputs. 85 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following tables present a reconciliation of Level 3 assets held during the year ended June 30, 2011 and 2010 (US$ millions). Investments in certain real estate funds that were identified as redeemable within 90 days of the period end were transferred out of Level 3 into Level 2. __________________________________________________________________________________________________________________ June 30, 2011 SRP: Fair value measurements using significant unobservable inputs Corporate Asset- Mortgage- Private Real Hedge Total and backed backed equity estate funds convertible securities securities debt __________________________________________________________________________________________________________________ Beginning of the fiscal year $ 1 $ 9 $ 4 $ 406 $ 136 $ 78 $ 634 Actual return on plan assets: Relating to assets still held at the reporting date - 1 * 11 28 8 48 Relating to assets sold during the period - (1) * 51 3 5 58 Purchase, issuance and settlements, net * 1 * 7 29 (31) 6 Transfers in (out) (1) (5) (1) - (57) 1 (63) Balance at end of fiscal year $ * $ 5 $ 3 $ 475 $ 139 $ 61 $ 683 _________________________________________________________________________________________________________________ June 30, 2011 RSBP: Fair value measurements using significant unobservable inputs Corporate Asset- Mortgage- Private Real Hedge Total And backed backed Equity Estate Funds Convertible Securities Securities Debt __________________________________________________________________________________________________________________ Beginning of the fiscal year $ * $ * $ * $ 55 $ 12 $ 7 $ 74 Actual return on plan assets: Relating to assets still held at the reporting date - - - 4 2 1 7 Relating to assets sold during the period - - - 7 1 1 9 Purchase, issuance and settlements, net - - - - 4 (3) 1 Transfers in (out) - - - - (2) * (2) Balance at end of fiscal year $ * $ * $ * $ 66 $ 17 $ 6 $ 89 _________________________________________________________________________________________________________________ June 30, 2010 SRP: Fair value measurements using significant unobservable inputs Corporate Asset- Mortgage- Private Real Hedge Total and backed backed equity estate funds convertible securities securities debt __________________________________________________________________________________________________________________ Beginning of the fiscal year $ 1 $ 6 $ 31 $ 320 $ 113 $ 318 $ 789 Actual return on plan assets: Relating to assets still held at the reporting date * 1 4 50 (3) 59 111 Relating to assets sold during the period * 1 * 23 2 8 34 Purchase, issuance and settlements, net * 2 (3) 13 24 (113) (77) Transfers in (out) * (1) (28) - - (194) (223) Balance at end of fiscal year $ 1 $ 9 $ 4 $ 406 $ 136 $ 78 $ 634 86 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS __________________________________________________________________________________________________________________ June 30, 2010 RSBP: Fair value measurements using significant unobservable inputs Corporate Asset- Mortgage- Private Real Hedge Total And backed backed Equity Estate Funds Convertible Securities Securities Debt __________________________________________________________________________________________________________________ Beginning of the fiscal year $ * $ 1 $ 1 $ 43 $ 10 $ 25 $ 80 Actual return on plan assets: Relating to assets still held at the reporting date - - * 7 (1) 2 8 Relating to assets sold during the period - - - 3 * 1 4 Purchase, issuance and settlements, net - (1) * 2 3 (9) (5) Transfers in (out) - * (1) - - (12) (13) Balance at end of fiscal year $ * $ * $ * $ 55 $ 12 $ 7 $ 74 * Less than $0.5 million Estimated future benefits payments The following table shows the benefit payments expected to be paid in each of the next five years and subsequent five years. The expected benefit payments are based on the same assumptions used to measure the benefit obligation at June 30, 2011 (US$ millions): SRP RSBP PEBP Before Medicare Medicare Part D subsidy Part D subsidy July 1, 2011 - June 30, 2012 $ 86 $ 5 $ - $ 7 July 1, 2012 - June 30, 2013 94 6 - 8 July 1, 2013 - June 30, 2014 102 7 - 8 July 1, 2014 - June 30, 2015 110 7 - 9 July 1, 2015 - June 30, 2016 119 8 - 10 July 1, 2016 - June 30, 2021 731 59 1 64 Expected contributions IFC’s contribution to the SRP and RSBP varies from year to year, as determined by the Pension Finance Committee, which bases its judgment on the results of annual actuarial valuations of the assets and liabilities of the SRP and RSBP. The best estimate of the amount of contributions expected to be paid to the SRP and RSBP for IFC during the fiscal year beginning July 1, 2011 is $61 million and $25 million, respectively. NOTE W – SERVICE AND SUPPORT PAYMENTS IFC obtains certain administrative and overhead services from IBRD in those areas where common services can be efficiently provided by IBRD. This includes shared costs of the Boards of Governors and Directors, and other services such as communications, internal auditing, administrative support, supplies, and insurance. IFC makes payments for these services to IBRD based on negotiated fees, chargebacks and allocated charges, where chargeback is not feasible. Expenses allocated to IFC for the year ended June 30, 2011, were $50 million ($39 million - year ended June 30, 2010; $41 million - year ended June 30, 2009). Other chargebacks include $26 million for the year ended June 30, 2011 ($29 million - year ended June 30, 2010; $28 million - year ended June 30, 2009). 87 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE X – MANAGEMENT OF TRUST FUNDS IFC provides advisory services to government and private sector clients through four business lines: access to finance; investment climate; public-private partnerships; and sustainable business. IFC administers funds received from donors for financing advisory services activities through trust funds (Trust Funds). The donor funds may also be used to support feasibility studies, project preparation, and other special initiatives. Donor funds are restricted for purposes specified in agreements with the donors. IFC may also make contributions to these specific uses of funds in accordance with terms approved by IFC’s Board. The IFC contributions can be commingled with donor funds under administration in accordance with administration agreements with donors. The donor funds are held in a separate liquid asset investment portfolio, managed by IBRD, which is not commingled with IFC’s liquid assets. IFC funding is included in the consolidated balance sheet of IFC until such time as IFC cedes control of the funds to the recipient. The below table provides the expenditures incurred by IFC to provide advisory services and related technical support for the years ended June 30, 2011, June 30, 2010 and June 30, 2009 (US$ millions): 2011 2010 2009 Advisory Services expenses $ 329 $ 297 $ 292 Sources of funding: Donor contributions 186 170 153 IFC 143 127 139 Total funding $ 329 $ 297 $ 292 NOTE Y – CONTINGENCIES In the normal course of its business, IFC is from time to time named as a defendant or co-defendant in various legal actions on different grounds in various jurisdictions. Although there can be no assurances, based on the information currently available, IFC’s Management does not believe the outcome of any of the various existing legal actions will have a material adverse effect on IFC’s financial position, results of operations or cash flows. 88 Page 93 INTERNATIONAL FINANCE CORPORATION INDEPENDENT AUDITORS’ REPORT Project IFC Financials and Projects 2011 89 Commitments PROJECT COMMITMENTS This table includes projects signed and processed during FY11. All amounts are given in U.S. dollars, regardless of the currency of the transaction. Under the Global Trade Finance Program, IFC provides guarantee coverage of bank risk in emerging markets, where con�rming banks need risk mitigation to support their export clients because of limited capacity for country and bank exposure. NOTE ON CATEGORIZATION OF PROJECTS: Projects are assigned a category of A, B, or C, according to their potential environmental and social impacts — or FI, in the case of investments through �nancial intermediaries that on-lend to clients whose projects may present environmental and social risks. A Expected to have signi�cant adverse social or environmental impacts that are diverse, irreversible, or unprecedented. B Expected to have limited adverse social or environmental impacts that can be readily addressed through mitigation measures. C Expected to have minimal or no adverse impacts; includes cer- tain �nancial intermediary investments. FI Investments in �nancial intermediaries whose portfolios entail the following sub-categories of risk: FI-1: Expected to include substantial exposure to business activities with potentially signi�cant adverse social and environmental impacts that are diverse, irreversible, or unprecedented. FI-2: Expected to include exposure to business activities with limited adverse social or environmental impacts that can be readily addressed through mitigation measures. This subcategory may also include exposure to a very limited number of business activities with potentially signi� - cant adverse social and environmental impacts that are diverse, irreversible, or unprecedented. FI-3: Expected to include exposure to business activities that predominantly have minimal or no adverse environmental or social impacts. 90 Project Fiscal Year 2011 Commitments Environment & IFC Loan & Social Category Quasi-Loan IFC Region Country Name Company Name Code Commitments ($) EAST ASIA AND THE PACIFIC Cambodia ACLEDA Bank PLC FI 6,000,000 ANZ Royal Bank (Cambodia) Ltd. FI – China Ancheng Property & Casualty Insurance Company Ltd. C – Bank of Beijing (formerly BCCB) C – Beijing Shenwu Thermal Energy Technology Co., Ltd. B 22,759,688 Binhai Rural Commercial Bank FI – Chengdu Small Enterprise Credit Guarantee Co., Ltd. C – China Digital Video, Ltd. C – China Environment Fund IV, L.P. FI – China WindPower Group Limited B – Dazhou Koyo Chemical Industry Company, Ltd. B – Deyang City Commercial Bank C – Global Data Solutions Ltd. C – Healthway Medical Corporation Limited B – Hwagain Group Co. Ltd. B – Jiangsu Financial Leasing Co., Ltd. FI – Lattice Power Corporation B – MicroCred China C – Microvast, Inc. B – Muyuan Foodstuff Co., Ltd. B – New China Life Insurance Company C – Puhui Rural Credit Guarantee Co., Ltd. FI – Q&M Dental Group (Singapore) Limited B 15,000,000 Sanchuan Energy Development Co., Ltd. B – Sichuan Beichuan Fumin Village and Township Bank Co, Ltd. FI – Sound Global Ltd. B 36,000,000 Stora Enso Oyj B – Tianjin Binhai Rural Commercial Bank Corporation C – Tianjin Hi-Tech Environment Development Co. Ltd. B – Xinjiang Goldwind Science & Technology Co Ltd. B – East Asia and Paci�c Region China-ASEAN Investment Cooperation Fund FI – Maybank MEACP Pte. Ltd. FI – Salamander Energy PLC B 55,000,000 Sunpreme Co. Ltd. B – Indonesia BioCarbon Group Pte Limited B – P.T. South Paci�c Viscose B 30,000,000 PT Bank International Indonesia Tbk FI 75,000,000 PT Summit Oto Finance C 75,000,000 Lao People’s Democratic Republic Acleda Bank Lao Ltd. FI – Electricite du Laos B 15,000,000 Mongolia Khan Bank of Mongolia, Ulanbaatar, Mongolia FI 20,000,000 Mongolia Opportunities Fund I, L.P. FI – Shangri-La Ulaanbaatar Hotel LLC B 50,000,000 Suu JSC B 2,000,000 XacBank Ltd. FI – Papua New Guinea Bank South Paci�c FI – Philippines Banco de Oro Unibank Inc. FI – Energy Development Corporation B 75,000,000 Mindoro Resources Ltd. B – Rizal Commercial Banking Corporation FI – TCG Holdings, Inc. B 15,950,069 91 IFC Equity & Trade Finance Non-Trade Total Quasi-Equity Risk Management Guarantee Finance Guarantee Commitments for Syndications Commitments ($) Commitments ($) Commitments ($) Commitments ($) IFC’s Own Account ($) Commitments ($) – – 786,506 – 6,786,506 – – – – 15,000,000 15,000,000 – 53,635,417 – – – 53,635,417 – – – 60,000,000 – 60,000,000 – – – – – 22,759,688 – – – – 30,866,579 30,866,579 – 5,963,845 – – – 5,963,845 – 1,000,000 – – – 1,000,000 – 20,000,000 – – – 20,000,000 – – – – – – 95,000,000 10,000,000 – – – 10,000,000 – – – 209,992 – 209,992 – 714,286 – – – 714,286 – 813,817 – – – 813,817 – 15,278,889 – – – 15,278,889 – 17,644,431 – – – 17,644,431 – 17,500,000 – – – 17,500,000 – 2,120,714 – – – 2,120,714 – 25,000,000 – – – 25,000,000 – 9,590,516 – – – 9,590,516 – 8,470,744 – – – 8,470,744 – 7,475,348 – – – 7,475,348 – – – – – 15,000,000 – 2,650,000 – – – 2,650,000 – 1,615,853 – – – 1,615,853 – – – – – 36,000,000 – – – – – – 127,555,556 – – 36,025 – 36,025 – 9,000,000 – – – 9,000,000 – 75,000,000 – – – 75,000,000 – 100,000,000 – – – 100,000,000 – 25,000,000 – – – 25,000,000 – – – – – 55,000,000 – 25,000,000 – – – 25,000,000 – 5,000,000 – – – 5,000,000 – – – – – 30,000,000 110,000,000 – – – – 75,000,000 – – – – – 75,000,000 155,000,000 2,372,249 – – – 2,372,249 – – – – – 15,000,000 – – – 508,260 – 20,508,260 – 6,250,000 – – – 6,250,000 – – – – – 50,000,000 – – – – – 2,000,000 – 4,041,874 – 500,000 – 4,541,874 – – – 635,430 10,668,750 11,304,180 – – – – 22,678,308 22,678,308 – – – – – 75,000,000 – 3,892,349 – – – 3,892,349 – 48,304,796 – – – 48,304,796 – – – – – 15,950,069 – 92 Project Fiscal Year 2011 Commitments Environment & IFC Loan & Social Category Quasi-Loan IFC Region Country Name Company Name Code Commitments ($) EAST ASIA AND THE PACIFIC Thailand Solar Power (Nakhon Panom 1) Company Limited B – Solar Power (Sakonnakhon 1) Company Limited B – Vietnam An Binh Commercial Joint Stock Bank FI 40,617,468 Asia Commercial Bank C – Cai Lan International Container Terminal, LLC B 38,750,000 LienViet Joint Stock Commercial Bank C – Orient Commercial Joint Stock Bank C – Piaggio Vietnam Co. Ltd. B 18,432,000 Saigon Thuong Tin Commercial Joint Stock Bank C – Thien Minh Travel Joint Stock Company B 12,000,000 Thien Viet Securities FI 5,000,000 Vietnam Export Import Commercial Joint Stock Bank C – Vietnam International Commercial Joint Stock Bank C – Vietnam Joint Stock Commercial Bank for Industry and Trade FI – Vietnam Technological and Commercial Joint Stock Bank C – Vina Eco Board Co., Ltd. B – EUROPE AND CENTRAL ASIA Albania National Commercial Bank Sh.A. C – Armenia ACBA-Credit Agricole Bank Closed Joint Stock Company FI 20,000,000 Ameriabank CJSC C – Armeconombank FI 5,000,000 CJSC Ardshininvestbank C – Inecobank C – Lydian International Ltd. B – Azerbaijan AzeriGazbank FI – DemirBank OJSC C – Finca Azerbaijan LLC FI 7,000,000 JSC Bank Respublika C – Rabitabank FI – Turanbank OJSC FI 7,000,000 UniBank FI 10,000,000 Belarus Belarusky Narodny Bank C – JSC BPS-Bank (Formerly Belpromstroibank) C – JSC Belgazprombank C – Minsk Transit Bank FI 10,000,000 Priorbank Joint Stock Company C – Svoboda B 5,000,000 The Alutech Group B 30,031,100 Bosnia and Herzegovina Raiffeisen Bank d.d. Bosnia and Herzegovina C – Sisecam Soda Lukavac B 19,505,250 Bulgaria First Investment Bank A.D. C – Stomana Industry A.D. B 34,578,750 Czech Republic Ceska sporitelna, A.S. FI – Eastern Europe Region Soufflet Finances SNC B 66,917,500 Georgia Bank of Georgia C – Clean Energy Invest A.S. C 2,000,000 Georgian Urban Enerji Ltd. A 40,500,000 SEAF Caucasus Growth Fund FI – Kazakhstan Archimedes Global Ltd. FI – Bank CenterCredit C – Intermultiservice LLC B 2,250,000 93 IFC Equity & Trade Finance Non-Trade Total Quasi-Equity Risk Management Guarantee Finance Guarantee Commitments for Syndications Commitments ($) Commitments ($) Commitments ($) Commitments ($) IFC’s Own Account ($) Commitments ($) 525,730 – – – 525,730 – 525,730 – – – 525,730 – – – 61,307,344 – 101,924,812 – – – 5,000,000 – 5,000,000 – – – – – 38,750,000 – – – 4,743,724 – 4,743,724 – – – 2,674,000 – 2,674,000 – – – – – 18,432,000 – – – 101,270,331 – 101,270,331 – – – – – 12,000,000 – – – – – 5,000,000 – – – 100,120,169 – 100,120,169 – – – 5,000,000 – 5,000,000 – 59,541,515 – – – 59,541,515 – – – 235,796,566 – 235,796,566 – 9,000,000 – – – 9,000,000 – – – 398,745 – 398,745 – – 2,000,000 – – 22,000,000 – – 4,400,000 30,451,043 – 34,851,043 – – – 2,380,049 – 7,380,049 – – – 1,793,676 – 1,793,676 – – – 100,000 – 100,000 – 3,561,153 – – – 3,561,153 – 1,094,092 – 1,794,411 – 2,888,503 – – – 9,938,626 – 9,938,626 – – – – – 7,000,000 – – – 350,000 – 350,000 – 2,094,593 – – – 2,094,593 – – – – – 7,000,000 – – – 919,563 – 10,919,563 – – – 2,663,452 – 2,663,452 – – – 43,520,993 – 43,520,993 – – – 29,285,128 – 29,285,128 – – – 4,233,434 – 14,233,434 – – – 181,378 – 181,378 – – – – – 5,000,000 – – – – – 30,031,100 – – – 136,323 – 136,323 – – – – – 19,505,250 – – – 20,625,331 – 20,625,331 – – – – – 34,578,750 – – – – 58,368,000 58,368,000 – – – – – 66,917,500 – – – 12,525,907 – 12,525,907 – – – – – 2,000,000 – – – – – 40,500,000 – 10,000,000 – – – 10,000,000 – 3,000,000 – – – 3,000,000 – – – 80,914,100 – 80,914,100 – – – – – 2,250,000 – 94 Project Fiscal Year 2011 Commitments Environment & IFC Loan & Social Category Quasi-Loan IFC Region Country Name Company Name Code Commitments ($) EUROPE AND CENTRAL ASIA Jambyl Cement LLP B – Soufflet Finances SNC B 13,383,500 Kyrgyz Republic CJSC Finca Micro-Credit Company FI 6,000,000 Demir Kyrgyz International Bank C – Kyrgyz Investment & Credit Bank FI – Magic Box B 2,500,000 Moldova CB Moldova Agroindbank S.A. C – Eximbank — Gruppo Veneto Banca S.A. FI 26,000,000 The City of Chisinau B 10,000,000 Montenegro City of Podgorica B 13,219,360 Republic of Kosovo TEB Sh.A. FI 8,245,900 Romania Banca Transilvania S.A. C – Bancpost S.A. FI 74,998,704 Cernavoda Power SC A 60,756,812 ProCredit Bank S.A. FI – Russian Federation Asian-Paci�c Bank (Open joint-stock company) C – Asteros Technology Solutions Holding Ltd. C – Brunswick Leasing Limited B – Brunswick Wagon Leasing B 50,000,000 Credit Bank of Moscow FI – FactorRus C 5,000,000 Idavang A/S B – MDM Bank C – Municipal Unitary Enterprise “Upravlenie Zakazchika Zhilischno- B 5,286,716 Kommunalnogo Khozyaistva� OAO Monocrystal B 30,000,000 OJSC Bank Saint Petersburg C – OOO Northern Capital Gateway, Ltd. B – Open Joint Stock Company Commercial Bank “Center-Invest� C – Open Joint-Stock Bank “Orient Express Bank� FI 75,000,000 Otkritie Bank JSC FI – PromSvyazBank C – Republic of Maryi El B 22,518,621 RosEvroBank Joint Stock Commercial Bank C – Transcapitalbank FI 18,200,000 UralTransBank C – ZAO Energomera B 20,000,000 ZAO Locko Bank FI 19,600,417 ZAO Raiffeisenbank Austria C – Serbia Cacanska Banka A.D. FI – Eurobank EFG a.d. Beograd FI 49,999,136 Farmakom M.B. B 57,610,000 Frikom A.D. B 34,178,750 Southern Europe Region C.I.O.S. d.o.o. B 28,805,000 Gorenje, d.d. B – Intesa Sanpaolo S.p.A. C – Tajikistan Access Bank Tajikistan CJSC FI 4,000,000 LLC Confectionery Plant Amiri B 1,300,000 Open Joint Stock Company, Bank Eskhata C – Turkey Akbank FI 75,000,000 Alternatifbank A.S. FI 50,000,000 95 IFC Equity & Trade Finance Non-Trade Total Quasi-Equity Risk Management Guarantee Finance Guarantee Commitments for Syndications Commitments ($) Commitments ($) Commitments ($) Commitments ($) IFC’s Own Account ($) Commitments ($) 3,000,000 – – – 3,000,000 – – – – – 13,383,500 – – – – – 6,000,000 – – – – – – – 1,275,000 – – – 1,275,000 – – – – – 2,500,000 – – – 19,902,111 – 19,902,111 – – – – – 26,000,000 – – – – – 10,000,000 – – – – – 13,219,360 – – – – – 8,245,900 – 1,378,321 – – – 1,378,321 – – – 5,501,000 – 80,499,704 – – – – – 60,756,812 – 823,804 – – – 823,804 – – – 22,052,491 – 22,052,491 – 1,053 – – – 1,053 – 25,000,000 – – – 25,000,000 – – – – – 50,000,000 50,000,000 – – 169,598,415 – 169,598,415 130,000,000 – – – – 5,000,000 – 24,963,960 – – – 24,963,960 – – – 18,000,000 – 18,000,000 – – – – – 5,286,716 – – – – – 30,000,000 – – – 25,510,474 – 25,510,474 – – – – – – 122,880,000 – – 590,875 – 590,875 – – – – – 75,000,000 – 100,000,000 – – – 100,000,000 – – – 76,135,579 – 76,135,579 – – – – – 22,518,621 – – – 4,707,621 – 4,707,621 – 41,800,000 – 17,382,244 – 77,382,244 52,000,000 – – 2,279,473 – 2,279,473 – – – – – 20,000,000 – – – 46,659,110 – 66,259,528 30,000,000 – – 18,813,773 – 18,813,773 – 11,698,725 – – – 11,698,725 – – – – – 49,999,136 – – – – – 57,610,000 43,207,500 – – – – 34,178,750 – – – – – 28,805,000 – 3,742,092 – – – 3,742,092 66,415,019 – – – 136,505,000 136,505,000 – – – – – 4,000,000 – – – – – 1,300,000 – – – 1,148,000 – 1,148,000 – – – – – 75,000,000 – – – – – 50,000,000 – 96 Project Fiscal Year 2011 Commitments Environment & IFC Loan & Social Category Quasi-Loan IFC Region Country Name Company Name Code Commitments ($) EUROPE AND CENTRAL ASIA DenizBank A.S. FI 71,042,500 Enerjisa Enerji Uretim A.S. A 89,904,750 Finansbank A.S. FI – Sakarya Elektrik Dagitim A.S. B 75,000,000 Sekerbank T.A.S. C – Tamek Gida ve Konsantre Sanayii ve Ticaret A.S. B 16,420,361 UHG Topco Cooperatief U.A. B – Ukraine BayerFarmersRSF B – DeNovo Overseas Holdings Limited C – Euro Leasing Ltd. FI 10,000,000 First Lease FI 5,000,000 Mriya Agro Holding Public Limited B 35,000,000 Nova Linia B 22,000,000 PJSC “Concern Galnaftogaz� B 35,000,000 PJSC OTP Bank C – Raiffeisen Bank Aval C – The State Export Import Bank of Ukraine C – Uzbekistan Hamkorbank, Joint Stock Commercial Bank FI – LATIN AMERICA AND THE CARIBBEAN Argentina Argentex Mining Inc. B – BBVA Banco Frances S.A. C – Banco Bradesco Argentina S.A. C – Banco CMF S.A. C – Banco Itau Argentina S.A. C – Banco Patagonia S.A. C – Banco Supervielle S.A. C – Banco de Galicia y Buenos Aires, S.A. FI 20,000,000 Cencosud S.A. C – FV S.A. B 10,000,000 Kordsa Argentina S.A. B 15,000,000 Recovery do Brasil Consultoria S.A. FI 20,000,000 Telepuerto Internacional Buenos Aires S.A. C 10,000,000 Terminales Rio de la Plata S.A. B 10,000,000 Barbados Millennium Investments Limited B 20,000,000 Belize Atlantic Bank Belize C – Bolivia Banco Ganadero C – Banco Mercantil S.A. C – Banco de Credito C – Empresa Forestal SLV Bolivia SRL A 6,000,000 Brazil Banco ABC Brasil S.A. C – Banco Daycoval S.A. C – Banco Fibra S.A. FI 15,000,000 Banco Industrial do Brasil S.A. FI 15,000,000 Banco Industrial e Comercial S.A. FI 25,000,000 Banco Indusval S.A. C – Banco Pine S.A. C – Banco So�sa S.A. C – Brasil Terminal Portuario S.A. B 97,000,000 Companhia Catarinense de Aguas e Saneamento C 23,516,962 Companhia de Saneamento de Sergipe — DESO C 10,737,416 Estacio Participacoes S.A. B 30,000,000 97 IFC Equity & Trade Finance Non-Trade Total Quasi-Equity Risk Management Guarantee Finance Guarantee Commitments for Syndications Commitments ($) Commitments ($) Commitments ($) Commitments ($) IFC’s Own Account ($) Commitments ($) – – – – 71,042,500 – – – – – 89,904,750 712,322,250 18,327,606 – – – 18,327,606 – – – – – 75,000,000 75,000,000 – – 38,401,200 – 38,401,200 – – – – – 16,420,361 – 25,000,000 – – – 25,000,000 – – – – 69,052,103 69,052,103 – 3,500,000 – – – 3,500,000 – – – – – 10,000,000 – – – – – 5,000,000 – – – – – 35,000,000 – – – – – 22,000,000 – – – – – 35,000,000 – – – 22,971,675 – 22,971,675 – – – 31,069,410 – 31,069,410 – – – 10,625,000 – 10,625,000 – 447,033 – – – 447,033 – 7,002,335 – – – 7,002,335 – – – 11,673,897 – 11,673,897 – – – 12,000,000 – 12,000,000 – – – 19,156,553 – 19,156,553 – – – 17,138,025 – 17,138,025 – – – 210,000 – 210,000 – – – 1,005,691 – 1,005,691 – – – 22,093,074 – 42,093,074 – – 700,000 – – 700,000 – – – – – 10,000,000 – – – – – 15,000,000 – 5,000,000 – – – 25,000,000 – – – – – 10,000,000 – – – – – 10,000,000 – – – – – 20,000,000 – – – 3,631,359 – 3,631,359 – – – 8,972,907 – 8,972,907 – – – 12,281,074 – 12,281,074 – – – 3,936,422 – 3,936,422 – – – – – 6,000,000 – – – 24,621,876 – 24,621,876 – – – 130,000,000 – 130,000,000 – 53,892,563 – 160,009,478 – 228,902,040 120,576,000 – – 29,872,520 – 44,872,520 29,028,480 – – 108,044,916 – 133,044,916 178,776,750 – – 54,518,705 – 54,518,705 – – – 207,147,983 – 207,147,983 – – – 10,947,577 – 10,947,577 – – – – – 97,000,000 582,000,000 – – – – 23,516,962 – – – – – 10,737,416 – – – – – 30,000,000 – 98 Project Fiscal Year 2011 Commitments Environment & IFC Loan & Social Category Quasi-Loan IFC Region Country Name Company Name Code Commitments ($) LATIN AMERICA AND THE CARIBBEAN Hospital e Maternidade São Luiz S.A. B 30,355,714 Latapack Ball Embalagens Ltda. B 20,000,000 NBC Bank Brasil S.A. Banco Multiplo C – Softwell Solutions em Informatica S.A. C – TriBanco Brazil FI – UBF Seguros S.A. FI – Caribbean Region Sagicor Financial Corporation C – Chile Bco Internacional S.A. C – Factorline S.A. C – Geopark UJV B – Hidroelectrica La Higuera S.A. A – Colombia Bancolombia S.A. C – Colombia Infrastructure Fund Ashmore I FCP FI – SPV Covinoc FI 30,000,000 SPV Student Loans C 5,000,000 Terminal De Contenedores De Buenaventura S.A. A 34,000,000 Costa Rica Banco Improsa S.A. C – Banco La�se Costa Rica, S.A. C – Banco Promerica de Costa Rica, S.A. C – Coopenae FI 15,000,000 Dominican Republic Banco Multiple Leon, S.A. C – Caucedo Investments Inc. B 17,500,000 WIND Telecom S.A. B 16,000,000 Ecuador Favorita Fruit Company, Ltd. B 11,000,000 El Salvador Apoyo Integral S.A. de C.V. FI 8,000,000 Banco Agricola S.A. C – Banco ProCredit S.A. FI 5,000,000 Federacion de Cajas de Credito y Bancos de los Trabajadores FI 30,000,000 Guatemala Banco GyT Continental S.A. C – Banco Industrial S.A. (Guatemala) C – Guyana Guyana Bank for Trade and Industry C – Guyana Gold�elds Inc. B – Haiti Capital Bank, S.A. C – E-Power S.A. B 1,000,000 Honduras Banco del Pais S.A. C – Banco Atlantida S.A. C – Banco Financiera Comercial Hondurena S.A. (Banco Ficohsa) C – Banco La�se Honduras, S.A. C – Tegucigalpa B – Jamaica Jamaica Public Service Company B 30,000,000 Transjamaican Highway Ltd. B 53,572,050 West Kingston Power Partners B 21,742,000 Latin America Region CleanTech Latin America Fund II, L.P. FI – IFC Founder Partner — IFC African, Latin America & Caribbean FI – Fund, L.P. Mexico AI Fund I, S.A.P.I. de C.V. B – Alta Ventures Mexico Fund I, L.P. FI – Banco Compartamos, S.A., Institucion de Banca Multiple FI 17,306,952 Banco Monex, S.A. Institucion de Banca Multiple C – Banco del Bajio, S.A. FI – Bioparques del Occidente, S.A. de C.V. B 5,000,000 99 IFC Equity & Trade Finance Non-Trade Total Quasi-Equity Risk Management Guarantee Finance Guarantee Commitments for Syndications Commitments ($) Commitments ($) Commitments ($) Commitments ($) IFC’s Own Account ($) Commitments ($) – – – – 30,355,714 – – – – – 20,000,000 60,000,000 – – 30,000,000 – 30,000,000 – 4,800,000 – – – 4,800,000 – 23,516,962 – – – 23,516,962 – 10,511,662 – – – 10,511,662 – 100,000,000 – – – 100,000,000 – – – 85,760,000 – 85,760,000 – 3,597,674 – – – 3,597,674 – 10,000,000 – – – 10,000,000 – – – – – – 156,122,001 – 40,000,000 – – 40,000,000 – 20,000,000 – – – 20,000,000 – – – – – 30,000,000 – – – – – 5,000,000 – – – – – 34,000,000 117,000,000 – – 9,203,071 – 9,203,071 – – – 7,749,444 – 7,749,444 – – – 9,498,304 – 9,498,304 – – – – – 15,000,000 – – – 5,304,000 – 5,304,000 – – – – – 17,500,000 – – 220,000 – – 16,220,000 12,000,000 – – – – 11,000,000 – – – – – 8,000,000 – – – 6,762,509 – 6,762,509 – – – – – 5,000,000 – – – – – 30,000,000 – – – 10,000,000 – 10,000,000 – – – 36,271,774 – 36,271,774 – – – 820,822 – 820,822 – 9,938,655 – – – 9,938,655 – – – 642,716 – 642,716 – – – – – 1,000,000 2,000,000 – – 17,361,883 – 17,361,883 – – – 56,209,143 – 56,209,143 – – – 48,350,900 – 48,350,900 – – – 21,000,000 – 21,000,000 – – – – 15,908,971 15,908,971 – – – – – 30,000,000 – 4,600,000 1,500,000 – – 59,672,050 – – – – – 21,742,000 37,050,000 20,000,000 – – – 20,000,000 – 23,508,916 – – – 23,508,916 – 25,000,000 – – – 25,000,000 – 10,000,000 – – – 10,000,000 – – – – – 17,306,952 – – – 15,109,523 – 15,109,523 – 4,228,474 – – – 4,228,474 – – – – – 5,000,000 – 100 Project Fiscal Year 2011 Commitments Environment & IFC Loan & Social Category Quasi-Loan IFC Region Country Name Company Name Code Commitments ($) LATIN AMERICA AND THE CARIBBEAN Construcciones Metalicas Mexicanas Comemsa, S.A. de C.V. B 24,466,957 Electrica del Valle de Mexico S. de R.L. de C.V. B 24,368,962 FinComun, Servicios Financieros Comunitarios, S.A. de C.V. FI 10,401,207 Financiera Educativa de Mexico S.A. de C.V. FI 8,999,615 GMAC Financiera C 4,829,830 Harmon Hall Holding, S.A. de C.V. B – Leasing Operations de Mexico, S. de R.L. de C.V. FI 16,151,436 Metro Net, S.A.P.I. de C.V. C – Promotora de Viviendas Integrales, S.A. de C.V. C – Nicaragua Banco de America Central, S.A. C – Banco de Finanzas C – Banco de la Produccion S.A. C – La�se Bancentro, S.A. C – Polaris Energy Nicaragua S.A. B 50,300,000 Panama Multibank C – Paraguay Agrihold Management Corp. B 10,000,000 Banco Itau Paraguay S.A. FI 20,000,000 Banco Bilbao Vizcaya Argentaria Paraguay S.A. C – Banco Continental S.A.E.C.A. C – Banco Regional S.A. FI 30,000,000 Sudameris Bank FI 15,000,000 Peru Anglo American Quellaveco S.A. C – Antares Minerals Inc. C – Banco Continental C – Banco Interamericano de Finanzas S.A. — BIF FI 15,000,000 CRAC Nuestra Gente FI 8,860,535 Cheves S.A. A 70,000,000 Gobierno Regional de Arequipa FI – Grupo Salud del Peru S.A.C. B 25,000,000 Protecta C – Titulizadora Peruana Sociedad Titulizadora S.A. C – Saint Lucia Bank of Saint Lucia Limited C – Trinidad and Tobago Guardian Holdings Limited C – Uruguay Nuevo Banco Comercial S.A. FI 15,000,000 MIDDLE EAST AND NORTH AFRICA Afghanistan Afghanistan International Bank CJSC C – Algeria Maghreb Leasing Algerie S.P.A. FI – Egypt Ahli United Bank (Egypt) S.A.E. C – EFG Hermes Holding S.A.E. FI 80,000,000 Egyptian Indian Polyester Company S.A.E. B 35,000,000 Galaxy Chemicals (Egypt) S.A.E. B 12,000,000 Motaheda B 15,500,000 Iraq Atheer Telecom Iraq Limited B 155,000,000 Credit Bank of Iraq S.A. C – Gulftainer Company B 45,000,000 Malia Invest Limited C – Jordan Bank of Jordan Ltd. C – Cairo Amman Bank C – Capital Bank of Jordan C – Jordan India Fertilizer Company B 125,000,000 Union Bank C – 101 IFC Equity & Trade Finance Non-Trade Total Quasi-Equity Risk Management Guarantee Finance Guarantee Commitments for Syndications Commitments ($) Commitments ($) Commitments ($) Commitments ($) IFC’s Own Account ($) Commitments ($) – – – – 24,466,957 – – 4,580,000 – – 28,948,962 – – – – – 10,401,207 – – – – – 8,999,615 – – – – 140,464 4,970,294 – 7,806,279 – – – 7,806,279 – – – – – 16,151,436 – 5,000,000 – – – 5,000,000 – – – – 4,123,966 4,123,966 – – – 984,645 – 984,645 – – – 6,466,195 – 6,466,195 – – – 65,870 – 65,870 – – – 4,267,360 – 4,267,360 – – – – – 50,300,000 – – – 47,031,777 – 47,031,777 – – – – – 10,000,000 – – – 170,000 – 20,170,000 – – – 80,082,076 – 80,082,076 – – – 14,164,791 – 14,164,791 – – – 19,997,768 – 49,997,768 – – – 28,309,870 – 43,309,870 – 5,000,000 – – – 5,000,000 – 5,537,507 – – – 5,537,507 – – – 36,000,000 – 36,000,000 – – – 14,832,947 – 29,832,947 – 4,557,043 – – – 13,417,578 – – – – – 70,000,000 180,000,000 – – – 5,344,736 5,344,736 – – – – – 25,000,000 – 598,635 – – – 598,635 – 118,396 – – – 118,396 – – – 4,050,778 – 4,050,778 – 56,250,000 – – – 56,250,000 – – – 500,000 – 15,500,000 – – – 2,142,299 – 2,142,299 – – – – 14,064,566 14,064,566 – – – 2,904,000 – 2,904,000 – – – – – 80,000,000 – – – – – 35,000,000 – – – – – 12,000,000 – 10,000,000 – – – 25,500,000 – – – – – 155,000,000 50,000,000 1,524,138 – – – 1,524,138 – – – – – 45,000,000 – – 500,000 – – 500,000 – – – 6,571,067 – 6,571,067 – – – 367,450 – 367,450 – – – 5,065,059 – 5,065,059 – – – – – 125,000,000 90,134,000 – – 4,250,843 – 4,250,843 – 102 Project Fiscal Year 2011 Commitments Environment & IFC Loan & Social Category Quasi-Loan IFC Region Country Name Company Name Code Commitments ($) MIDDLE EAST AND NORTH AFRICA Kuwait Kuwait Energy Company KSCC B – Lebanon BLC Bank S.A.L. C – Bank of Beirut C – Banque Libano-Francaise C – Fransabank S.A.L. (Fransabank) C – Mobinets S.A.L. (offshore) C – MENA Region FIMBank PLC C 15,000,000 Morocco Kasbah Resources Limited B – Pakistan Allied Bank Limited C – Askari Commercial Bank Limited C – Bank Al Habib Limited C – Bank Alfalah Limited C – Engro Fertilizers Limited C 30,000,000 First MicroFinanceBank Limited FI – Habib Bank Limited (HBL) C – Habib Metropolitan Bank Ltd. C – MCB Bank Limited C – Meezan Bank Limited C – NRSP Micro�nance Bank Ltd. FI – Qasim International Container Terminal B 10,000,000 SilkBank Limited C – Soneri Bank Limited C – Uch-II Power Private Limited A 99,630,258 United Bank Limited C – Syrian Arab Republic Bank of Syria and Overseas C – Tunisia Amen Sante S.A. B – West Bank and Gaza Alrafah Micro�nance Bank C – Bank of Palestine C – Palestine for Credit and Development FI 3,000,000 Wataniya Palestine Mobile Telecommunication Company B – Yemen, Republic of Saba Islamic Bank C – SOUTH ASIA Bangladesh A K Khan WaterHealth (Bangladesh) Limited B – BRAC Bank FI 40,000,000 Eastern Bank Limited FI 30,000,000 Eastern Bank Limited C – Export Import Bank of Bangladesh Ltd. C – Pran Dairy Ltd. B 7,000,000 Southeast Bank Limited FI 10,000,000 Bhutan Bhutan National Bank Limited C – India Aavishkaar India II Company Ltd. FI – Apollo Tyres Limited B – Attero Recycling Pvt. Ltd. B 4,999,978 Bandhan Financial Services Pvt. Ltd. FI – Cholamandalam Investment and Finance Company Ltd. FI – Export-Import Bank of India FI 75,000,000 Gamesa Wind Turbines Pvt. Ltd. B 16,345,450 Himadri Chemicals & Industries Limited C 5,000,000 India Collections Management Private Ltd. FI – Kaizen Private Equity FI – Kotak Mahindra Bank Limited C – 103 IFC Equity & Trade Finance Non-Trade Total Quasi-Equity Risk Management Guarantee Finance Guarantee Commitments for Syndications Commitments ($) Commitments ($) Commitments ($) Commitments ($) IFC’s Own Account ($) Commitments ($) 50,000,000 – – – 50,000,000 – – – 8,354,008 – 8,354,008 – – – 20,462,068 – 20,462,068 – – – 26,308,199 – 26,308,199 – – – 31,667,451 – 31,667,451 – 2,000,000 – – – 2,000,000 – – – 24,536,259 – 39,536,259 – 3,010,629 – – – 3,010,629 – – – 12,272,306 – 12,272,306 – – – 15,295,485 – 15,295,485 – – – 67,514,361 – 67,514,361 – – – 64,619,459 – 64,619,459 – – – – – 30,000,000 – 933,108 – – – 933,108 – – – 178,886,139 – 178,886,139 – – – 66,966,664 – 66,966,664 – – – 43,386,826 – 43,386,826 – – – 32,041,416 – 32,041,416 – 1,882,353 – – – 1,882,353 – – – – – 10,000,000 – – – 13,349,898 – 13,349,898 – – – 9,209,348 – 9,209,348 – – – – – 99,630,258 – – – 50,030,462 – 50,030,462 – – – 64,312 – 64,312 – 8,205,684 – – – 8,205,684 – – – 3,973,319 – 3,973,319 – – – 9,648,513 – 9,648,513 – – – – – 3,000,000 – 4,999,995 – – – 4,999,995 – – – 3,949,630 – 3,949,630 – 410,000 – – – 410,000 – – – 72,432,989 – 112,432,989 – – – – – 30,000,000 – – – 53,462,583 – 53,462,583 – – – 10,108,183 – 10,108,183 – – – – – 7,000,000 – – – 30,443,779 – 40,443,779 – – – 991,750 – 991,750 – 15,000,000 – – – 15,000,000 – – – – – – 20,000,000 21 – – – 5,000,000 – 29,442,233 – – – 29,442,233 – 3,188,437 – – – 3,188,437 – – – – – 75,000,000 – – – – – 16,345,450 – – – – – 5,000,000 – 1,962,816 – – – 1,962,816 – 10,000,000 – – – 10,000,000 – – – 1,185,000 – 1,185,000 – 104 Project Fiscal Year 2011 Commitments Environment & IFC Loan & Social Category Quasi-Loan IFC Region Country Name Company Name Code Commitments ($) SOUTH ASIA Lok Capital II LLC FI – Magma Fincorp Limited FI – National Collateral Management Services Limited B – North Delhi Power Limited C 1,109,940 PTC India Financial Services Limited FI 50,000,000 Piaggio Vehicles Private Ltd. India B 19,000,000 Shalivahana Green Energy Ltd. B – Simran Wind Project Pvt Ltd. B 29,968,367 SunBorne Energy Holdings LLC B 5,900,000 Sustainable Agro-Commercial Finance Limited FI – The Federal Bank Limited C – Utkarsh Micro Finance Private Limited FI – Vinati Organics Limited B 16,000,000 Visakha Container Terminal Private Limited B 8,000,000 Vishwa Infrastructure and Services Pvt Ltd. B 3,000,000 Vishwa Utilities Private Ltd. B 2,000,000 Vivimed Labs Limited B 20,000,000 Nepal Bank of Kathmandu Limited C – Business Oxygen Pvt. Ltd. FI – Himalayan Bank Limited C – Laxmi Bank Limited C – Nepal Industrial and Commercial Bank Ltd. C – Nepal Investment Bank Ltd. C – Sri Lanka Commercial Bank of Ceylon C – LR Global Lanka Private Equity Fund, L.P. FI – National Development Bank PLC C – Nations Trust Bank Ltd. C – Senok Wind Energy Pvt Ltd. B – Senok Wind Resource Pvt Ltd. B – Union Bank of Sri Lanka C – SUB-SAHARAN AFRICA Africa Region Actis Africa Real Estate Fund 2 L.P. FI – Commerzbank A.G. C – Ethos Capital VI, L.P. FI – Regional MSME Investment Fund for Sub-Saharan Africa FI (8,000,000) TRG Africa Catalyst Fund I, Limited FI – Angola Banco de Fomento, S.A.R.L. C – Benin Diamond Bank Benin S.A. C – Ecobank Benin C – Burkina Faso Banque de l’Habitat du Burkina Faso FI – Ecobank-Burkina C – Gryphon Minerals B – Burundi Diamond Trust Bank Burundi S.A. FI – Interbank Burundi S.A. C – U-com Burundi S.A. B 25,000,000 Cameroon Ecobank Cameroun S.A. C – Central African Republic Ecobank Centrafrique S.A. C – Congo, Democratic Republic of Rawbank Commercial Banking C – Côte D’Ivoire Advans Côte D’Ivoire FI – Ecobank — Côte d’Ivoire S.A. C – Eastern Africa Region Catalyst Fund I LLC FI – 105 IFC Equity & Trade Finance Non-Trade Total Quasi-Equity Risk Management Guarantee Finance Guarantee Commitments for Syndications Commitments ($) Commitments ($) Commitments ($) Commitments ($) IFC’s Own Account ($) Commitments ($) 10,500,000 – – – 10,500,000 – 44,930,351 – – – 44,930,351 – 5,989,980 – – – 5,989,980 – – – – – 1,109,940 – – – – – 50,000,000 – – – – – 19,000,000 – 14,925,373 – – – 14,925,373 – 5,045,974 – – – 35,014,341 – – – – – 5,900,000 – 2,663,855 – – – 2,663,855 – – – 32,397 – 32,397 – 253,683 – – – 253,683 – – – – – 16,000,000 – – – – – 8,000,000 – – – – – 3,000,000 – – – – – 2,000,000 – – – – – 20,000,000 – – – 9,670,499 – 9,670,499 – 282,828 – – – 282,828 – – – 962,759 – 962,759 – – – 1,411,131 – 1,411,131 – – – 88,100 – 88,100 – – – 164,303 – 164,303 – – – 9,979,498 – 9,979,498 – 10,000,000 – – – 10,000,000 – – – 4,318,050 – 4,318,050 – – – 146,682 – 146,682 – 1,875,501 – – – 1,875,501 – 1,875,501 – – – 1,875,501 – – – 1,626,240 – 1,626,240 – 25,000,000 – – – 25,000,000 – – – – 125,000,000 125,000,000 – 30,000,000 – – – 30,000,000 – 8,000,000 5,000,000 – – 5,000,000 – 25,000,000 – – – 25,000,000 – – – 12,456,302 – 12,456,302 – – – 8,959,015 – 8,959,015 – – – 6,980,119 – 6,980,119 – 600,000 – – – 600,000 – – – 1,428,537 – 1,428,537 – 2,665,300 – – – 2,665,300 – 664,228 – – – 664,228 – – – 80,764 – 80,764 – – – – – 25,000,000 – – – 9,588,542 – 9,588,542 – – – 93,052 – 93,052 – – – 121,792 – 121,792 – 988,707 – – – 988,707 – – – 887,437 – 887,437 – 10,000,000 – – – 10,000,000 – 106 Project Fiscal Year 2011 Commitments Environment & IFC Loan & Social Category Quasi-Loan IFC Region Country Name Company Name Code Commitments ($) SUB-SAHARAN AFRICA Export Trading Co. Ltd. B – Ethiopia Access Leasing S.C. FI – Allana Potash Corporation B – Ethiopian Coffee Initiative B – Nyota Minerals Limited B – Gambia, The Ecobank Gambia Limited C – Ghana Advans Ghana Savings and Loans Company Limited FI 1,101,429 Ecobank Ghana Limited C – Guaranty Trust Bank (Ghana) Limited C – KHI Ghana 01 Limited B 26,000,000 Merchant Bank (Ghana) Limited C – StanbicGhanaLBCs C – The Trust Bank C – Vodafone Ghana B – Kenya Barclays Bank of Kenya Limited C – Bank of Africa Kenya Ltd. FI 8,000,000 Braeburn Schools Limited B 4,000,000 Diamond Trust of Kenya Limited FI 20,000,000 Ecobank Kenya Limited C – Gulf Energy Limited C – I and M Bank Ltd. C – Kenya Commercial Bank FI 100,000,000 Prime Bank Limited C – TPS Eastern Africa Limited C – Liberia AccessBank Liberia FI – Ecobank Liberia C – Madagascar AccèsBanque Madagascar C – Bank of Africa Madagascar C – Malawi First Merchant Bank Malawi Ltd. C – MPICO Malls Limited B 9,638,624 NBS Bank Limited C – Mali Ecobank Mali C – Energie Du Mali C 2,000,000 Mauritania Generale de Banque de Mauritanie pour l’Investissement et le C – Commerce Mauritius State Bank of Mauritius Limited FI 75,000,000 Mozambique African Banking Corporation Mozambique C – Namibia Trustco Group Holdings C 10,803,511 Niger Ecobank Niger C – Nigeria AB Nigeria Micro�nance Bank FI – Access Bank PLC C – Diamond Bank PLC C – Ecobank Nigeria PLC C – First City Monument Bank FI 70,000,000 Food Concepts PLC B 7,000,000 Guaranty Trust Bank PLC FI 170,000,000 IHS Nigeria PLC B – Microcred Micro�nance Bank Nigeria Limited FI – Moorhouse II B 7,500,000 Zenith Bank PLC C – Rwanda Business Partners International Rwanda SME Fund Limited FI – 107 IFC Equity & Trade Finance Non-Trade Total Quasi-Equity Risk Management Guarantee Finance Guarantee Commitments for Syndications Commitments ($) Commitments ($) Commitments ($) Commitments ($) IFC’s Own Account ($) Commitments ($) – – – 1,767,996 1,767,996 – 1,000,000 – – – 1,000,000 – 10,532,414 – – – 10,532,414 – – – – 9,241,611 9,241,611 – 9,169,949 – – – 9,169,949 – – – – – – – – – – – 1,101,429 – – – 36,140,820 – 36,140,820 – – – 69,574,362 – 69,574,362 – – – – – 26,000,000 20,000,000 – – 2,629,675 – 2,629,675 – – – – 9,841,828 9,841,828 – – – 46,485,273 – 46,485,273 – – – – – – 33,250,000 – – 2,437,436 – 2,437,436 – – – – – 8,000,000 – – – – – 4,000,000 – – – 13,754,079 – 33,754,079 – – – 5,302,000 – 5,302,000 – 2,000,000 – – – 2,000,000 – – – 11,173,053 – 11,173,053 – – – 438,529 – 100,438,529 – – – 3,954,156 – 3,954,156 – 1,344,119 – – – 1,344,119 – 470,000 – – – 470,000 – – – 3,000,000 – 3,000,000 – 178,037 – – – 178,037 – 569,713 – 13,534,093 – 14,103,806 – – – 6,855,267 – 6,855,267 – – – – – 9,638,624 – – – 9,893,390 – 9,893,390 – – – 5,271,595 – 5,271,595 – – – – – 2,000,000 – – – 10,265,545 – 10,265,545 – – – – – 75,000,000 – – – 1,358,234 – 1,358,234 – – – – – 10,803,511 – – – 4,000,000 – 4,000,000 – 492,611 – – – 492,611 – – – 254,693,668 – 254,693,668 – – – 68,564,191 – 68,564,191 – – – 76,284,469 – 76,284,469 – – – 149,249,822 – 219,249,822 – 13,000,000 – – – 20,000,000 – 22,500,000 – 1,874,443 – 194,374,443 – 29,000,000 – – – 29,000,000 – 985,800 – – – 985,800 – 7,400,000 – – – 14,900,000 – – – 47,099,902 – 47,099,902 – 1,600,000 – – – 1,600,000 – 108 Project Fiscal Year 2011 Commitments Environment & IFC Loan & Social Category Quasi-Loan IFC Region Country Name Company Name Code Commitments ($) SUB-SAHARAN AFRICA Ecobank Rwanda Limited C – Magasins Generaux du Rwanda S.A. B 6,000,000 Market Shopping Center Limited B 10,000,000 Tourism Promotion Services Rwanda Limited B 1,150,000 Urwego Opportunity Bank S.A. FI 2,500,000 Sao Tome and Principe Banco Internacional de Sao Tome e Principe C – Senegal Compagnie Marocco-Senegalaise d’Electricite/Louga B – MicroCred Senegal FI 4,530,632 Societe Eiffage de la Nouvelle Autoroute Concedee A 30,531,375 St. Louis Finances S.A. FI – South Africa Apollo Tyres South Africa B 21,839,783 Karsten Group Holdings (Pty) Limited C 900,000 Mercantile Bank Limited FI 69,708,100 Sas�n Bank Limited C – Teraco Data Environments (Pty), Limited C 3,007,174 Tanzania, United Republic of African Banking Corporation Tanzania C – Bank of Africa Tanzania Ltd. FI 4,500,000 Braeburn Schools (Tanzania) Limited B 2,000,000 Exim Bank of Tanzania C – Petra Diamonds Limited B 40,000,000 Togo Ecobank Togo C – Lome Container Terminal A 122,421,250 Uganda Bank of Africa Uganda Ltd. FI 5,000,000 Diamond Trust Bank Uganda Ltd. C – Orient Bank Limited C – Roo�ngs Limited B 24,000,000 Umeme Ltd. C – Zambia African Banking Corporation Zambia C – Access Bank Zambia FI – WORLD World Region Access Micro�nance Holding AG FI – Altobridge Limited C – Eurasian Minerals Inc B – FINCA Micro�nance Holdings FI – Global Climate Partnership Fund S.A. FI 38,000,000 IFC Capitalization (Equity) Fund, L.P. FI – IFC Capitalization (Subordinated Debt) Fund, L.P. FI 24,371,960 O3B Networks Limited B 70,000,000 ProCredit Holding FI – 109 IFC Equity & Trade Finance Non-Trade Total Quasi-Equity Risk Management Guarantee Finance Guarantee Commitments for Syndications Commitments ($) Commitments ($) Commitments ($) Commitments ($) IFC’s Own Account ($) Commitments ($) – – 3,000,000 – 3,000,000 – – – – – 6,000,000 – 3,000,000 – – – 13,000,000 – – – – – 1,150,000 – – – – – 2,500,000 – – – 107,624 – 107,624 – 800,000 – – – 800,000 – – – – – 4,530,632 – – – – – 30,531,375 – 472,119 – – – 472,119 – – – – – 21,839,783 – – – – – 900,000 – – – – – 69,708,100 – – – 21,767,926 – 21,767,926 – 1,968,200 – – – 4,975,374 – – – 4,719,372 – 4,719,372 – – – – – 4,500,000 – – – – – 2,000,000 – – – 7,924,140 – 7,924,140 – 10,000,001 – – – 50,000,001 – – – 5,430,946 – 5,430,946 – – – – – 122,421,250 – – – – – 5,000,000 – – – 2,607,336 – 2,607,336 – – – 250,000 – 250,000 – – – – – 24,000,000 – – 500,000 – – 500,000 – – – 965,139 – 965,139 – 733,533 – – – 733,533 – 2,250,899 – – – 2,250,899 – 5,000,000 – – – 5,000,000 – 1,957,713 – – – 1,957,713 – 35,000,000 – – – 35,000,000 – – – – – 38,000,000 – 172,176,069 – – – 172,176,069 – 13,309,165 – – – 37,681,125 – – – – – 70,000,000 – 3,108,864 – – – 3,108,864 – 110 Investment Statement of Cumulative Gross Commitments1 (at June 30, 2011) (US$ Thousands) Portfolio Number of Loan & Guarantee Region Country Enterprises IFC Participations Total SUB-SAHARAN AFRICA Angola 7 201,678.7 – 201,678.7 Benin 10 60,145.7 – 60,145.7 Botswana 6 33,454.1 – 33,454.1 Burkina Faso 14 55,278.3 – 55,278.3 Burundi 6 35,280.5 – 35,280.5 Cameroon 34 453,590.4 471,500.0 925,090.4 Cape Verde 6 15,901.9 – 15,901.9 Central African Republic 1 2,931.1 – 2,931.1 Chad 7 45,312.9 13,900.0 59,212.9 Congo Republic 6 115,005.4 25,000.0 140,005.4 Congo, Democratic Republic of 20 237,225.0 94,000.0 331,225.0 Côte D’Ivoire 42 274,986.5 70,963.8 345,950.3 Djibouti 1 4,000.0 – 4,000.0 Eritrea 1 949.2 – 949.2 Ethiopia 8 97,622.5 1,719.0 99,341.5 Gabon 5 145,588.0 110,000.0 255,588.0 Gambia, The 10 15,361.5 – 15,361.5 Ghana 65 1,319,345.4 432,750.0 1,752,095.4 Guinea 10 68,683.6 – 68,683.6 Guinea-Bissau 4 7,246.0 – 7,246.0 Kenya 81 824,888.0 59,294.6 884,182.6 Lesotho 2 454.0 – 454.0 Liberia 6 33,541.6 – 33,541.6 Madagascar 21 145,016.2 21,000.0 166,016.2 Malawi 20 122,228.4 9,500.0 131,728.4 Mali 22 146,169.0 40,000.0 186,169.0 Mauritania 12 110,182.8 9,502.6 119,685.5 Mauritius 16 143,619.3 96.0 143,715.3 Mozambique 27 278,442.6 – 278,442.6 Namibia 6 44,969.3 – 44,969.3 Niger 3 14,808.1 – 14,808.1 Nigeria 81 4,149,050.0 237,155.0 4,386,205.0 Rwanda 13 61,155.5 – 61,155.5 Sao Tome and Principe 1 243.6 – 243.6 Senegal 29 203,561.9 12,398.0 215,959.9 Seychelles 7 39,443.2 2,500.0 41,943.2 Sierra Leone 7 64,003.0 25,000.0 89,003.0 Somalia 2 974.6 – 974.6 South Africa 72 1,667,201.8 15,000.0 1,682,201.8 Sudan 6 27,267.8 6,488.8 33,756.6 Swaziland 9 47,779.5 – 47,779.5 Tanzania, United Republic of 52 285,740.5 13,040.5 298,781.0 Togo 11 173,707.7 – 173,707.7 Uganda 49 323,919.7 13,088.4 337,008.1 Zambia 37 210,571.9 20,285.8 230,857.7 Zimbabwe 51 284,261.9 99,000.0 383,261.9 Regional Investments: Sub-Saharan Africa 63 1,674,068.5 1,906.0 1,675,974.5 111 Number of Loan & Guarantee Region Country Enterprises IFC Participations Total EAST ASIA AND THE PACIFIC Cambodia 8 119,951.0 60,000.0 179,951.0 China 199 4,424,338.8 1,233,109.3 5,657,448.1 Fiji 8 47,993.2 2,500.0 50,493.2 Indonesia 108 2,849,509.5 1,724,655.4 4,574,164.9 Kiribati 1 1,798.0 – 1,798.0 Korea, Republic of 50 866,449.2 195,700.0 1,062,149.2 Lao People’s Democratic Republic 10 41,951.8 – 41,951.8 Malaysia 12 154,868.4 5,389.1 160,257.5 Mongolia 13 162,119.5 – 162,119.5 Papua New Guinea 6 233,776.5 – 233,776.5 Philippines 96 2,521,818.3 695,879.6 3,217,697.9 Samoa 7 20,096.6 – 20,096.6 Singapore 2 15,546.8 – 15,546.8 Solomon Islands 1 35,000.0 – 35,000.0 Thailand 73 1,335,911.4 1,701,374.1 3,037,285.5 Tonga 1 6,787.0 – 6,787.0 Vanuatu 2 14,416.6 – 14,416.6 Vietnam 45 1,764,633.4 243,135.0 2,007,768.4 Regional Investments: East Asia and the Paci�c 28 783,123.1 – 783,123.1 SOUTH ASIA Bangladesh 29 811,979.6 52,745.4 864,724.9 Bhutan 3 12,394.4 – 12,394.4 India 310 7,752,065.9 1,371,639.8 9,123,705.6 Maldives 7 168,250.0 8,500.0 176,750.0 Nepal 16 115,840.5 36,000.0 151,840.5 Sri Lanka 34 424,346.3 23,615.6 447,961.9 Regional Investments: South Asia 9 213,070.0 – 213,070.0 EUROPE AND CENTRAL ASIA Albania 16 267,535.8 9,893.0 277,428.8 Armenia 10 159,025.7 – 159,025.7 Azerbaijan 26 481,034.1 197,930.0 678,964.1 Belarus 16 278,868.8 – 278,868.8 Bosnia and Herzegovina 29 300,854.9 10,577.6 311,432.5 Bulgaria 23 550,207.7 128,354.0 678,561.7 Croatia 15 527,307.3 123,283.2 650,590.5 Czech Republic 18 455,175.9 245,587.9 700,763.8 Estonia 11 137,806.1 11,855.0 149,661.1 Georgia 15 496,759.2 – 496,759.2 Hungary 34 437,985.4 70,334.8 508,320.2 Kazakhstan 30 1,133,045.7 282,916.7 1,415,962.4 Kyrgyz Republic 13 90,936.2 – 90,936.2 Latvia 7 80,966.8 35,000.0 115,966.8 Lithuania 11 95,041.0 9,309.0 104,350.0 Macedonia, Former Yugoslav Republic of 13 182,390.7 25,000.0 207,390.7 Moldova 15 180,240.4 25,000.0 205,240.4 Montenegro 6 73,482.5 – 73,482.5 Poland 44 438,121.4 115,316.8 553,438.3 112 Investment Statement of Cumulative Gross Commitments1 (at June 30, 2011) (US$ Thousands) Portfolio Number of Loan & Guarantee Region Country Enterprises IFC Participations Total EUROPE AND CENTRAL ASIA Republic of Kosovo 3 27,464.6 – 27,464.6 Romania 35 1,256,571.2 384,998.7 1,641,569.9 Russian Federation 171 6,405,244.8 1,880,019.1 8,285,263.9 Serbia 32 831,106.9 135,630.3 966,737.1 Slovakia 7 115,543.7 – 115,543.7 Slovenia 11 211,484.1 47,382.7 258,866.8 Tajikistan 17 68,917.1 – 68,917.1 Turkey 154 5,579,969.3 3,443,543.2 9,023,512.4 Ukraine 39 1,541,407.5 601,700.0 2,143,107.5 Uzbekistan 16 77,861.3 12,900.0 90,761.3 Regional Investments: Europe and Central Asia 53 1,990,651.5 149,007.0 2,139,658.5 LATIN AMERICA AND THE CARIBBEAN Antigua and Barbuda 1 30,000.0 – 30,000.0 Argentina 191 4,516,280.7 3,634,464.5 8,150,745.1 Barbados 6 128,625.1 – 128,625.1 Belize 4 25,797.0 11,000.0 36,797.0 Bolivia 29 435,735.7 140,500.0 576,235.7 Brazil 227 9,270,531.5 5,408,671.8 14,679,203.3 Chile 51 1,482,528.4 1,160,604.7 2,643,133.0 Colombia 107 2,344,216.3 844,631.0 3,188,847.4 Costa Rica 24 345,442.0 99,708.8 445,150.9 Dominica 1 700.0 – 700.0 Dominican Republic 31 561,497.5 231,850.0 793,347.5 Ecuador 22 293,127.5 39,240.1 332,367.6 El Salvador 18 325,883.1 113,500.0 439,383.1 Grenada 2 8,000.0 – 8,000.0 Guatemala 23 585,788.2 210,000.0 795,788.2 Guyana 7 24,734.5 – 24,734.5 Haiti 8 69,474.5 12,000.0 81,474.5 Honduras 18 493,845.9 79,400.8 573,246.6 Jamaica 21 418,795.6 186,744.5 605,540.1 Mexico 172 4,598,029.5 2,217,133.5 6,815,163.0 Nicaragua 20 268,715.4 12,428.6 281,144.0 Panama 24 1,243,306.1 153,300.0 1,396,606.1 Paraguay 14 460,120.6 10,000.0 470,120.6 Peru 69 1,721,556.3 708,621.2 2,430,177.5 Saint Lucia 3 44,357.8 – 44,357.8 Trinidad and Tobago 15 358,653.7 235,000.0 593,653.7 Uruguay 16 298,779.4 120,000.0 418,779.4 Venezuela 39 897,229.5 703,791.4 1,601,021.0 Regional Investments: Latin America and the Caribbean 54 863,751.9 160,000.0 1,023,751.9 113 Number of Loan & Guarantee Region Country Enterprises IFC Participations Total MIDDLE EAST AND NORTH AFRICA Afghanistan 7 150,099.7 – 150,099.7 Algeria 14 248,404.4 5,556.9 253,961.3 Bahrain 1 216,274.0 – 216,274.0 Egypt 85 2,401,274.5 664,871.3 3,066,145.8 Iran, Islamic Republic of 11 63,342.9 8,199.5 71,542.4 Iraq 4 269,010.4 50,000.0 319,010.4 Jordan 42 884,183.7 380,384.0 1,264,567.7 Lebanon 33 1,207,679.6 230,430.0 1,438,109.6 Morocco 37 691,110.2 515,014.1 1,206,124.3 Oman 7 230,859.6 57,000.0 287,859.6 Pakistan 118 3,494,942.5 607,970.1 4,102,912.6 Saudi Arabia 7 183,486.3 – 183,486.3 Syrian Arab Republic 4 24,731.6 – 24,731.6 Tunisia 26 438,065.7 417,227.8 855,293.5 United Arab Emirates 3 75,000.0 – 75,000.0 Yemen, Republic of 14 206,004.2 56,104.7 262,108.9 Regional Investments: Middle East and North Africa 27 688,893.9 3,000.0 691,893.9 WORLDWIDE Australia 2 975.0 – 975.0 Cyprus 7 32,181.5 645.3 32,826.7 Finland 4 1,233.1 1,914.5 3,147.6 Greece 6 25,742.3 40,131.3 65,873.6 Israel 1 10,500.0 – 10,500.0 Italy 1 960.0 – 960.0 Portugal 7 51,811.1 11,000.0 62,811.1 Spain 5 19,042.5 1,685.0 20,727.5 Regional Investments: Worldwide 81 3,495,395.2 183,000.0 3,678,395.2 Other2 24 227,315.6 1,400.0 228,715.6 TOTAL 4,732 111,091,923.3 36,832,995.8 147,924,919.1 1 Commitments are composed of funds to be provided by IFC for its own account and funds to be provided by participants through the purchase of an interest in IFC’s investment. 2 Of this amount, $9.8 million ($8.4m for IFC and $1.4m for participant’s account) represents investments made at a time when the authorities on Taiwan represented China in the International Finance Corporation. The balance represents investments in West Bank and Gaza, Taiwan, and China, Hong Kong SAR. 114 Notes and Definitions NOTES AND DEFINITIONS The �scal year at IFC runs from July 1 to June 30. Thus FY11 began on July 1, 2010, and ended on June 30, 2011. Investment amounts are given in U.S. dollars unless otherwise speci�ed. Rounding of numbers may cause totals to differ from the sum of individual �gures in some tables. Loan participants and IFC fully share the commercial credit risks of projects but, because IFC is the lender of record, participants receive the same tax and country risk bene�ts that IFC derives from its special status as a multilateral �nancial institution. Quasi-equity instruments incorporate both loan and equity features, which are designed to provide varying degrees of risk/ return trade-offs that lie between those of straight loan and equity investments. On-lending is the process of lending funds from IFC’s own sources through intermediaries, such as local banks and micro- �nance institutions. The World Bank includes the International Bank of Reconstruction and Development and the International Development Association. The World Bank Group includes IBRD, IDA, IFC, the Multilateral Investment Guarantee Agency, and the International Centre for Settlement of Investment Disputes. CREATING OPPORTUNITY WHERE IT’S NEEDED MOST 2121 PENNSYLVANIA AVENUE, NW WASHINGTON, DC 20433 USA 202 473 3800 WWW.IFC.ORG