Financial institutions

Despite the turmoil in eurozone and US markets, 2011 was a relatively good year for financial institutions in the emerging markets where FMO is active. The quality of our financial institutions portfolio remained strong, and demand was robust throughout most of the year, although market nervousness over the global - and especially European - macroeconomic situation subdued demand in the closing months of 2011.

Our financial institutions activities remained spread evenly between Africa, Asia, Latin America & the Caribbean, and Europe & Central Asia. Demand from Asia was the strongest, Africa was stable and Latin America disappointed as US economic weakness took a toll. Eastern Europe saw a spike in demand later in the year, largely caused by restrictions placed by the Austrian central bank on the country's commercial banks. Turkey was again a strong source of financial institutions business, both in terms of the number of transactions, and level of innovation.

The crisis situation in Western European countries created opportunities for FMO in Eastern Europe, as Western European commercial banks faced with constraining regulatory requirements partially withdrew. Weakening demand due to the global slowdown was thus partly counterbalanced by an increase in demand for FMO's services as commercial banks pulled out.

A key development last year was that the largest increase in capital flows was in South-South transactions, such as China to Africa or Brazil. The fact that serious and growing investments are being made in Africa is clearly positive. Ensuring that such transactions fulfill environmental and social criteria however will remain a challenge, and one that FMO is committed to helping address taking on our catalyst role through which we can ensure such criteria.

In 2011 saw FMO enter Malawi for the first time in over 10 years. We supplied a US $20 million facility to National Bank of Malawi focused on lending to small and medium-sized companies. We also re-entered Zimbabwe with a US $10 million senior loan to NMB Bank, also focused on SMEs, and are already in talks about a second transaction with this client.

In Latin America, we increased our portfolio in Paraguay with two transactions, one with Banco Regional and one with Vision Banco. The transaction with Vision Banco was partly in local currency, which was a first for us in Paraguay. Only as recently as in 2010 we made our debut in Paraguay by closing two transactions in the financial sector. In all transactions we constructively engage with our clients with regards to their role in environmental issues.

Private equity transactions in the financial institutions sector in 2011 were ample and included an investment in Nigerian insurance company GTAssur, an investment in a greenfield banking operation set up by our partner Afriland First Bank in Liberia, and the acquisition by our partner Bank of Africa Group of a bank in Djibouti. Outside Africa, we supported MBank Holding from the Philippines in setting up a new bank focused on mobile banking and microfinance. During 2011 we realized a profitable partial exit of our investment in Letshego, a consumer finance company in Botswana, and sold half of our stake in African Reinsurance Corporation.