81790 v2 and Projects 2013 IFC Financials IFC FINANCIALS AND PROJECTS 2013 THE POWER OF PARTNERSHIPS Table of Contents Management’s Discussion and Analysis 2 Overview of Financial Results 2 Client Services 5 Liquid Assets 12 Funding Resources 13 Enterprise Risk Management 14 Critical Accounting Policies 21 Results of Operations 22 Governance and Control 29 Consolidated Financial Statements and Internal Control Reports 32 Management’s Report Regarding Effectiveness of Internal Control over External Financial Reporting 32 Auditors’ Report on Management’s Assertion on Effectiveness of Internal Control over External Financial Reporting 34 Consolidated Balance Sheets 36 Consolidated Income Statements 37 Consolidated Statements of Comprehensive Income 38 Consolidated Statements of Changes in Capital 39 Consolidated Statements of Cash Flows 40 Consolidated Statement of Capital Stock and Voting Power 42 Notes to Consolidated Financial Statements 43 Independent Auditors’ Report 100 Project Commitments 103 Investment Portfolio Statement of Cumulative Gross Commitments 126 Notes and Definitions 130 2_ IFC Financials and Projects 2013 Management’s Discussion and Analysis Basis of Preparation of IFC’s Consolidated I. OVERVIEW OF FINANCIAL RESULTS Financial Statements International Finance Corporation (IFC or the Corporation) is an The accounting and reporting policies of IFC conform to account- international organization, established in 1956, to further economic ing principles generally accepted in the United States (US GAAP). growth in its developing member countries by promoting private IFC’s accounting policies are discussed in more detail in Section VI, sector development. IFC is a member of the World Bank Group, Critical Accounting Policies, and in Note A to IFC’s Consolidated which also comprises the International Bank for Reconstruction and Financial Statements as of and for the year ended June  30, 2013 Development (IBRD), the International Development Association (FY13 Consolidated Financial Statements). (IDA), the Multilateral Investment Guarantee Agency (MIGA), and the International Centre for Settlement of Investment Disputes Financial Performance Summary (ICSID). It is a legal entity separate and distinct from IBRD, IDA, MIGA, and ICSID, with its own Articles of Agreement, share capi- From year to year, IFC’s net income is affected by a number of fac- tal, financial structure, management, and staff. Membership in IFC tors that can result in volatile financial performance. Such factors is open only to member countries of IBRD. As of June 30, 2013, IFC’s are detailed more fully in Section VII, Results of Operations. entire share capital was held by 184 member countries. IFC reported income before net gains and losses on other non-­ IFC helps developing countries achieve sustainable growth by trading financial instruments accounted for at fair value and grants financing private sector investment, mobilizing capital in inter- to IDA of $928 million in FY13, as compared to $1,877 million in national financial markets, and providing advisory services to the year ended June 30, 2012 (FY12) and $2,024 million in the year businesses and governments. IFC’s principal investment products ended June 30, 2011 (FY11). are loans and equity investments, with smaller debt securities and The decrease in income before net gains and losses on other non-­ guarantee portfolios. IFC also plays an active and direct role in trading financial instruments accounted for at fair value and grants mobilizing additional funding from other investors and lenders to IDA in FY13 when compared to FY12 and in FY12 when compared through a variety of means. Such means principally comprise: loan to FY11 was principally as a result of the following (US$ millions): participations, parallel loans, sales of loans, the non-­IFC portion Increase of structured finance transactions which meet core mobilization (decrease) criteria, the non-­IFC portion of commitments in IFC’s initiatives, FY13 vs FY12 and the non-­IFC investment portion of commitments in funds man- Realized capital gains on equity investments ( 1,079) $ aged by IFC’s wholly owned subsidiary, IFC Asset Management Provisions for losses on loans, guarantees and other receivables (126) Company LLC (AMC), (collectively Core Mobilization). Unlike trading Foreign currency transaction gains and losses on non-­ most other development institutions, IFC does not accept host gov- activities (110) ernment guarantees of its exposures. IFC raises virtually all of the Advisory services expenses, net (91) funds for its lending activities through the issuance of debt obliga- Expense from pension and other postretirement benefit plans (77) tions in the international capital markets, while maintaining a small Unrealized gains on equity investments 154 borrowing window with IBRD. Equity investments are funded Income from liquid asset trading activities 187 from net worth. For the year ended June 30, 2013 (FY13), IFC had than-temporary impairments on equity investments Other-­ 251 an authorized borrowing program of up to $10  billion, and up to Other, net (58) $2 billion to allow for possible prefunding during FY13 of the fund- Overall change $ (949) ing program for the year ending June  30, 2014 (FY14). For FY14, IFC has an authorized borrowing program of up to $13.5  billion, and, subject to completion of its FY14 program, up to $2.0 billion to Increase (decrease) allow for possible prefunding during FY14 of the funding program FY12 vs FY11 for the year ending June 30, 2015. Unrealized losses on equity investments $ (582) IFC’s capital base and its assets and liabilities, other than its than-temporary impairments on equity investments Other-­ (474) equity investments, are primarily denominated in US dollars. IFC Income from liquid asset trading activities (216) seeks to minimize foreign exchange and interest rate risks by closely monetary exchanges of equity investments Gains on non-­ (214) matching the currency and rate bases of its assets in various curren- Provisions for losses on loans, guarantees and other receivables (157) cies with liabilities having the same characteristics. IFC generally Advisory services expenses, net 132 manages non-­equity investment related and certain lending related trading Foreign currency transaction gains and losses on non-­ residual currency and interest rate risks by utilizing currency and activities 178 interest rate swaps and other derivative instruments. Realized capital gains on equity investments 1,263 The Management’s Discussion and Analysis contains forward Other, net (77) looking statements which may be identified by such terms as “antic- Overall change $ (147) ipates,” “believes,” “expects,” “intends,” “plans” or words of similar meaning. Such statements involve a number of assumptions and Net gains on other non-­ trading financial instruments accounted estimates that are based on current expectations, which are sub- for at fair value totaled $422 million in FY13 (net losses of $219 mil- ject to risks and uncertainties beyond IFC’s control. Consequently, lion in FY12 and net gains of $155  million in FY11) resulting in actual future results could differ materially from those cur- income before grants to IDA of $1,350 million in FY13, as compared rently anticipated. Management’s Discussion and Analysis _3 to $1,658  million in FY12 and $2,179  million in FY11. Grants to in FY13, as compared with $1,328 million in FY12 and $1,579 mil- IDA totaled $340 million in FY13, as compared to $330 million in lion in FY11. FY12 and $600  million in FY11. Net loss attributable to noncon- IFC’s financial performance is detailed more fully in Section VII, trolling interests totaled $8 million in FY13 ($0 in FY12 and FY11). Results of Operations. Accordingly, net income attributable to IFC totaled $1,018 million The table below presents selected financial data for the last five fiscal years (in millions of US dollars, except where otherwise stated): As of and for the years ended June 30 2013 2012 2011 2010 2009 Net income highlights: Income from loans and guarantees $ 1,059 $ 938 $ 877 $ 801 $ 871 (Provision) release of provision for losses on loans & guarantees (243) (117) 40 (155) (438) Income (loss) from equity investments 752 1,457 1,464 1,638 (42) Of which: Realized gains on equity investments 921 2,000 737 1,290 990 monetary exchanges Gains on non-­ 6 3 217 28 14 Unrealized gains (losses) on equity investments 26 (128) 454 240 (299) Dividends and profit participations 248 274 280 285 311 Other-­ than-temporary impairments (441) (692) (218) (203) (1,058) Fees and other (8) — (6) (2) — Income from debt securities 5 81 46 108 71 Income from liquid asset trading activities 500 313 529 815 474 Charges on borrowings (220) (181) (140) (163) (488) Other income Service fees 101 60 88 70 39 Advisory services income 239 269 — — — Other 101 119 134 106 114 Other expenses Administrative expenses (845) (798) (700) (664) (582) Advisory services expenses (351) (290) (153) (108) (134) Expense from pension and other postretirement benefit plans (173) (96) (109) (69) (34) Other (32) (23) (19) (12) (14) trading activities Foreign currency transaction gains (losses) on non-­ 35 145 (33) (82) 10 Income (loss) before net gains and losses on other non-­ trading financial instruments accounted for at fair value and grants to IDA 928 1,877 2,024 2,285 (153) Net gains (losses) on other non-­ trading financial instruments 422 (219) 155 (339) 452 Of which: Realized gains 35 11 63 5 — monetary exchanges Gains on non-­ 2 10 22 6 45 Unrealized gains (losses) 385 (240) 70 (350) 407 Income before grants to IDA 1,350 1,658 2,179 1,946 299 Grants to IDA (340) (330) (600) (200) (450) Net income (loss) 1,010 1,328 1,579 1,746 (151) Less: Net loss attributable to noncontrolling interests 8 — — — — Net income (loss) attributable to IFC $ 1,018 $ 1,328 $ 1,579 $ 1,746 $ (151) 4_ IFC Financials and Projects 2013 As of and for the years ended June 30 2013 2012 2011 2010 2009 Consolidated balance sheet highlights: Total assets $ 77,525 $ 75,761 $ 6 8,490 $ 61,075 $ 51,483 Liquid assets, net of associated derivatives 31,237 29,721 24,517 21,001 17,864 Investments 34,677 31,438 29,934 25,944 22,214 Borrowings outstanding, including fair value adjustments 44,869 44,665 38,211 31,106 25,711 Total capital $ 22,275 20,580 $ $ 20,279 $ 18,359 $ 16,122 Of which: Undesignated retained earnings $ 18,435 $ 17,373 $ 16,032 $ 14,307 $ 12,251 Designated retained earnings 278 322 335 481 791 Capital stock 2,403 2,372 2,369 2,369 2,369 Accumulated other comprehensive income (AOCI) 1,121 513 1,543 1,202 711 Noncontrolling interests 38 — — — — Financial ratios:1 Return on average assets (GAAP basis)2 1.3% 1.8% 2.4% 3.1% (0.3%) GAAP basis)3 Return on average assets (non-­ 0.9% 2.8% 1.8% 3.8% (1.1%) Return on average capital (GAAP basis) 4 4.8% 6.5% 8.2% 10.1% (0.9%) GAAP basis)5 Return on average capital (non-­ 3.1% 9.9% 6.0% 11.8% (3.0%) Cash and liquid investments as a percentage of next three years’ estimated net cash requirements 77% 77% 83% 71% 75% External funding liquidity level 6 309% 327% 266% 190% 163% Debt to equity ratio7 2.6:1 2.7:1 2.6:1 2.2:1 2.1:1 Total reserves against losses on loans to total disbursed portfolio 8 7.2% 6.6% 6.6% 7.4% 7.4% Capital measures: weighted assets ratio9 Capital to risk-­ n/a n/a n/a n/a 44% Total Resources Required ($ billions)10 16.8 15.5 14.4 12.8 10.9 Total Resources Available ($ billions)11 20.5 19.2 17.9 16.8 14.8 Strategic Capital12 3.8 3.7 3.6 4.0 3.9 Deployable Strategic Capital13 1.7 1.8 1.8 2.3 2.3 Deployable Strategic Capital as a percentage of Total Resources Available 8% 9% 10% 14% 16% 1. Certain financial ratios, as described below, are calculated excluding the effects of unrealized gains and losses on investments, other non-­ trading financial instruments, AOCI, and impacts from consolidated Variable Interest Entities (VIEs). 2. Net income for the fiscal year as a percentage of the average of total assets at the end of such fiscal year and the previous fiscal year. 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 financial 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 fiscal year. 4. Net income for the fiscal year as a percentage of the average of total capital (excluding payments on account of pending subscriptions) at the end of such fiscal year and the previous fiscal 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 financial 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 cumulative designations not yet expensed) averaged for the current period and previous fiscal year. 6. IFC’s objective is to maintain a minimum level of liquidity, consisting of proceeds from external funding to cover at least 65% of the sum of (i) 100% of committed but undisbursed straight senior loans; (ii) 30% of committed guarantees; and (iii) 30% of committed client risk management products. As of FY13 Q3, IFC’s management decided to modify the External Funding Policy by eliminating the cap on the operational range of 65% to 85%. 7. Leverage (Debt/equity) ratio is defined as the number of times outstanding borrowings plus outstanding guarantees cover paid-­ in capital and accumulated earnings (net of retained earnings designations and certain unrealized gains/losses). 8. Total reserves against losses on loans to total disbursed loan portfolio is defined as reserve against losses on loans as a percentage of the total disbursed loan portfolio at the end of the fiscal year. 9. The ratio of capital (including paid-­ weighted assets, both on- and off-­ in capital, retained earnings, and portfolio (general) loan loss reserves) to risk-­ balance sheet. The ratio does not include designated retained earnings reported in total capital on IFC’s consolidated balance sheet. The 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 specific reserves against losses on loans. This is the level of available resources under based economic capital adequacy framework. IFC’s risk-­ 12. Total resources available less total resources required. 13. 90% of total resources available less total resources required. Management’s Discussion and Analysis _5 II. CLIENT SERVICES IFC carefully supervises its projects to monitor project perfor- mance and compliance with contractual obligations and with IFC’s Business Overview internal policies and procedures. IFC fosters sustainable economic growth in developing countries Investment Products by financing private sector investment, mobilizing capital in the Loans — ​ IFC finances projects and companies through loans, international financial markets, and providing advisory services to typically for seven to twelve years. IFC also makes loans to inter- businesses and governments. mediary banks, leasing companies, and other financial institutions IFC has five strategic focus areas: for on-­lending. IFC’s loans traditionally have been denominated in »»strengthening the focus on frontier markets the currencies of major industrial nations, but has a growing local »»addressing climate change and ensuring environmental and currency product line. social sustainability Equity — I ​ FC’s equity investments provide developmental sup- »»addressing constraints to private sector growth in infrastructure, port and long-­ term growth capital for private enterprises, and health, education, and the food-­ supply chain opportunities to support corporate governance and enhanced »»developing local financial markets social responsibility. IFC invests directly in companies’ equity, and »»building long-­term client relationships in emerging markets also through private equity funds. IFC generally invests between 5 For all new investments, IFC articulates the expected impact on and 20 percent of a company’s equity. IFC also invests in preferred sustainable development, and, as the projects mature, IFC assesses shares and uses put and call options, profit participation features, the quality of the development benefits realized. conversion features, warrants and other types of instruments in IFC’s strategic focus areas are aligned to advance the World managing its equity investments. Bank Group’s global priorities. Debt Securities — ​ Investments typically in the form of bonds IFC’s three businesses are: Investment Services, Advisory Ser- and notes issued in bearer or registered form, securitized debt obli- vices, and Asset Management. gations and preferred shares that are mandatorily redeemable by the issuer or puttable by IFC are classified as debt securities in IFC’s Investment Services consolidated balance sheet. Trade and Supply Chain Finance — I ​ FC’s Global Trade Finance IFC’s investments are normally made in its developing member Program (GTFP) guarantees trade-­ related payment obligations countries. The Articles of Agreement mandate that IFC shall invest of approved financial institutions. Separately, the Global Trade in productive private enterprise. The requirement for private own- Liquidity Program (GTLP) and Critical Commodities Finance ership does not disqualify enterprises that are partly owned by the Program (CCFP) provides liquidity for trade in developing coun- public sector if such enterprises are organized under local commer- tries. IFC has also commenced a number of other Trade and Supply cial and corporate law, operate free of host government control in a Chain Finance-­ related programs, including Global Trade Supplier market context and according to profitability criteria, and/or are in Finance, Global Warehouse Finance Program, Working Capital and the process of being totally or partially privatized. Systemic Solutions and Global Trade Structured Trade. IFC provides a range of financial products and services to its Loan Participations — ​ IFC’s loan participation program mobi- clients to promote sustainable enterprises, encourage entrepre- lizes capital from international commercial banks, emerging market neurship, and mobilize resources that wouldn’t otherwise be banks, funds, insurance companies, and development-­finance insti- available. IFC’s financing products are tailored to meet the needs tutions for development needs. of each project. Investment Services product lines include: loans, Structured Finance — ​ IFC uses structured and securitized equity investments, trade finance, loan participations, structured products to provide forms of financing that may not otherwise finance, client risk management services, and blended finance. be available to clients to help clients diversify funding, extend IFC’s investment project cycle can be divided into the follow- maturities, and obtain financing in particular currencies. Products ing stages: include partial credit guarantees, structured liquidity facilities, »»Business Development portfolio risk transfer, securitizations, and Islamic finance. »»Concept Review Client Risk Management Services — I ​ FC provides derivative »»Appraisal (Due Diligence) products to its clients to allow them to hedge their interest rate, cur- »»Investment Review rency, or commodity-­ price exposures. IFC intermediates between »»Negotiations clients in developing countries and derivatives market makers to »»Public Disclosure provide such clients with access to risk-­ management products. »»Board of Directors Review and Approval Blended Finance — ​ IFC combines concessional funds, typ- »»Commitment ically from donor partners, with IFC’s resources to finance »»Disbursement of funds certain projects. »»Project Supervision and Development Outcome Tracking »»Evaluation »»Closing 6_ IFC Financials and Projects 2013 Advisory services Asset Management Company Advisory Services are recognized as a key part of the Corporation’s AMC, a wholly-­owned subsidiary of IFC, invests third-­party capital mandate, and have grown to become an increasingly important tool and IFC capital, enabling outside investors to benefit from IFC’s for delivering on IFC’s mission. Advisory Services play a crucial role expertise in achieving strong equity returns, as well as positive in helping government clients create an effective enabling environ- development impact in the countries in which it invests in devel- ment for private investment, while strengthening the capacity and oping and frontier markets. Investors in funds managed by AMC know-­how of private sector clients — ​thereby extending IFC’s reach include sovereign wealth funds, national pension funds, multilat- into challenging markets. eral and bilateral development institutions, national development IFC’s Advisory Services are organized into four business lines: agencies and international financial institutions. AMC helps IFC Access to finance — ​ Works with financial intermediaries to mobilize additional capital resources for investment in productive expand access to financial services. Provides advice on small and private enterprise in developing countries. medium enterprises (SMEs) and micro/retail finance solutions, as At June 30, 2013, AMC managed seven funds, with $5.5 billion well as enabling financial infrastructure. under management: the IFC Capitalization (Equity) Fund, L.P. Investment climate — ​ Works with governments to create an (Equity Capitalization Fund); the IFC Capitalization (Subordinated enabling environment to increase the role of private sector growth Debt) Fund, L.P. (Sub-­ Debt Capitalization Fund); the IFC African, and development. Provides advice on business regulation and tax- Latin American and Caribbean Fund, LP (ALAC Fund); the Africa ation, investment policies, as well as industry-­specific investment Capitalization Fund, Ltd. (Africa Capitalization Fund); the IFC climate reform. Russian Bank Capitalization Fund, LP (Russian Bank Cap Fund); Public-­private partnerships — ​Works to help governments the IFC Catalyst Fund, LP and the IFC Catalyst Fund (UK), LP (col- design and implement public-­ private partnerships (PPPs) in infra- lectively, Catalyst funds); and the IFC Global Infrastructure Fund, structure and other basic public services. Provides advice on LP (Global Infrastructure Fund). The Equity Capitalization Fund preparing and structuring of PPP mandates. and the Sub-­Debt Capitalization Fund are collectively referred to as Sustainable business — W ​ orks with companies and their supply the Global Capitalization Fund. chains to promote adoption of, and catalyze investment in, sound The Global Capitalization Fund, established in the year ended environmental, social and governance practices and technologies June  30, 2009 (FY09), helps strengthen systemically important that create a competitive edge. banks in emerging markets. Around half of IFC’s advisory projects work with government The ALAC Fund was established in FY10. The ALAC Fund clients to help unlock investment opportunities for IFC and oth- invests in equity investments across a range of sectors in Sub-­ ​ s is the case when IFC assists governments to improve the ers — a Saharan Africa, Latin America, and the Caribbean. investment climate or to design and implement PPPs, complement- The Africa Capitalization Fund was established in FY10 to cap- ing the work of IBRD and the International Monetary Fund. The italize systemically important commercial banking institutions in other half of advisory projects involves work with private sector northern and Sub-­ Saharan Africa. clients to build capacity or demonstrate the business case for desir- The Russian Bank Cap Fund was established in FY12 to invest in able business practices. Investment Services and Advisory Services mid-­ sized, commercial banks in Russia that are either: (i) privately may be offered either in tandem or sequentially. Examples include owned and controlled; or (ii) state-­owned; or (iii) controlled and on microfinance, SME banking, energy efficiency financing, corporate a clear path to privatization. governance, or supply chain development in the agricultural sector. The Catalyst Funds were established in FY13 to make invest- Advisory Services make a substantial contribution to IFC’s ments in selected climate- and resource efficiency-­ focused private shared corporate priorities. Advisory Services are often IFC’s first equity funds in emerging markets. offering in new or challenging markets. Advisory Services have The Global Infrastructure Fund was established in FY13 to focus continuously strengthened their alignment and deepened their on making equity and equity-­related investments in the infrastruc- synergies with investment operations, particularly with regards to ture sector in global emerging markets. Fragile & Conflict Situations, Climate Change, SMEs, Agribusiness and Infrastructure, with gender as a cross-­ cutting priority. Management’s Discussion and Analysis _7 Investment Program Disbursements IFC disbursed $10,012  million for its own account in FY13 Commitments ($7,981 million in FY12): $6,940 million of loans ($5,651 million in In FY13, total commitments were $24,853 million, compared with FY12), $2,549 million of equity investments ($1,810 million in FY12), $20,358  million in FY12, an increase of 22%, of which IFC com- including $42 million attributable to noncontrolling interest ($0 in mitments totaled $18,349 million ($15,462 million — ​F Y12) and Core FY12), and $523 million of debt securities ($520 million in FY12). Mobilization totaled $6,504 million ($4,896 million — F ​ Y12). FY13 and FY12 commitments and Core Mobilization comprised Disbursed investment portfolio the following (US$ millions): IFC’s total disbursed investment portfolio (a non-­ US GAAP performance measure) was $33,885  million at June  30, 2013 FY13 FY12 ($30,700 million at June 30, 2012), comprising the disbursed loan Total commitments1 $ 24,853 $ 20,358 portfolio of $22,606  million ($21,043  million at June  30, 2012), IFC commitments the disbursed equity portfolio of $9,209  million ($7,547  million Loans $ 8,520 $ 6,668 at June  30, 2012), and the disbursed debt security portfolio of Equity investments 2,732 2,282 $2,070 million ($2,110 million at June 30, 2012). Guarantees: IFC’s disbursed investment portfolio is diversified by industry Global Trade Finance Program 6,477 6,004 sector and geographic region with a focus on strategic high develop- Other 482 398 ment impact sectors such as financial markets and infrastructure. Client risk management 138 110 The carrying value of IFC’s investment portfolio comprises: (i) the disbursed investment portfolio; (ii) reserves against losses Total IFC commitments $ 18,349 $ 15,462 on loans; (iii) unamortized deferred loan origination fees, net Core Mobilization and other; (iv) disbursed amount allocated to a related financial Loan participations, parallel loans, and other mobilization instrument reported separately in other assets or derivative assets; Loan participations $ 1,829 $ 1,764 (v) unrealized gains and losses on equity investments held by con- Parallel loans 1,269 927 solidated variable interest entities; (vi) unrealized gains and losses Other mobilization 480 814 on investments accounted for at fair value as available-­for-sale; and Total loan participations, parallel loans and other (vii) unrealized gains and losses on investments. mobilization $ 3,578 $ 3,505 AMC Equity Capitalization Fund $ 214 $ 24 debt Capitalization Fund Sub-­ 209 215 ALAC Fund 210 190 Africa Capitalization Fund 92 8 Russian Bank Cap Fund 43 — Total AMC $ 768 $ 437 Other initiatives Global Trade Liquidity Program and Critical Commodities Finance Program $ 1,096 $ 850 Public Private Partnership (PPP) 942 41 Infrastructure Crisis Facility 110 63 Debt & Asset Recovery Program 10 — Total other initiatives $ 2,158 $ 954 Total Core Mobilization $ 6,504 $ 4,896 Core Mobilization Ratio 0.35 0.32 1. Debt security commitments are included in loans and equity investments based on their predominant characteristics. 8_ IFC Financials and Projects 2013 The following charts show the distribution of the disbursed investment portfolio by geographical region and industry sector as of June 30, 2013, and June 30, 2012: Distribution by Region Distribution by Industry Sector Finance and Insurance FY13 FY12 Electric Power Asia Europe and Central Asia Collective Investment Vehicles Oil, Gas, and Mining Europe and Central Asia Asia Transportation and Warehousing Latin America and Caribbean Latin America and Caribbean Agriculture and Forestry Middle East and North Africa Middle East and North Africa Chemicals Sub-Saharan Africa Sub-Saharan Africa Other Other Information Nonmetallic Mineral Product Manufacturing Industrial and Consumer Products Food and Beverages Health Care Utilities Construction and Real Estate Wholesale and Retail Trade Primary Metals Accommodation and Tourism Services Education Services Pulp and Paper Textiles, Apparel and Leather Other Percentage 0 5 10 15 20 25 30 35 40   FY12     FY13 Management’s Discussion and Analysis _9 Disbursed Loan Participations The currency position of the disbursed loan portfolio at June 30, The portfolio of disbursed and outstanding loan participations, 2013 and June 30, 2012 is shown below: which are serviced by IFC at June 30, 2013, totaled $6,621 million, Currencies as compared with $6,463 million at June 30, 2012. Additional information on IFC’s investment portfolio as of US dollars and for the years ended June 30, 2013, and June 30, 2012, can be found in Notes B, D, E, F, G, H and I to IFC’s FY13 Consolidated Euro Financial Statements. Chinese renminbi Loans Loans generally have the following characteristics: Indian rupees Term — t​ ypically amortizing with final maturities generally for seven to twelve years, although some loans have been made for ten- Mexican pesos ors as long as 20 years Currency — ​ primarily in major convertible currencies, princi- Philippine pesos pally US dollar, and to a lesser extent, Euro, but with a growing local Brazilian reais currency loan portfolio Interest rate — ​ t ypically variable (or fixed and swapped into South African rand variable) Pricing — ​reflects such factors as market conditions and country Russian rubles and project risks IFC’s loans traditionally have been made in major currencies, Indonesian rupiah based on client demand and on IFC’s ability to economically hedge loans in these currencies through the use of mechanisms such as Colombian pesos cross-­currency swaps or forward contracts. Fixed-­ rate loans and Turkish lira loans in currencies other than US dollars are normally economically hedged using currency and/or interest rate swaps, into US dollar Other variable rate assets. Loans traditionally have been denominated in the currencies of 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 major industrial nations, but IFC has a growing portfolio of local   FY12     FY13 currency products. IFC typically offers local currency products in other currencies where it can economically hedge the local currency Equity investments loan cash flows back into US dollars using swap markets or where IFC’s equity investments are typically in the form of common or it can fund itself in local bond markets. IFC’s disbursed loan port- preferred stock which is not mandatorily redeemable by the issuer folio at June 30, 2013 includes $2,633 million of currency products or puttable to the issuer by IFC and are usually denominated in the denominated in Indian rupee, Mexican peso, Chinese renminbi, currency of the country in which the investment is made. Philippine pesos, Russian ruble, South African rand, Brazilian reais, IFC’s disbursed equity portfolio totaled $9,209  million at Indonesian rupiah, Colombian pesos, Turkish lira and Vietnamese June 30, 2013 ($7,547 million at June 30, 2012), an increase of 22%. dong ($2,314 million at June 30, 2012). IFC has also made loans in The carrying amount of IFC’s equity investment portfolio (com- a number of frontier market currencies such as Tunisian dinar, prising the disbursed equity portfolio, together with adjustments as Paraguayan guarani, Rwandan franc, and Zambian kwacha. detailed in Note D to IFC’s FY13 Consolidated Financial Statements), IFC’s disbursed loan portfolio totaled $22,606 million at June 30, grew 20% to $11,695  million at June  30, 2013 ($9,774  million at 2013 ($21,043 million at June 30, 2012). The carrying amount of IFC’s June 30, 2012). loan portfolio on IFC’s consolidated balance sheet (comprising the The fair value of IFC’s equity portfolio2 was $14,654 million at disbursed loan portfolio together with adjustments as detailed in June 30, 2013 ($12,985 million at June 30, 2012). Note D to IFC’s FY13 Consolidated Financial Statements) grew 7% Equity investments accounted for 27% of IFC’s disbursed invest- to $20,831 million at June 30, 2013 ($19,496 million at June 30, 2012). ment portfolio at June  30, 2013, compared with 25% at June  30, Loans comprise 67% of the disbursed investment portfolio as 2012 and 34% of the carrying amount of the investment portfolio at of June  30, 2013 (68% at June  30, 2012) and 60% of the carrying June 30, 2013 (31% at June 30, 2012). amount of the investment portfolio as of June  30, 2013 (62% at Debt Securities June 30, 2012). Debt securities are typically in the form of bonds and notes issued At June 30, 2013, 74% (74% at June 30, 2012) of IFC’s disbursed in bearer or registered form, securitized debt obligations (e.g. asset-­ loan portfolio was US dollar-­ denominated. backed securities (ABS), mortgage-­ backed securities (MBS), and other collateralized debt obligations) and preferred shares that are mandatorily redeemable by the issuer or puttable to the issuer by IFC. like” securities classified as debt securities in IFC’s consolidated 2. Including “equity-­ balance sheet and equity-­ related options. 10 _ IFC Financials and Projects 2013 IFC’s disbursed debt securities portfolio totaled $2,070 million raising resources. IFC finances only a portion, usually not more than at June 30, 2013 ($2,110 million at June 30, 2012). 25%, of the cost of any project. All IFC-­financed projects, therefore, The carrying amount of IFC’s debt securities portfolio (com- require other financial partners. IFC mobilizes such private sector prising the disbursed debt securities portfolio, together with finance from other entities through loan participations, parallel adjustments as detailed in Note D to IFC’s FY13 Consolidated loans, partial credit guarantees, securitizations, loan sales, and Financial Statements), was $2,151  million at June  30, 2013 risk sharing facilities. In FY09, IFC launched AMC and a number of ($2,168 million at June 30, 2012). other initiatives, each with a formally approved Core Mobilization Debt securities accounted for 6% of IFC’s disbursed investment component, and revised its mobilization resources definition portfolio at June 30, 2013 (7% at June 30, 2012) and 6% of the car- accordingly to include these in the measure. In FY12, IFC expanded rying amount of the investment portfolio at June 30, 2013 (7% at the Core Mobilization definition to account for third party financing June 30, 2012). made available for PPP projects due to IFC’s mandated lead advisor role to national, local government or other government entity. The Guarantees components of Core Mobilization are as follows: GLOBAL TRADE FINANCE PROGRAM LOAN PARTICIPATIONS ​ Y12) FY13 commitments include $6,477 million ($6,004 million — F The principal direct means by which IFC mobilizes private sector relating to GTFP. finance is through the sale of participations in its loans. Through GUARANTEES AND PARTIAL CREDIT GUARANTEES the loan participation program, IFC has worked primarily with IFC offers partial credit guarantees to clients covering, on a risk-­ commercial banks but also with nonbank financial institutions in sharing basis, client obligations on bonds and/or loans. IFC’s financing projects since the early 1960s. guarantee is available for debt instruments and trade obligations Whenever it participates a loan, IFC will always make a loan for of clients and covers commercial as well as noncommercial risks. its own account, thereby sharing the risk alongside its loan partic- IFC will provide local currency guarantees, but when a guarantee ipants. IFC acts as the lender of record and is responsible for the is called, the client will generally be obligated to reimburse IFC in administration of the entire loan, including the loan participation. US dollar terms. Guarantee fees are consistent with IFC’s loan pric- IFC charges fees to the borrower at prevailing market rates to cover ing policies. FY13 commitments include $482 million of guarantees the cost of the loan participation. ($398 million — ​F Y12). Loan participation commitments were $1,829  million in FY13 ($1,764 million in FY12). Client Risk Management Products IFC provides derivative products to its clients to allow them to PARALLEL LOANS hedge their interest rate, currency or commodity price exposures. Loans from other financial institutions that IFC helped arrange for IFC intermediates between its developing country clients and clients and received a fee, but for which IFC is not the lender of derivatives market makers in order to provide IFC’s clients with full record, in FY13 were $1,269 million ($927 million in FY12). market access to risk management products. FY13 commitments other mobilization included $138 million of such products ($110 million — F​ Y12). by-case mobilization decisions totaled $480 million in Other case-­ Core Mobilization FY13 ($814 million in FY12). Core Mobilization is financing from entities other than IFC that becomes available to clients due to IFC’s direct involvement in Management’s Discussion and Analysis _ 11 AMC The activities of the funds managed by AMC at June 30, 2013 and June 30, 2012 can be summarized as follows (US$ millions unless other- wise indicated): Equity Sub-­Debt Africa Russian Global Capitalization Capitalization Capitalization Bank Cap Catalyst Infrastructure Fund Fund ALAC Fund Fund Fund Funds Fund Total Assets under management as of June 30, 2013 1,275 $ $ 1,725 1 ,000 $ $ 182 $ 550 $ 282 $ 500 $ 5,514 From IFC 775 225 200 — 250 75 100 1,625 From other investors 500 1,500 800 182 300 207 400 3,889 For the year ended June 30, 2013 Fund Commitments to Investees: From IFC 332 31 52 — 35 — — 450 From other investors 214 209 210 92 43 — — 768 Disbursements from investors to Fund: From IFC 336 33 63 — 38 1 1 472 From other investors 217 223 252 94 46 2 3 837 Disbursements made by Fund 546 249 297 91 78 — — 1,261 Disbursements made by Fund (number) 7 5 12 4 2 — — 30 Equity Sub-­Debt Africa Russian Global Capitalization Capitalization Capitalization Bank Cap Catalyst Infrastructure Fund Fund ALAC Fund Fund Fund Funds Fund Total Assets under management as of June 30, 2012 1,275 $ $ 1,725 1 ,000 $ $ 182 $ 275 $ — $ — 4 ,457 $ From IFC 775 225 200 — 125 — — 1,325 From other investors 500 1,500 800 182 150 — — 3,132 For the year ended June 30, 2012 Fund Commitments to Investees: From IFC 36 32 48 — — — — 116 From other investors 24 215 190 8 — — — 437 Disbursements from investors to Fund: From IFC 62 28 52 — — — — 142 From other investors 40 186 208 14 — — — 448 Disbursements made by Fund 97 208 174 11 — — — 490 Disbursements made by Fund (number) 6 2 8 3 — — — 19 OTHER INITIATIVES Core Mobilization Ratio GTLP and CCFP The Core Mobilization ratio is defined as: IFC’s FY13 Core Mobilization included $1,096 million ($850 mil- Loan participations + parallel loans + sales of loans and other ​ Y12) relating to GTLP and CCFP. lion — F mobilization + non-­IFC investment part of structured finance Infrastructure Crisis Facility which meets core mobilization criteria + non-­ IFC commitments The infrastructure crisis facility is a facility that includes debt and IFC investments committed in funds managed in Initiatives + non-­ equity components and provides short- to medium-­ term financing by AMC + PPP Mobilization for infrastructure projects. It also includes advisory services to help Commitments (IFC investments + IFC portion of structured governments design or redesign public-­ private-partnership proj- finance + IFC commitments in new Initiatives + IFC investments ects. FY13 Core Mobilization includes $110 million relating to the committed in funds managed by AMC) Infrastructure Crisis Facility ($63 million — ​ F Y12). For each dollar that IFC committed, IFC mobilized (in the form PPP Mobilization of loan participations, parallel loans, other mobilization, the non-­ FY13 resources mobilized includes $942  million relating to PPP IFC portion of structured finance and the non-­ IFC commitments Mobilization, which is the non-­ government portion of IFC, non-­ in Initiatives, and the non-­IFC investments committed in funds financing made available for PPP projects due to IFC’s mandated managed by AMC) $0.35 in FY13 ($0.32 in FY12). lead advisor role to national/local government or other government entity ($41 million — ​F Y12). 12 _ IFC Financials and Projects 2013 ADVISORY SERVICES focus by business line shows that the largest program was in Investment Climate ($75  million; 32%), followed by Access to The IFC Advisory Services Portfolio as of June  30, 2013 totaled Finance ($63 million; 27%), Sustainable Business ($55 million; 24%) $1,037 million, as compared to $894 million as of June 30, 2012. and Public Private Partnerships ($39 million; 17%). The Advisory Services program with clients grew to $232 million In FY13, the Advisory Services program in IDA countries grew in FY13, up from $197 million in FY12, with continued focus on stra- by 17% to $142 million, or 65% of the total Advisory Services pro- tegic priority areas, including IDA, fragile situations and climate gram. The program in Fragile and Conflict Situations grew by change. In FY13 the Advisory Services program grew in each of 18% to $39 million (18% of the total Advisory Services program). these areas. Engagements in climate change increased almost 80% to $53 mil- The largest regional advisory program in FY13 was in Sub lion (24% of the total Advisory Services program). Saharan Africa ($65 million), comprising, 28% of the total Advisory Program results continue to show a positive trend. Development Services program, followed by East Asia and the Pacific ($39 mil- effectiveness ratings of the projects reached a record 76% success lion; 17%), Europe and Central Asia ($36 million; 16%), South Asia rate in FY13, up from 72% in FY12. Likewise, client satisfaction ($34 million; 14%) and others regions ($58 million; 25%). Program reached a record of 90%, up from 88% in FY12. III. LIQUID ASSETS IFC invests its liquid assets portfolio in highly rated fixed and floating rate instruments issued by, or unconditionally guaranteed by, govern- ments, government agencies and instrumentalities, multilateral organizations, and high quality corporate issuers; these include ABS and MBS, time deposits, and other unconditional obligations of banks and financial institutions. Diversification in multiple dimensions ensures a favorable risk return profile. IFC manages the market risk associated with these investments through a variety of hedging techniques including derivatives, principally currency and interest rate swaps and financial futures. IFC’s liquid assets are invested in seven separate portfolios, internally named P0 through P4, P6 and P7. All seven portfolios are accounted for as trading portfolios. IFC’s liquid assets port- folio is summarized as follows: Fair Value Portfolio ($ Billions)* Comprising Managed by Invested In Benchmark P0 $1.7 Proceeds from discount note IFC’s Treasury Money market instruments Overnight US dollar ($0.5) program and cash inflows from Department London Interbank Bid investment operations Rate (LIBID) P1 $22.5 Proceeds from market borrowings IFC’s Treasury Principally global government bonds, Custom-­ created index ($21.9) invested pending disbursement of Department ABS, bank deposits, and high quality of a series of six, equally operational loans corporate bonds generally swapped weighted 6-month LIBID into 3-month US dollar LIBOR deposits that mature on the 15th of each month  — ​ average life of 3 months** P2 $4.4 in capital and Primarily IFC’s paid-­ IFC’s Treasury US Treasuries, ABS, and other Lehman Brothers ($5.6) accumulated earnings that have not Department sovereign and agency issues US 1–3 year maturity been invested in equity and quasi-­ Treasury Index*** equity investments P3 $0.9 An outsourced portion of the External managers Global government bonds and other Same as for P1 ($0.9) P1 portfolio appointed by IFC high quality corporate bonds as well as mortgage-­ backed securities P4 $0.8 An outsourced portion of the External managers Global government bonds, and other Same as for P2 ($0.8) P2 portfolio appointed by IFC high quality corporate bonds as well as mortgage-­ backed securities P6 $0.9 The proceeds of liquidity raised in IFC’s Treasury term money market instruments Short-­ Local interbank rate ($0.7) local currency prior to disbursement Department denominated in South African rand, indices Turkish lira, Polish zloty, Russian rubles, Mexican pesos and Brazilian reais Total $31.2 ($30.4) * at June 30, 2013 (June 30, 2012) ** 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. The P7 portfolio was created in FY10, and, prior to FY13, con- these portfolio management strategies, IFC utilizes derivative tained the after-­ swap proceeds from variable-­ rate borrowings instruments, including futures and options, and takes positions in denominated and invested in Euros. In FY13, IFC invested part of various industry sectors and countries. the proceeds of a Nigeria naira borrowing in the P7 portfolio. The All liquid assets are managed according to an investment author- P7 portfolio was $31 million at June 30, 2013. ity approved by the Board of Directors and liquid asset investment IFC has a flexible approach to managing the liquid assets portfo- guidelines approved by IFC’s Corporate Risk Committee, a subcom- lios by making investments on an aggregate portfolio basis against mittee of IFC’s Management Team. its benchmark within specified risk parameters. In implementing Management’s Discussion and Analysis _ 13 IV. FUNDING RESOURCES IFC’s mandate to help develop domestic capital markets can result in raising local currency funds. As of June 30, 2013, $0.5 bil- IFC’s funding resources (comprising borrowings, capital and lion of such non-­ US$-denominated market borrowings were retained earnings) as of June  30, 2013 and June  30, 2012 are outstanding, denominated in C.F.A. francs, Chinese renminbi, as follows: Dominican pesos, Nigerian naira, and Russian rubles. Proceeds of such borrowings were invested in such local currencies, onlent to clients and/or partially swapped into US dollars. FY13 FY12 The weighted average cost of market borrowings after currency and interest rate swap transactions was 0.4% at June 30, 2013 (0.7% at June 30, 2012). Prior to FY13, IFC had a short term US$ discount note pro- gram to provide an additional funding and liquidity management Borrowings from market Borrowings from market sources sources tool for IFC in support of certain of IFC’s trade finance and supply chain initiatives. Beginning in FY13, IFC launched a short term CNY discount note program to complement the US$ program and to expand the availability of short-­ term local currency finance for private enterprises in CNY. The discount note program pro- Retained earnings Retained earnings vides for issuances with maturities ranging from overnight to one ​ une 30 2012).and year. At June 30, 2013, $1.1 billion ($1.4 billion — J Paid-in capital Paid-in capital Discount Note Program Discount Note Program $0.2 billion ($0 — ​June 30, 2012) were outstanding under the US$ Borrowings from IBRD Borrowings from IBRD and CNY short-­ term discount note programs, respectively. CAPITAL AND RETAINED EARNINGS BORROWINGS The major source of IFC’s borrowings is the international capi- As of June  30, 2013, IFC’s authorized capital was $2.58  billion tal markets. Under the Articles of Agreement, IFC may borrow June  30, 2012), of which $2.40  billion was sub- ($2.58  billion — ​ in the public markets of a member country only with approvals scribed and paid in at June 30, 2013 ($2.37 billion at June 30, 2012). from that member, together with the member in whose currency As of June 30, 2013, IFC’s total capital as reported in IFC’s con- the borrowing is denominated. IFC borrowed (after the effect of solidated balance sheet amounted to $22.28  billion, up from the borrowing-­ related derivatives) $12.8 billion during FY13 ($11.9 bil- June 30, 2012 level of $20.58 billion. At June 30, 2013, total capital lion in FY12 and $10.3  billion in FY11). In addition, the Board of comprised $2.40 billion of paid-­ in capital, up from $2.37 billion at Directors has authorized the repurchase and/or redemption of debt June 30, 2012, $18.71 billion of retained earnings ($17.70 billion at obligations issued by IFC, which enhances the liquidity of IFC’s June 30, 2012), and $1.12 billion of accumulated other comprehen- borrowings. During FY13, IFC repurchased and retired $0.4 billion sive income ($0.51 billion at June 30, 2012). of outstanding debt ($0.6 billion in FY12 and $0.3 billion in FY11), Noncontrolling interests totaled $0.05  billion at June  30, 2013 generating gains on buybacks of $11 million in FY13 ($19 million — ​ ($0 — ​June 30, 2012). FY12 and $10 million — ​ F Y11). Selective Capital Increase (SCI) IFC diversifies its borrowings by currency, country, source, and On July  20, 2010, the Board of Directors recommended that the maturity to provide flexibility and cost-­ effectiveness. IFC also has Board of Governors approve an increase in the authorized share a developmental role in helping open up new domestic markets to capital of IFC of $130  million, to $2,580  million, and through foreign issuers in its member countries. In FY13 IFC borrowed in the issuance of $200  million of shares (including $70  million of fourteen currencies and in final maturities ranging from one to unallocated shares). The Board of Directors also recommended that 30 years. Outstanding market borrowings have remaining matur- the Board of Governors approve an increase in Basic Votes aimed at ities ranging from less than one year to approximately 30 years, with enhancing the voice and participation of developing and transition a weighted average remaining contractual maturity of 4.1 years at countries (DTCs) and requiring an amendment to IFC’s Articles June 30, 2013 (5.5 years at June 30, 2012). Actual maturities may dif- of Agreement. fer from contractual maturities due to the existence of call features The resolution recommended by the Board of Directors was in certain of IFC’s borrowings. adopted by the Board of Governors on March 9, 2012. The amend- Market borrowings are generally swapped into floating-­ rate ment to the Articles of Agreement and the increase in the authorized obligations denominated in US dollars. As of June  30, 2013, IFC share capital have become effective on June 27, 2012. As of the same had gross payables from borrowing-­ related currency swaps of date, eligible members have been authorized to subscribe to their $18.7 billion ($18.3 billion at June 30, 2012) and from borrowing-­ allocated IFC shares. The subscription period will end on June 27, related interest rate swaps in the notional principal payable amount 2014 and payment of subscribed shares must occur no later than of $37.8 billion ($35.2 billion at June 30, 2012). After the effect of June 27, 2015. During the year ended FY13, IFC received $31 million these derivative instruments is taken into consideration, 99% of of capital subscriptions related to the SCI. IFC’s market borrowings at June  30, 2013 were variable rate US dollar-­denominated (99% — ​June 30, 2012). 14 _ IFC Financials and Projects 2013 Designations of Retained Earnings designation of $251 million of IFC’s retained earnings for grants to Beginning in the year ended June 30, 2004, IFC began a process of IDA. This designation is expected to be noted with approval by the designating retained earnings to increase its support of advisory Board of Governors, and thereby concluded, in FY14. services and, subsequently, for performance-­ based grants (PBG) Deployable Strategic Capital (year ended June  30, 2005), grants to IDA (year ended June  30, IFC’s deployable strategic capital decreased from 9.3% at June 30, 2006 (FY06)), the Global Infrastructure Project Development Fund 2012 to 8.4% at June 30, 2013. This decrease represents the effects (FY08), and IFC SME Ventures for IDA Countries (FY08). The lev- of increases in investment commitments and disbursements par- els and purposes of retained earnings designations are set based tially offset by realized gains in FY13 and the reduction in the net on the Board of Directors-­ approved principles, which are applied unfunded status of the pension plans as of June 30, 2013 when com- each year to assess IFC’s financial capacity and to determine the pared to June 30, 2012. maximum levels of retained earnings designations. Amounts available to be designated are determined based on a Board of Directors-­approved income-­based formula and, beginning V. ENTERPRISE RISK MANAGEMENT in FY08, on a principles-­ approved finan- based Board of Directors-­ cial distribution policy, and are approved by the Board of Directors. In executing its sustainable private sector development business, IFC recognizes designations of retained earnings for advisory IFC assumes various risks of various types. Active management of services when the Board of Directors approves it and recognizes these risks is critical to IFC’s ability to maintain financial sustain- designation of retained earnings for grants to IDA when it is noted ability and achieve development impact. with approval by the Board of Governors. IFC has developed a comprehensive enterprise risk management Expenditures for the various approved designations are recorded framework within which risks are continually identified, measured, as expenses in IFC’s consolidated income statement in the year in monitored, analyzed and controlled. This framework is defined in which they occur, and have the effect of reducing retained earnings terms of several interrelated dimensions: designated for this specific purpose. »»IFC’s guiding principles provide the foundation for active manage- FY12 Designations ment of risk in IFC’s business, in its entirety, under the supervision On August 9, 2012, the Board of Directors approved the designation of the Board of Directors, the Audit Committee, the Executive of $340 million of IFC’s retained earnings for grants to IDA and a Vice President/CEO and the Management Team. designation of $80 million of IFC’s retained earnings for advisory »»Risk appetite is defined and implemented in the form of expo- services. On October 12, 2012, the Board of Governors noted with sure limits, policies and procedures. The Risk Management and approval these designations. Portfolio Vice Presidency, together with independent institutional On January 15, 2013, IFC recognized expenditures against grants oversight bodies, monitors compliance with prescribed limits, to IDA of $340  million on signing of a grant agreement between policies and procedures. IDA and IFC concerning the transfer to IDA and use of funds »»Risk governance is provided by a sub-­ committee of the Manage- corresponding to the aforementioned paragraph. IFC recognized ment Team, the Corporate Risk Committee, which reviews and expenditures for advisory services and expenditures against other approves all risk policies, sets risk standards and receives regular designated retained earnings totaling $124  million, compared to reports on different aspects of risk management at the enter- $82 million in FY12. prise level. At June 30, 2013, retained earnings comprised $18,435 million of »»As a member of the World Bank Group, IFC liaises with the undesignated retained earnings ($17,373 million at June 30, 2012; corresponding Risk Management areas across the group on a and $16,032 million at June 30, 2011), $199 million of retained earn- regular basis. ings designated for advisory services ($219 million at June 30, 2012; and $217 million at June 30, 2011), $31 million of retained earnings KEY RISK MANAGEMENT PRINCIPLES designated for PBG ($41 million at June 30, 2012; and $54 million at The key principles which guide IFC’s integrated risk management June 30, 2011), $20 million of retained earnings designated for the framework are: Global Infrastructure Project Development Fund ($30  million at »»The effective balancing of development impact, risk and reward; June 30, 2012; and $30 million at June 30, 2011), and $28 million of »»Ensuring business decisions are based on an understanding retained earnings designated for IFC SME Ventures for IDA coun- of risks; tries ($32 million at June 30, 2012; and $34 million at June 30, 2011). »»Being extremely selective in undertaking activities which may FY13 Designations result in adverse reputational impact; and Income available for designations in FY13 (a non-­GAAP measure)3 »»Shared responsibility for risk management across the Corporation. totaled $1,060  million. Based on the Board-­ approved distribu- tion policy, the maximum amount available for designation was RISK PROFILE $251 million. On August 7, 2013, the Board of Directors approved a At the highest level, IFC’s risk management objectives are to main- tain financial soundness and preserve its reputation. Financial 3. Income available for designations generally comprises net income excluding soundness is impacted by, among other things, the level of deploy- unrealized gains and losses on investments and unrealized gains and losses on other able strategic capital, IFC’s cost of funding and the liquidity of the trading financial instruments, income from consolidated VIEs, and expenses non-­ reported in net income related to prior year designations. liquid asset portfolios. Key to maintaining IFC’s reputation is the Management’s Discussion and Analysis _ 15 Corporation’s ability to continually adapt to an evolving external public affairs and brand marketing and collaborates across the business environment, the integrity and corporate governance of Corporation to help develop and implement effective communica- its business partners and clients, and the environmental and social tions strategies. effects of the projects with which IFC is associated. IFC’s capacity FY13 Enterprise Risk Highlights to take risks is constrained primarily by its capital base. Highlights from significant changes made in FY13 are as follows: »»Updated the existing framework to include a more comprehen- RISK APPETITE sive approach to measuring economic capital for IFC’s Treasury IFC’s risk appetite defines the types of risk which IFC is willing activities. to assume in the pursuit of its business objectives. Risk tolerance »»Created a working group, tasked with improving and formalizing defines the amount of each risk type that IFC considers acceptable the process and methodology for Corporation-­wide stress testing. in the context of its business activities. IFC translates risk appetite »»Extended Risk and Control Self-­Assessment to all departments to and tolerance into limits, policies, procedures and directives. The support active management of operational risk. Corporation regularly measures, monitors and evaluates its risk »»Designed enhancements to IFC’s Integrity Due Diligence process profile to ensure that both individual and aggregated risks remain to increase consistency, better manage accountability and aug- within the ranges deemed acceptable by Senior Management. ment decision-­making efficiency. »»Created a new Regional Chief Risk Officer role to serve IFC’s RISK GOVERNANCE decentralized business model and provide senior risk oversight Saharan Africa region. for the Sub-­ The Board of Directors and Board Committees oversee the over- »»Benchmarked IFC against industry best practice in workouts and all risk tolerance for the Corporation and provide the highest operational risk management. level of oversight. Centralized risk management is provided by IFC’s Management Committees and Senior Management. IFC’s STRATEGIC RISK Management Team, under the direction of the Executive Vice President and CEO, is responsible for the Corporation’s day-­ to- IFC defines strategic risk as the potential reputation, financial, day operations, including oversight and management of existing and other consequences of a failure to achieve its strategic objec- and potential risks. The Risk Management and Portfolio Vice tives, and in particular, the risk of not achieving IFC’s purpose of Presidency is responsible for managing IFC’s financial and oper- furthering economic development by “encouraging the growth of ational risks. Project-­ specific environmental, social and corporate productive private enterprise in member countries” and its vision governance issues which arise out of IFC’s activities are overseen “that people should have the opportunity to escape poverty and by the Business Advisory Services Vice Presidency; legal issues are improve their lives.” overseen by the General Counsel Vice Presidency. There is common The key guiding principles and policies established as part of the and shared accountability for strategic and stakeholder risk man- framework for managing IFC’s strategic risks consist of: agement at the IFC Management Team level. »»An ex-­ a nte assessment of strategic fit of each project; The Independent Evaluation Group assesses the alignment »»Guiding principles for IFC’s operations (catalytic role, business between projected and realized outcomes while the Compliance partnership and additionality); Advisor/Ombudsman, ensures that IFC remains accessible to its »»Environment and social policies; and stakeholders. In addition, the World Bank Group’s Internal Audit »»IFC’s sanctions procedures. Vice Presidency monitors internal controls and governance while The overall management of strategic risk is effected through the the Integrity Vice Presidency monitors integrity in operations and design, confirmation and implementation of an annual strategy for investigates allegations of fraud and corruption. IFC. The strategy is developed by Senior Management and approved by the Board of Directors. IFC monitors the implementation of MANAGING FINANCIAL AND REPUTATIONAL IMPACT its strategy through many processes, including: (i) corporate and department scorecards; (ii) cascaded objectives; (iii) and an inte- The consequences of failing to manage risks optimally are financial grated quarterly management report. In addition, the Independent loss and/or adverse impact to IFC’s reputation. Reputational impact Evaluation Group conducts ex-­ post evaluations of the implementa- is of significant concern to IFC as negative perceptions of stakehold- tion of IFC’s strategy on an ongoing basis. ers and/or the general public may adversely impact IFC’s ability to Given the nature and scope of products and services that IFC carry out its business effectively. provides its clients in furtherance of its development mandate, Risks are mitigated in practice by a variety of measures including operational or business conflicts of interest can arise in the normal close monitoring by risk management units and oversight by IFC’s course of its activities. IFC recognizes that adverse reputational, Senior Management. client-­relationship and other implications can arise if such conflicts In FY13, communication activities related to reputational impact are not carefully managed. In order to properly manage operational were managed by the Corporate Relations Department, which or business conflicts, IFC has implemented processes directed at provides advice on strategic and crisis communications in order (i) the identification of such conflicts as and when they arise; and to manage potential and actual reputational impacts both at the (ii) the application of mitigation measures specifically tailored to corporate and project levels throughout the investment cycle. This the circumstances pertaining to the identified conflicts. team is also responsible for external and internal communications, 16 _ IFC Financials and Projects 2013 IFC’s Sustainability Framework articulates the Corporation’s FINANCIAL RISK strategic commitment to sustainable development and is an inte- gral component of IFC’s approach to risk management. The Financial risk management is about taking calculated risks that are Sustainability Framework comprises IFC’s Policy and Performance aligned with the Corporation’s overall risk appetite and within the Standards on Environmental and Social Sustainability and IFC’s boundaries of established tolerances. As such, financial risk man- Access to Information Policy: agement at IFC begins with an articulation of the Corporation’s »»The Policy on Environmental and Social Sustainability describes risk appetite as defined by the types of risk that the Corporation is IFC’s commitments, roles and responsibilities in relation to envi- willing to take in the pursuit of its strategic objectives. Following ronmental and social sustainability. from this articulation is an enterprise risk management framework »»The Performance Standards are intended to help guide clients that encompasses strategy, capital planning, target setting and risk on sustainable business practices a part of which involves con- monitoring and management. tinually identifying and managing risks through stakeholder IFC’s risk appetite, as it pertains to financial risk, has been engagements and client disclosure obligations in relation to defined by Senior Management and the Board of Directors as main- project-­level activities. taining a AAA rating within a three-­ year time horizon. To align »»IFC’s Access to Information Policy reflects the Corporation’s risk tolerance with this definition, IFC uses its economic capital commitment to transparency and good governance and outlines framework to measure the capital required to maintain its AAA institutional disclosure obligations. rating. Further, processes are in effect which translate IFC’s risk IFC uses the Sustainability Framework along with other strate- appetite into limits, policies, procedures and directives that help gies, policies and initiatives to focus business activities on achieving guide the management of IFC’s financial risk within acceptable the Corporation’s development objectives. All project teams are tolerance bands. required to record expectations of development outcomes with An important consideration when setting IFC’s risk appetite is time-­bound targets using standard indicators. These indicators are the need to use capital efficiently by recognizing the inherent trade-­ tracked and performance is rated on an annual basis for the entire offs involved with maintaining reserve capital. Excess capital that duration of every project. is not deployed has limited financial and no development impact; at the same time, keeping some capital in reserve allows IFC to Guiding Principles for IFC’s Operations maintain financial strength and respond proactively in the event Catalytic role: IFC will seek above all to be a catalyst in facili- of future crises. tating productive investments in the private sector of its developing member countries. It does so by mobilizing financing from both Key Financial Policies and Guidelines foreign and domestic investors from the private and public sectors. IFC operates under a number of key financial policies and guide- Business partnership: IFC functions as a business in partner- lines as detailed below, which have been approved by its Board ship with the private sector. Thus, IFC takes the same commercial of Directors: risks as do private institutions, investing its funds under the disci- »»Minimum liquidity (liquid assets plus undrawn borrowing com- pline of the marketplace. mitments from IBRD) must be sufficient at all times to cover at Additionality: IFC participates in an investment only when it least 45% of IFC’s estimated net cash requirements for the next can make a special contribution not offered or brought to the deal three years. by other investors. »»Loans are funded with liabilities that have similar characteris- tics in terms of interest rate basis and currency and, for fixed rate sanctions procedures loans, duration except for the Board of Directors-­ approved new In FY07, IFC established a set of procedures to sanction parties products involving asset-­ liability mismatches. involved in IFC projects committing corrupt, fraudulent, collusive, »»IFC maintains a minimum level of liquidity, consisting of pro- coercive or obstructive practices. In April 2010, the World Bank ceeds from external funding, that covers at least 65% of the sum Group concluded an agreement with other multilateral develop- of: (i) 100% of committed but undisbursed straight senior loans; ment banks (MDBs) whereby entities debarred by one MDB may (ii) 30% of committed guarantees; and (iii) 30% of committed cli- be sanctioned for the same misconduct by the other participating ent risk management products. development banks. The enhanced emphasis on combating fraud »»IFC is required to maintain a minimum level of total resources and corruption does not change the high expectations IFC has (including paid-­ in capital, total loss reserves and retained earn- always held for its staff, clients and projects, including due diligence ings, net of designations) equal to total potential losses for all and commitment to good corporate governance. on- and off-­balance sheet exposures estimated at levels consistent FY13 Strategic Risk Highlights with the maintenance of a AAA rating. IFC’s Development Goals (IDGs) are targets for reach, access, or other tangible development outcomes that IFC projects are Credit Risk expected to deliver during their lifetime. In FY12, the testing IFC defines credit risk as the risk that third parties that owe IFC phase for two such goals, IDG 2 (Health and Education) and IDG 3 money, securities or other assets will not fulfill their obligations. (Financial Services), was completed and in FY13, they moved into These parties may default on their obligations to IFC due to bank- implementation and are fully integrated into IFC’s corporate score- ruptcy, lack of liquidity, operational failure or other reasons. Credit card and incentives for management. risk management consists of policies, procedures and tools for managing credit risk, primarily in IFC’s loan portfolio, but also Management’s Discussion and Analysis _ 17 related to counterparty risk taken in the liquid asset and borrow- Specifically, IFC has adopted the following key financial poli- ing portfolios. cies and guidelines that have been approved by the Corporate Credit risk management spans investment origination to final Risk Committee: repayment or sale; it includes portfolio management and risk mod- Investment Operations eling activities that provide an integrated view of credit risks and »»IFC does not normally finance for its own account more than 25% their drivers across the Corporation. With respect to IFC’s credit of a project’s cost. risk exposure to clients in developing emerging markets, at key »»Total exposure to a country is based on the amount of economic steps during the investment approval process, information obtained capital required to support its investment portfolio in that coun- from the investment departments is analyzed and an independent try. Exposure limits are set for each country based on the size of review of the credit risk of the transaction undertaken, including its economy and its risk score. Sub-­ limits apply for certain sector the assignment of a credit risk rating. The credit risk rating, together exposures within a country. with investment size and product type, is a key input into the risk »»Lender of record exposure in a country may not exceed a specified tiering that determines authority levels required for transaction percentage of a country’s total long-­ term external debt. Lower approval. After commitment, the quality of IFC’s investment port- trigger levels are set for certain countries. folio is monitored according to principles and procedures defined in »»IFC’s total exposure to a single obligor and groups of obligors may the Operational Policies and Procedures. Responsibility for the day-­ not exceed stipulated economic capital and nominal limits based to-day monitoring and management of credit risk in the portfolio on the riskiness of the obligor. rests 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 instruments as determined by IFC’s Treasury Department at the operational and prudential limits, including limitations on single time of commitment. There is a sublimit of $100  million for an project/client exposure, single country exposure, and segment individual currency under this limit. concentration. Similarly, credit policies and guidelines have been formulated covering treasury operations; these are subject to Treasury Operations annual review and approval by the Corporate Risk Committee. »»Counterparties are subject to conservative eligibility criteria. Credit risk across IFC’s investment portfolio is monitored and For derivative instruments, IFC’s counterparties are currently managed through proactive identification of emerging risks and restricted to banks and financial institutions with high quality portfolio stress testing in focus sub-­portfolios. credit ratings (with a mark-­to-market agreement) by leading inter- For impaired loans and other investments at risk, rapid response national credit rating agencies. In addition to IFC’s traditional use is essential, as early involvement is the key to recovery when proj- of top-­rated international banks as swap counterparties, for the ects get into difficulty. IFC provides focused attention on portfolio sole purpose of funding local currency loans, IFC has recently projects that require more sophisticated workout and restructur- extended the universe of eligible swap counterparties to include ing. To help enable early involvement, seasoned professionals from central banks and select local banks. IFC’s Special Operations Department comprised of workout pro- »»Exposures to individual counterparties are subject to concen- fessionals with extensive experience in handling such projects, tration limits. For derivatives, exposure is measured in terms work in close coordination with IFC’s Legal Department to provide of replacement cost for measuring total potential exposure. rapid response. Institution-­specific limits are updated at least quarterly based on The credit risk of loans is quantified in terms of the probabil- changes in the total size of IFC derivatives portfolio or as needed ity of default, loss given default and exposure at risk. These risk according to changes in counterparty’s fundamental situation or parameters are used to determine risk based economic capital for credit status. capital adequacy, capital allocation and internal risk management »»To limit its exposure, IFC signs collateral agreements with purposes as well as for setting general loan loss reserves and limits. counterparties that require the posting of collateral when net Treasury counterparty credit risk is managed to mitigate poten- mark-­to-market exposures exceed certain predetermined thresh- tial losses from the failure of a trading counterparty to fulfill its olds. IFC also requires that low quality counterparties should not contractual obligations. have more than 30% of total net-­ of-collateral exposures. General counterparty eligibility criteria are set by the Board of »»Because counterparties can be downgraded during the life of a Directors-­ approved Asset-­ Liability Management and Derivative given transaction, the agreements provide an option for IFC to Products Authorization and Liquid Asset Management General terminate all swaps if the counterparty is downgraded below Investment Authorization. IFC Counterparties are subject to con- investment grade or if other early termination events materialize. servative eligibility criteria and are predominantly restricted to »»For exchange-­ t raded instruments, IFC limits credit risk by banks and financial institutions with high quality credit ratings by restricting transactions to a list of authorized exchanges, con- leading international credit rating agencies. tracts and dealers, and by placing limits on the Corporation’s The eligibility criteria and limits of Treasury counterparties are position in each contract. stipulated by the “Liquid Asset Investment Directives.” 18 _ IFC Financials and Projects 2013 FY13 Credit Risk Highlights MARKET RISK Investment operations IFC’s exposure to market risk is largely mitigated by the Corpo- The quality of IFC’s loan portfolio, as measured by aggregate risk ration’s matched-­ f unding policy and by the use of derivative ratings was substantially unchanged between June  30, 2012 and instruments to convert most of IFC’s assets that are funded from June 30, 2013. market borrowings and such market borrowings into floating rate IFC does not recognize income on loans where collectability is US dollar assets and liabilities with similar duration. Additional in doubt or payments of interest or principal are past due more than strategies that are employed are as described below. 60 days unless collection of interest is expected in the near future. The amount of non-­ performing loans as a percentage of the Investment Operations disbursed loan portfolio4, a key indicator of loan portfolio per- IFC takes equity risk in its listed and unlisted equity investments in formance, was 5.6% at June 30, 2013 (4.1% at June 30, 2012). The emerging markets. The Corporate Equity Committee, a subcommit- principal amount outstanding on non-­ performing loans totaled tee of the Management Team, provides guidance on IFC’s overall $1,272 million at June 30, 2013, an increase of $413 million (48%) strategy in equity investments, equity portfolio management and from the June 30, 2012 level of $859 million. The increase in the asset allocation. Numerous factors are taken into consideration amount of non-­ performing loans as a percentage of the disbursed when making asset allocation decisions, reflecting IFC’s roles as a loan portfolio was largely driven by the placing of seven loans with development institution and long-­ term investor, as well as the fact principal outstanding greater than $45  million for an aggregate that most of the Corporation’s equity investments are in private amount of $423 million, partially offset by the removal of one loan securities, at least at origination. The factors taken into consid- with principal outstanding of $45 million. eration by the Corporate Equity Committee include projected Total reserves against losses on loans at June 30, 2013, increased developmental impact, IFC’s additionality and comparative advan- to $1,628  million ($1,381  million at June  30, 2012). Total reserves tages, country diversification, sector diversification, IFC’s country against losses on loans are equivalent to 7.2% of the disbursed loan exposure considerations, macro-­ economic considerations, global portfolio (6.6% — J​ une 30, 2012). trends in equity markets, and valuations. The five-­year trend of non-­performing loans is presented below: Interest rate and currency exchange risk associated with fixed rate and/or non-­ US dollar lending is largely economically hedged Non-performing Loans via currency and interest rate swaps that convert cash flows into $ millions 0 200 400 600 800 1,000 1,200 variable rate US dollar flows. FY09 Market risk resulting from derivative transactions with cli- FY10 ents, which are intended to facilitate clients’ risk management, is FY11 mitigated by entering into offsetting positions with highly rated FY12 market counterparties. FY13 Percentage 0.0 1.0 2.0 3.0 4.0 5.0 6.0 Liquid Asset Portfolios The market risk in the internally-­managed liquid asset portfolios is   $ millions     Percentage of disbursed loans The guarantee portfolio is exposed to the same idiosyncratic and measured using a corporate value-­ at-risk model, which calculates systematic risks as IFC’s loan portfolio and the inherent probable daily value-­at-risk measurements, interest rate exposure and credit losses in the guarantee portfolio need to be covered by a reserve spread exposure. for loss. The reserve at June 30, 2013, was $17 million, down from The primary instruments for maintaining sufficient liquidity are $21 million at June 30, 2012, based on the year-­ end portfolio, and IFC’s seven liquid asset portfolios: is included in payables and other liabilities on IFC’s consolidated »»P0, which is generally invested in short-­ dated deposits, money balance sheet. There was a release of provision of $4  million on market funds, fixed certificates of deposits, one-­ month floater guarantees in the consolidated income statement in FY13 ($3 mil- securities and repos, reflecting its use for short-­ term funding lion release of provision — ​ F Y12). requirements »»P1 and P2, which are generally invested in: (a) high quality foreign Treasury operations sovereign, sovereign-­ g uaranteed and supranational fixed income Counterparty credit risk in IFC’s Treasury operations is managed instruments; (b) US Treasury or agency instruments; (c)  high on a daily basis through strict eligibility criteria and accompanying quality ABS rated by at least two rating agencies and/or other limits. Treasury operations counterparties also remain well diver- high quality notes issued by corporations; (d) MBS; (e) interest sified by sector and geography. rate futures and swaps to manage currency risk in the portfolio, In accordance with IFC’s key financial policies and guidelines as well as its duration relative to benchmark; and (f) cash deposits noted above, IFC holds collateral in the amount of $1,274 million at and repos June 30, 2013 ($3,570 million — ​June 30, 2012). »»P3, which is an outsourced portion of the P1 portfolio (managed by external managers) »»P4, which is an outsourced portion of the P2 portfolio (managed by external managers) »»P6, which is invested in short-­ term local currency money market instruments and local government securities like” debt securities. 4. Excluding “loan-­ Management’s Discussion and Analysis _ 19 »»P7, which consists of after-­swap proceeds from variable-­ rate bor- FY13 Market Risk Highlights rowings denominated and invested in Euros and proceeds from The overall level of market risk in IFC’s Treasury operations fixed-­rate borrowings denominated and invested in Nigerian naira. increased in FY13 due to increasing volatility of Sovereign interest The P0, P1 and P3 portfolios are managed to variable rate US rates near the end of FY13 yet Treasury market risk still remained dollar benchmarks, on a portfolio basis. To this end, a variety of low compared to other portfolios and risk types. Interest rate, derivative instruments are used, including short-­ term, over-­t he- foreign exchange, and spread risk are all carefully controlled on counter foreign exchange forwards (covered forwards), interest rate a daily basis using a system of limits that remained in compliance and currency swaps, and exchange-­traded interest rate futures and during FY13. options. IFC takes both long and short positions in securities in the Shortly after the fiscal year began, the European Central Bank management of these portfolios to their respective benchmarks. announced their, not-­ yet-used, Outright Monetary Transactions The primary source of interest rate risk in the liquid asset port- (OMT) program aimed at equalizing borrowing costs for private folios is the P2 and P4 portfolios, which are managed to Barclay’s borrowers across the European Union by providing support for 1-3 year US Treasury Index benchmark. P2 represents the portion short-­dated sovereign government bonds. Risk premia receded of IFC’s capital not disbursed as equity investments, and the bench- across financial markets in response. The decrease in risk pre- mark reflects the chosen risk profile for this un-­ invested capital mia was further supported by the United States when it avoided (paid-­in capital and retained earnings). P4 represents an outsourced the “fiscal cliff” and the Bank of Japan, which announced a much portion of the P2 portfolio. In addition, the P1 and P3 portfolios also greater-­ t han-expected ease in monetary policy. The liquid asset contain spread risk of high quality credit counterparties. portfolios benefitted from this improvement in the markets and The P6 portfolio consists of foreign currency proceeds raised remained fully invested in spread risk throughout the fiscal year. locally through swaps and other funding instruments to provide The overall level of market risk in IFC’s equity portfolio was more flexible local currency loan products to clients. quite elevated in FY13, due to large fluctuations in global equity The Euro portion of the P7 portfolio is managed to six equal-­ markets, foreign exchange rates and commodity prices. Equity val- weighted EURIBID deposits maturing at the next six monthly reset uations improved steadily during the first half of FY13, both in local dates of outstanding liabilities, rebalanced at each calendar month-­ currency and, to a greater degree, in IFC’s reporting currency, the end. The Nigerian naira portion of the P7 portfolio is managed to US$, as most emerging market currencies appreciated moderately the related IFC debenture issued in FY13. against the US$ in the first half of FY13. This period was followed by sideways fluctuations in the third quarter of FY13 and the first Borrowing Activities half of the last quarter of FY13, but the last seven weeks of FY13 IFC expands its access to funding and decreases its overall fund- virtually erased all gains from the first half of FY13, as prospects ing cost by issuing debt securities in various capital markets in a of a less accommodative Federal Reserve and renewed concerns on variety of currencies, sometimes using complex structures. These global growth, dominated world markets. It should also be noted structures include borrowings payable in multiple currencies, or that emerging market equities lagged most developed equity mar- borrowings with principal and/or interest determined by reference kets in FY13, accelerating the trend that started in late 2010. to a specified index such as a reference interest rate, or one or more In response to such heightened volatility, the Corporation foreign exchange rates. remained especially selective at entry and managed its equity Market risk associated with fixed rate obligations and structured investment portfolio pro-­ actively through close monitoring, quar- instruments entered into as part of IFC’s funding program is gener- terly portfolio reviews and continued oversight from the Corporate ally mitigated by using derivative instruments to convert them into Equity Committee. Active portfolio management enabled the variable rate US dollar obligations, consistent with the matched-­ Corporation to revolve its funds significantly in FY13, and maintain funding policy. an acceptable level of profitability. Asset-­Liability Management While IFC’s matched-­ f unding policy provides a significant level LIQUIDITY RISK of protection against currency and interest rate risk, IFC can be exposed to residual market risks in its overall asset and liability IFC’s investments are predominantly illiquid in nature due to the management of the market borrowings funded balance sheet. lack of capital flows, the infrequency of transactions, and the lack of Residual currency risk arises from events such as changes in the price transparency in many emerging markets. To offset this liquid- level of non-­ US dollar loan loss reserves. The aggregate position ity risk, strict investment eligibility criteria for the Liquid Asset in each lending currency is monitored on a daily basis and the portfolios are defined in the Liquid Asset Management Investment risk is managed within a range of +/– $5  million equivalent in Guidelines. Examples of these criteria include minimum sizes for each currency. bond issuances, single bond issue concentration limits and per- Residual interest rate risk may arise from differing interest rate centage of total bond issuance limits. Consequently, a significant reset dates on assets and liabilities or assets that are fully match-­ portion of the liquid assets is invested in highly liquid securities funded at inception, which can become mismatched over time due such as: (i) high quality foreign sovereign, sovereign-­ g uaranteed to write-­downs, prepayments, or rescheduling. and supranational fixed income instruments; (ii) US Treasury or The residual interest rate risk is managed by measuring the sen- agency instruments; and (iii) money market mutual funds. In the sitivity of the present value of assets and liabilities in each currency event of a liquidity crisis, these assets will be available to generate to a one basis point change in interest rates and managed on a daily funds that are needed to support IFC’s cash requirements. basis within a range of +/– $50,000. 20 _ IFC Financials and Projects 2013 IFC’s liquid assets maintained similar exposure to high credit IFC utilizes risk transfer, including insurance, at both the project quality counterparties, while credit spread risk declined in FY13 due and the institutional levels for mitigation of low frequency and high to improving credit conditions. Net interest rate risk of IFC’s Liquid severity operational risks. At both levels, IFC identifies and evalu- Asset portfolios remained concentrated in short-­ maturity obliga- ates risks, determines available contractual transfer and insurance tions and the spread risk is well diversified by sector and geography. options, implements the optimal structure, and tracks its effective- ness over time. IFC also insures its corporate assets and operations FY13 Liquidity Risk Highlights against catastrophic losses where commercially viable. On June  30, 2013, IFC’s liquid assets portfolio stood at $31.2  bil- Other key components of IFC’s operational risk management lion ($30.4 billion on June 30, 2012). Current levels of liquid assets approach include: also represented 309% of the sum of (i) 100% of committed but »»Operational risk assessment and measurement based on market undisbursed straight senior loans; (ii) 30% of committed guaran- practices and tools. tees; and (iii) 30% of committed client risk management products »»Adoption of the COSO5 control framework as the basis for its (327% on June 30, 2012). evaluation of the effectiveness of its internal controls over finan- cial reporting. FUNDING RISK »»Ongoing independent review of the effectiveness of IFC’s inter- IFC’s primary objective with respect to managing funding risk is to nal controls in selected key areas and functions performed by the maintain its triple-­A credit ratings and, thereby, maintain access Internal Audit Vice Presidency of the World Bank Group. to market funding as needed at the lowest possible cost. »»Promoting data integrity in the Corporation based on its data The risk of higher funding costs is also reduced by IFC’s annual management policy. funding targets, the US$ benchmark bonds, and the Discount Note »»Ensuring that processes and controls are in place to manage the Program. Accessing the capital markets for financing establishes risks in new products and initiatives before they are executed, investor confidence, liquidity, price transparency, and a diversi- through a New Initiative and Product Assessment Group with fied investor base, all of which help to reduce financing cost. IFC’s representation from key business and support functions. Discount Note Program provides swift access to funded liquidity, FY13 Operational Risk Highlights to complement traditional funding sources, and to provide a natural IFC is continuing a multiyear effort to develop and implement funding source for short term financing programs. enhanced methodologies for identifying, measuring, monitoring FY13 Funding Risk Highlights and managing operational risk in its key activities. IFC contin- During FY13, IFC raised $12.8 billion, net of derivatives ($11.9 bil- ued the program established in FY12 for obtaining annual written lion in FY12 and $10.3  billion in FY11). The outstanding balance assertions on operational risk management by Vice Presidents and under the Discount Note Program at June 30, 2013 was $1.3 billion Directors. To support this, IFC also: ($1.4 billion — J ​ une 30, 2012). During FY13, credit spreads for IFC’s »»Formalized a network of departmental Operational Risk new borrowings deteriorated to around Libor flat for a 5 year term Management Liaisons and provided training for them in apply- issue, from Libor minus 10 basis points in FY12. ing operational risk management tools to their business processes. »»Extended Risk and Control Self-­ Assessment to all departments. OPERATIONAL RISK »»Continued rolling out other operational risk management meth- odologies and tools, including risk events tracking, root cause Consistent with “Internal Convergence of Capital Measurement analysis 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 defines oper- risk management. ational risk as the risk of loss resulting from inadequate or failed IFC also continues to focus on its preparedness to react to an internal processes, people and systems or from external events. emergency situation that could disrupt its normal operations. IFC’s Operational Risk Management (ORM) program is based During FY13, IFC: on a directive approved by the Corporate Risk Committee during »»Collaborated with the World Bank in updating the World Bank FY10. This directive establishes the approach and roles and respon- Group Business Continuity Management policy to align with sibilities for operational risk management in the Corporation. internationally recognized business continuity standards. IFC’s ORM approach is designed to ensure that operational risks »»Conducted emergency simulation exercises in Washington, in are identified, assessed, and managed so as to minimize potential cooperation with the World Bank. adverse impacts and to enable Senior Management to determine »»Maintained Emergency Management Teams in all regions; and which risks IFC will: (i) manage internally, as part of its ongoing held emergency management workshops and simulations in larger business; (ii) mitigate through contingency planning; or (iii) trans- country offices in one region. fer to third parties, whether by subcontracting, outsourcing, »»Conducted exercises involving individual members of the or insurance. Management Team, in anticipation of an exercise for the whole IFC seeks to mitigate the risks it manages internally by maintain- Management Team. ing a comprehensive system of internal controls that is designed not only to identify the parameters of various risks but also to monitor and control those areas of particular concern. 5. COSO refers to the Internal Control  1992 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 financial sector in the United States during the late 1980s. Management’s Discussion and Analysis _ 21 »»Leveraging Business Impact Analysis results, updated Business The assessment of the adequacy of reserves against losses for Continuity Plans for departments responsible for critical business loans is highly dependent on management’s judgment about fac- processes, and conducted a business continuity exercise for one tors such as its assessment of the financial capacity of borrowers, critical Treasury process. geographical concentration, industry, regional and macroeconomic »»Continued to implement the information technology disaster conditions, and historical trends. Due to the inherent limitation of recovery testing strategy established in FY12 by performing any particular estimation technique, management utilizes a capital component and integration tests for most applications supporting pricing and risk framework to estimate the probable losses on loans critical business processes. inherent in the portfolio but not specifically identifiable. This Board »»Began planning for a comprehensive update to IFC’s Business of Directors-­approved framework uses actual loan loss history and Impact Analysis in FY14. aligns the loan loss provisioning framework with IFC’s capital ade- quacy framework. The reserve against losses on loans is separately reported in VI. CRITICAL ACCOUNTING POLICIES the consolidated balance sheet as a reduction of IFC’s total loans. Increases or decreases in the reserve level are reported in the Note A to IFC’s FY13 Consolidated Financial Statements contain a income statement as provision for losses or release of provision for summary of IFC’s significant accounting policies, including a dis- losses on loans, and guarantees. The reserve against losses on loans cussion of recently adopted accounting standards and accounting relates only to the Investment services segment of IFC (see Note T and financial reporting developments. Certain of these policies are to the FY13 Consolidated Financial Statements for further discus- considered to be “critical” to the portrayal of IFC’s financial con- sion of IFC’s business segments). dition and results of operations, since they require management to make difficult, complex or subjective judgments, some of which may OTHER-­THAN-TEMPORARY IMPAIRMENTS ON EQUITY relate to matters that are inherently uncertain. INVESTMENTS AND DEBT SECURITIES These policies include: IFC assesses all equity investments accounted for at fair value »»Determining the level of reserves against losses in the loan through OCI and all equity investments accounted for at cost less portfolio; impairment for impairment each quarter. When impairment is »»Determining the level and nature of impairment for equity invest- identified and is deemed to be other-­ t han-temporary, the equity ments and debt securities carried at fair value with changes in investment is written down to its impaired value, which becomes fair value being reported in other comprehensive income (OCI) the new cost basis in the equity investment. IFC generally presumes and for equity investments accounted for at cost less impairment that all equity impairments are deemed to be other-­than-temporary. (where impairment is determined with reference to fair value); Impairment losses on equity investments accounted for at cost less »»Determining the fair value of certain equity investments, debt impairment are not reversed for subsequent recoveries in value of securities, loans, liquid assets, borrowings and derivatives, the equity investment until it is sold. Recoveries in value on equity which have no quoted market prices and are accounted for at fair investments accounted for at fair value through OCI that have been value; and the subject of an other-­ than-temporary impairments are reported »»Determining the future pension and postretirement benefit costs in OCI until sold. and obligations using actuarial assumptions based on financial IFC assesses all debt security investments accounted for at fair market interest rates, past experience, and management’s best value through OCI for impairment each quarter. When impairment estimate of future benefit cost changes and economic conditions. is identified, the entire impairment is recognized in net income if Many of IFC’s financial instruments are classified in accordance certain conditions are met (as detailed in Note A to IFC’s FY13 with the fair value hierarchy established by accounting stan- Consolidated Financial Statements). However, if IFC does not dards for fair value measurements and disclosures where the fair intend to sell the debt security and it is not more likely than not that value and/or impairment is estimated based on internally devel- IFC will be required to sell the security, but the security has suf- oped models or methodologies utilizing significant inputs that are related impairment loss is recognized fered a credit loss, the credit-­ non-­observable. in net income and the non-­ credit related loss is recognized in OCI. RESERVE AGAINST LOSSES ON LOANS VALUATION OF FINANCIAL INSTRUMENTS WITH NO QUOTED MARKET PRICES IFC considers a loan as impaired when, based on current informa- tion and events, it is probable that IFC will be unable to collect all IFC reports at fair value all of its derivative instruments, all of its amounts due according to the loan’s contractual terms. The reserve liquid asset trading securities and certain borrowings, loans, equity against losses for impaired loans reflects management’s judgment investments and debt securities. In addition, various investment of the present value of expected future cash flows discounted at the agreements contain embedded or stand-­ alone derivatives that, for loan’s effective interest rate. The reserve against losses for loans accounting purposes, are separately accounted as either derivative also includes an estimate of probable losses on loans inherent in the assets or liabilities, including puts, caps, floors, and forwards. IFC portfolio but not specifically identifiable. The reserve is established classifies all financial instruments accounted for at fair value based through periodic charges to income in the form of a provision for on the fair value hierarchy established by accounting standards for losses on loans. Loans written off, as well as any subsequent recov- fair value measurements and disclosures as described in more detail eries, are recorded through the reserve. in Notes A and R to IFC’s FY13 Consolidated Financial Statements. 22 _ IFC Financials and Projects 2013 Many of IFC’s financial instruments accounted for at fair value Note T to the FY13 Consolidated Financial Statements for further are valued based on unadjusted quoted market prices or using discussion of IFC’s business segments). models where the significant assumptions and inputs are market-­ observable. The fair values of financial instruments valued using PENSION AND OTHER POSTRETIREMENT BENEFITS models where the significant assumptions and inputs are not market-­ observable are generally estimated using complex pricing IFC participates, along with IBRD and MIGA, in pension and post- models of the net present value of estimated future cash flows. retirement benefit plans that cover substantially all of their staff Management makes numerous assumptions in developing pricing members. All costs, assets and liabilities associated with the plans models, including an assessment about the counterparty’s finan- are allocated between IBRD, IFC and MIGA based upon their cial position and prospects, the appropriate discount rates, interest employees’ respective participation in the plans. The underlying rates, and related volatility and expected movement in foreign actuarial assumptions used to determine the projected benefit currency exchange rates. Changes in assumptions could have a sig- obligations, the fair value of plan assets and the funded status asso- nificant impact on the amounts reported as assets and liabilities ciated with these plans are based on financial market interest rates, and the related unrealized gains and losses reported in the income past experience, and management’s best estimate of future benefit statement and statement of OCI. The fair value computations affect cost changes and economic conditions. For further details, please both the Investment services and Treasury segments of IFC (see refer to Note W to the FY13 Consolidated Financial Statements. VII. RESULTS OF OPERATIONS OVERVIEW The overall market environment has a significant influence on IFC’s financial performance. The main elements of IFC’s net income and comprehensive income and influences on the level and variability of net income and com- prehensive income from year to year are: Elements Significant Influences Net income: Yield on interest earning assets Market conditions including spread levels and degree of competition. Nonaccruals and recoveries of interest on loans formerly in nonaccrual status and income from participation notes on individual loans are also included in income from loans. Liquid asset income Realized and unrealized gains and losses on the liquid asset portfolios, which are driven by external factors such as: the interest rate environment; and liquidity of certain asset classes within the liquid asset portfolio. Income from the equity investment portfolio Global climate for emerging markets equities, fluctuations in currency and commodity markets and company-­ specific performance for equity investments. Performance of the equity portfolio (principally monetary exchanges and unrealized realized capital gains, dividends, equity impairments, gains on non-­ gains and losses on equity investments). Provisions for losses on loans and guarantees Risk assessment of borrowers and probability of default and loss given default. Other income and expenses Level of advisory services provided by IFC to its clients, the level of expense from the staff retirement and other benefits plans, and the approved administrative and other budgets. trading financial Gains and losses on other non-­ Principally, differences between changes in fair values of borrowings, including IFC’s credit spread, and instruments accounted for at fair value associated derivative instruments and unrealized gains associated with the investment portfolio including puts, warrants and stock options which in part are dependent on the global climate for emerging markets. These securities are valued using internally developed models or methodologies utilizing inputs that may be observable or non-­ observable. Grants to IDA approved grants to IDA. Level of the Board of Governors-­ Other comprehensive income: Unrealized gains and losses on listed equity Global climate for emerging markets equities, fluctuations in currency and commodity markets and investments and debt securities accounted for company-­ specific performance. Such equity investments are valued using unadjusted quoted market for-sale as available-­ prices and debt securities are valued using internally developed models or methodologies utilizing inputs that may be observable or non-­ observable. Unrecognized net actuarial gains and losses Returns on pension plan assets and the key assumptions that underlay projected benefit obligations, and unrecognized prior service costs on including financial market interest rates, staff expenses, past experience, and management’s best estimate benefit plans of future benefit cost changes and economic conditions. Management’s Discussion and Analysis _ 23 IFC’s net income (loss) for each of the past five fiscal years ended Income From Loans and Guarantees June 30, 2013 is presented below (US$ millions): IFC’s primary interest earning asset is its loan portfolio. Income from loans and guarantees for FY13 totaled $1,059  million, com- Net Income (loss) pared with $938 million in FY12, an increase of $121 million. US$ millions The disbursed loan portfolio grew by $1,563  million, from 2009 $21,043 million at June 30, 2012 to $22,606 million at June 30, 2013. 2010 The weighted average contractual interest rate on loans at June 30, 2011 2013 was 4.5%, versus 4.7% at June 30, 2012. These factors com- 2012 bined resulted in $90 million higher interest income than in FY12. 2013 -250 0 250 500 750 1,000 1,250 1,500 17,50 Commitment and financial fees were $28  million higher than in FY12. Recoveries of interest on loans removed from non-­ accrual The following paragraphs detail significant variances between status, net of reversals of income on loans placed in nonaccrual sta- FY13 and FY12, and FY12 and FY11, covering the periods included tus were $26 million lower than in FY12. There were no gains on in IFC’s FY13 Consolidated Financial Statements. Certain amounts sale of loans in FY13 as compared to $2 million in FY12. Income in FY12 and FY11 have been reclassified to conform to the current from IFC’s participation notes over and above minimum contrac- year’s presentation. Where applicable, the following paragraphs tual interest and other income were $3 million lower than in FY12. reflect reclassified prior year comparative information. Such reclas- Unrealized gains on loans accounted for at fair value and gains on sifications had no effect on net income or total assets. non-­monetary exchanges were $34 million higher than in FY12. FY13 VERSUS FY12 INCOME FROM EQUITY INVESTMENTS Income from the equity investment portfolio decreased by $705 mil- Net Income lion from $1,457 million in FY12 to $752 million in FY13. IFC reported income before net gains and losses on other non-­ IFC generated realized gains on sales of equity investments for trading financial instruments accounted for at fair value and FY13 of $921 million, as compared with $2,000 million for FY12, grants to IDA of $928 million in FY13, as compared to $1,877 mil- a decrease of $1,079  million. IFC sells equity investments where lion in FY12. IFC’s developmental role was complete, and where pre-­determined The decrease in income before net gains and losses on other non-­ sales trigger levels had been met and, where applicable, lock ups trading financial instruments accounted for at fair value and grants have expired. to IDA in FY13 when compared to FY12 was principally as a result Total realized gains on equity investments are concentrated — ​in of the following (US$ millions): FY13, 10 investments generated individual capital gains in excess of $20 million for a total of $562 million, or 61%, of the FY13 realized Increase (decrease) gains, compared to 11 investments generating individual capital FY13 vs FY12 gains in excess of $20 million for a total of $1,821 million, or 91%, of Realized capital gains on equity investments $ ( 1,079) the FY12 realized gains. Provisions for losses on loans, guarantees and other receivables (126) Gains on non-­monetary exchanges in FY13 totaled $6 million, as Foreign currency transaction gains and losses on non-­ trading compared with $3 million in FY12. activities (110) Dividend income totaled $248  million, as compared with Advisory services expenses, net (91) $274 million in FY12, a decrease of $26 million. The decrease was Expenses from pension and other postretirement benefit plans (77) largely due to a one time dividend from one investment in FY12 Unrealized gains on equity investments 154 in the amount of $41 million that did not recur in FY13. Dividend Income from liquid asset trading activities 187 income in FY13 included returns from four unincorporated joint Other-­ than-temporary impairments on equity investments 251 ventures (UJVs) in the oil, gas and mining sectors accounted for Other, net (58) under the cost recovery method, which totaled $36 million, as com- Overall change $ (949) pared with $43 million from three such UJVs in FY12. Other-­ t han-temporary impairments on equity investments Net gains on other non-­ trading financial instruments accounted totaled $441 million in FY13 ($289 million on equity investments for at fair value totaled $422 million in FY13, $641 million higher accounted for as available-­ for-sale; and $152  million on equity than net losses of $219  million in FY12. Accordingly, IFC has investments accounted for at cost less impairment), as compared reported income before grants to IDA of $1,350 million, $308 mil- with $692  million in FY12 ($420  million on equity investments lion lower than income before grants to IDA of $1,658  million accounted for as available-­ for-sale; and $272  million on equity in FY12. investments accounted for at cost less impairment). In FY13, three Grants to IDA totaled $340  million in FY13, as compared to investments generated individual other-­ t han-temporary impair- $330 million in FY12. Net loss attributable to noncontrolling interest ments in excess of $20 million for a total of $90 million. In FY12, totaled $8 million in FY13 as compared to $0 in FY12. Accordingly, eight investments generated individual other-­ t han-temporary net income attributable to IFC totaled $1,018  million in FY13, as impairments in excess of $20  million for a total of $298  million. compared with a net income of $1,328 million in FY12. Other-­ than temporary impairments on equity investments in FY13 A more detailed analysis of the components of IFC’s net were concentrated in the last three months of FY13, reflecting the income follows. weaker performance of emerging markets equities in general. Such 24 _ IFC Financials and Projects 2013 impairments totaled $201 million in the last three months of FY13, same variable rate benchmark as the P1 portfolio, returned $17 mil- as compared to $240 million in the first nine months of FY13. lion in FY13, or 1.9%, $3 million higher than the $14 million, or 1.6%, Unrealized gains on equity investments in FY13 totaled $26 mil- return in FY12. lion, as compared with unrealized losses of $128 million in FY12. The P2 and externally-­managed P4 portfolios returned $147 mil- One investment accounted for $217 million of unrealized gains in lion (3.1%) and $2 million (0.3%) in FY13, respectively, as compared FY13. Seven investments in equity funds accounted for $162 mil- to $62 million (1.2%) and $14 million (2.0%) in FY12, respectively. lion of the unrealized losses in FY13. Seven investments in equity IFC’s P0 portfolio earned $2 million in FY13, a return of 0.1%, funds accounted for $146 million of the unrealized losses in FY12. as compared to $7 million (0.5%) in FY12. The P6 local currency Individual investments in such Funds provided a significant com- liquidity portfolio generated income of $42 million (4.5%) in FY13, ponent of such unrealized gains and losses. $1 million less than the $43 million (5.7%) in FY12. At June 30, 2013, trading securities with a fair value of $85 million INCOME FROM DEBT SECURITIES are classified as Level 3 securities ($150 million on June 30, 2012). Income from debt securities decreased to $5  million in FY13 from $81  million in FY12, a decrease of $76  million. The largest CHARGES ON BORROWINGS components of the decrease were higher other-­ t han-temporary IFC’s charges on borrowings increased by $39  million, from impairments ($19 million) and unrealized losses on debt securities $181  million in FY12 to $220  million in FY13, largely reflecting accounted for at fair value ($60 million) in FY13 when compared the increased level of borrowings partly set off by lower US dol- with FY12. Realized gains on debt securities were $2 million lower lar interest rate environment, when comparing FY13 and FY12. in FY13 as compared to FY12. During FY13, IFC bought back $0.4 billion of its market borrow- ings ($0.6 billion in FY12). Charges on borrowings of $220 million PROVISION FOR LOSSES ON LOANS AND GUARANTEES AND OTHER RECEIVABLES in FY13 ($181 million in FY12) are reported net of gains on buybacks The quality of IFC’s loan portfolio, as measured by average coun- of $11 million ($19 million in FY12). try risk ratings and average credit risk ratings was substantially The weighted average rate of IFC’s borrowings outstanding from unchanged during FY13. By another measure, non-­ performing market sources, after the effects of borrowing-­ related derivatives, loans increased from $859  million (4.1%) of the disbursed loan and excluding short-­ term borrowings issued under the Discount portfolio at June 30, 2012 to $1,272 million (5.6%) at June 30, 2013. Note Program, declined during the year from 0.7% at June  30, IFC recorded provision for losses on loans, guarantees and other 2012 to 0.4% at June  30, 2013. The size of the borrowings port- receivables of $243 million in FY13 ($298 million of specific provi- folio (excluding the short-­ term Discount Note Program), net of sions for losses on loans, $49 million release of portfolio provisions borrowing-­ related derivatives and before fair value adjustments, for losses on loans, and $6 million release of provision for losses on increased by $3.2 billion during FY13 from $40.7 billion at June 30, guarantees and other receivables) as compared to provisions for 2012, to $43.9 billion at June 30, 2013. losses of $117  million in FY12 ($76  million of specific provisions OTHER INCOME for losses on loans, $39  million of portfolio provisions for losses Other income of $441 million for FY13 was $7 million lower than on loans and $2 million of provision for losses on guarantees and in FY12 ($448  million). Other income in FY13 includes manage- other receivables). ment fees and service fee reimbursements from AMC of $40 million On June  30, 2013, IFC’s total reserves against losses on loans ($28 million in FY12) and income from advisory services of $239 mil- were 7.2% of the disbursed loan portfolio (6.6% at June 30, 2012). lion ($269 million in FY12). In FY13, income from advisory services Specific reserves against losses at June 30, 2013 of $741 million included $210 million contributed by donors ($189 million — ​ F Y12) ($447 million at June 30, 2012) are held against impaired loans of and $29 million of fees from clients and administrative fees from $1,403 million ($923 million at June 30, 2012), a coverage ratio of donors ($25 million — ​F Y12). 53% (48%). OTHER EXPENSES INCOME FROM LIQUID ASSET TRADING ACTIVITIES Administrative expenses (the principal component of other The liquid assets portfolio, net of derivatives and securities lending expenses) increased by $47 million from $798 million in FY12 to activities, increased from $30.4 billion at June 30, 2012, to $31.2 bil- $845 million in FY13, driven largely by a 6.7% increase in staffing lion at June  30, 2013. Income from liquid asset trading activities and, to a lesser extent, salary increases to existing staff. Administra- totaled $500 million in FY13 ($313 million in FY12). In FY13 and tive expenses include the grossing-­up effect of certain revenues and FY12, all liquid asset portfolios outperformed their respective expenses attributable to IFC’s reimbursable program and expenses benchmarks, except for the P4 portfolio (which has a Net Asset incurred in relation to workout situations (Jeopardy Projects) Value (NAV) of $769 million and marginally underperformed). ($26 million in FY13, as compared with $22 million in FY12). Interest income in FY13 totaled $430  million. In addition, the IFC recorded expenses from pension and other postretirement portfolio of ABS and MBS experienced fair value gains totaling benefit plans in FY13 of $173 million, as compared with $96 million $161  million in FY13. Holdings in other products, including US in FY12, an increase driven by actuarial assumptions related to the Treasuries, global government bonds, high quality corporate bonds funding status of the various benefit plans at June 30, 2012. and derivatives generated $91 million of losses in FY13, a net gain Advisory services expenses totaled $351  million in FY13 of $70 million. ($290  million in FY12). Advisory services expenses included The P1 portfolio generated a return of $292 million in FY13, or $210 million of funds contributed by donors that were utilized in 1.4%. In FY12, the P1 portfolio generated a return of $217 million, the provision of advisory services in FY13 ($189 million — F ​ Y12). or 0.9%. The externally managed P3 portfolio, managed against the Management’s Discussion and Analysis _ 25 NET GAINS AND LOSSES ON OTHER NON-­ TRADING issuance deteriorated by around 10 basis points in FY13 contributing FINANCIAL INSTRUMENTS to overall unrealized gains on market borrowings and associated As discussed in more detail in Note A to IFC’s FY13 Consolidated derivatives of $32 million. Financial Statements, IFC accounts for certain financial instru- IFC reported net gains on derivatives associated with invest- ments at fair value with unrealized gains and losses on such financial ments (principally put options, stock options, conversion features, instruments being reported in net income, namely: (i) all swapped warrants and interest rate and currency swaps economically hedg- market borrowings; and (ii) all equity investments in which IFC ing the fixed rate and/or non-­US$ loan portfolio) of $390 million in has greater than 20% holdings and/or equity and fund investments FY13 (net losses of $13 million in FY12). Gains and losses are highly which, in the absence of the Fair Value Option, would be required concentrated, with five derivatives accounting for $153 million of to be accounted for under the equity method, and (iii) substantially gains and five derivatives accounting for $73  million of losses in all market borrowings. All other non-­trading derivatives, including FY13 (five derivatives accounting for $113 million of gains and five stand-­alone and embedded derivatives in the loan, equity and debt derivatives accounting for $73 million of losses in FY12). security portfolios continue to be accounted for at fair value. The resulting effects of fair value accounting for these non-­ Grants to IDA trading financial instruments on net income in FY13 and FY12 are During FY13, IFC recorded a grant to IDA of $340 million, as com- summarized as follows (US$ millions): pared with $330 million in FY12. Other Comprehensive Income FY13 FY12 Realized gains and losses on derivatives associated Unrealized gains and losses on equity investmenTS with investments $ 35 $ 11 and debt securities Non-­ monetary gains on derivatives associated with IFC’s investments in debt securities and equity investments that investments 2 10 are listed in markets that provide readily determinable fair values Unrealized gains and losses on derivatives are classified as available-­for-sale, with unrealized gains and losses associated with investments 353 (34) on such investments being reported in OCI until realized. When Unrealized gains and losses on market borrowings and associated derivatives, net 32 (206) realized, the gain or loss is transferred to net income. Changes in Net gains and losses on other non-­ t rading unrealized gains and losses on equity investments and debt secu- financial instruments accounted for at fair value $ 422 $ (219) rities reported in OCI are significantly impacted by (i) the global environment for emerging markets; and (ii) the realization of gains Changes in the fair value of IFC’s market borrowings and asso- on sales of such equity investments and debt securities. ciated derivatives, net, includes the impact of changes in IFC’s own The net change in unrealized gains and losses on equity invest- credit spread when measured against US$ LIBOR. As credit spreads ments and debt securities in OCI can be summarized as follows: widen, unrealized gains are recorded and when credit spreads nar- row, unrealized losses are recorded (notwithstanding the impact FY13 FY12 of other factors, such as changes in risk-­ free interest and foreign Net unrealized gains and losses on equity currency exchange rates). The magnitude and direction (gain or investments arising during the year: loss) can be volatile from period to period but do not alter cash flow. Unrealized gains $ 757 $ 290 IFC’s policy is to generally match currency, amount and timing of Unrealized losses (396) (813) cash flows on market borrowings with cash flows on associated Reclassification adjustment for realized gains derivatives entered into contemporaneously. and other-­ than-temporary impairments included in net income 24 277 In FY12, unsettled conditions in European sovereign debt Net unrealized gains and losses on equity markets and renewed signs of flagging economic activity were investments $ 385 (246) $ accompanied by further interest rate declines from already low lev- Net unrealized gains and losses on debt securities arising during the year els. Risk appetites in the capital markets receded, as evidenced by some flight to quality along the credit spectrum. This led to better Unrealized gains $ 194 $ 85 A IFC issues which in FY11 sat at around LIBOR pricing for triple-­ Unrealized losses (201) (358) flat, but moved back to 5 to 10 basis points below LIBOR by the end Reclassification adjustment for realized gains, non-­credit related portion of impairments which of FY12 for US$ issuances at 5 year tenor. This development, along were recognized in net income and other-­ than- temporary included in net income 29 14 with movements in foreign exchange basis swap rates, resulted in Net unrealized gains and losses on debt securities $ 22 $ (259) adverse after swap revaluations on market borrowings, net of asso- ciated derivatives and accordingly, IFC reported unrealized losses Total unrealized gains and losses on equity investments and debt securities $ 407 (505) $ in FY12 of $206 million. In FY13, interest rate levels remained stable through the first Unrecognized net actuarial gains and losses and nine months of the year, then, in the last three months of FY13, unrecognized prior service costs on benefit plans bond markets weakened on the prospect of tighter liquidity condi- Changes in the funded status of pension and other postretirement tions amid signs of accelerating US economic activity. Benchmark benefit plans are recognized in OCI, to the extent they are not rec- 5 year US$ interest rates jumped around 50 basis points during ognized in net income under periodic benefit cost for the year. the last three months of FY13 causing large revaluation gains on During FY13, IFC experienced a gain of $201 million primarily IFC’s portfolio of medium to long term borrowings, offset by losses due to $200  million of unrecognized net actuarial gains, result- on associated derivatives. Credit spreads for benchmark IFC USD ing from the increase in the discount rates used to determine the 26 _ IFC Financials and Projects 2013 projected benefit obligations and higher return on pension assets. monetary on loans accounted for at fair value and gains on non-­ The discount rate assumption used to determine the projected ben- exchanges were $67 million lower than in FY11. efit obligation for the largest benefit plan, the Staff Retirement Plan, Income from equity investments increased from 3.9% at June 30, 2012 to 4.6% at June 30, 2013. Income from the equity investment portfolio decreased by $7 mil- lion from an income of $1,464  million in FY11 to $1,457  million FY12 Versus FY11 in FY12. Net Income IFC generated record realized gains on sales of equity invest- IFC reported income before net gains and losses on other non-­ ments for FY12 of $2,000 million, as compared with $737 million trading financial instruments accounted for at fair value and grants for FY11, an increase of $1,263 million. IFC sells equity investments to IDA of $1,877  million in FY12, as compared to $2,024  million where IFC’s developmental role was complete, and where pre-­ in FY11. determined sales trigger levels had been met and, where applicable, The decrease in income before net gains and losses on other non-­ lock ups have expired. trading financial instruments accounted for at fair value and grants Total realized gains on equity investments are concentrated — ​in to IDA in FY12 when compared to FY11 was principally as a result FY12, 11 investments generated individual capital gains in excess of of (US$ millions): $20 million for a total of $1,821 million, or 91%, of the FY12 gains, compared to 10 investments generating individual capital gains Increase in excess of $20 million for a total of $416 million, or 56%, of the (decrease) FY11 gains. FY12 vs FY11 Gains on non-­monetary exchanges in FY12 totaled $3 million, as Unrealized losses on equity investments accounted for at fair value $ (582) compared with $217 million in FY11. There were two large trans- Other-­ than-temporary impairments on equity investments (474) actions that resulted in the recording of gains on non-­ monetary Income from liquid asset trading activities (216) exchanges in FY11 that did not recur in FY12. Gains on non-­ monetary exchanges (214) Dividend income totaled $274  million, as compared with Provisions for losses on loans, guarantees and other receivables (157) $280 million in FY11. Consistent with FY11, a significant amount Advisory services expenses, net 132 of IFC’s dividend income in FY12 was due to returns on IFC’s joint ventures in the oil, gas and mining sectors accounted for under the trading Foreign currency transaction gains and losses on non-­ activities 178 cost recovery method, which totaled $43 million in FY12, as com- Realized capital gains on equity investments 1,263 pared with $57 million in FY11. Other, net (77) Other-­ t han-temporary impairments on equity investments Overall change $ (147) totaled $692 million in FY12 ($420 million on equity investments accounted for as available-­ for-sale; and $272  million on equity Net losses on other non-­trading financial instruments accounted investments accounted for at cost less impairment), as compared for at fair value totaled $219 million in FY12 (net gains of $155 million with $218  million in FY11 ($131  million on equity investments in FY11), resulting in income before grants to IDA of $1,658  mil- accounted for as available-­ for-sale; and $87  million on equity lion in FY12, as compared to $2,179 million in FY11. Grants to IDA investments accounted for at cost less impairment). In FY12, eight totaled $330 million in FY12, as compared to $600 million in FY11. investments generated individual other-­ t han-temporary impair- Accordingly, net income totaled $1,328  million in FY12, as com- ments in excess of $20 million for a total of $298 million. In FY11, pared with $1,579 million in FY11. one investment generated an other-­ t han-temporary impairment A more detailed analysis of the components of IFC’s net income loss of $40 million. There were no other investments that generated follows. an other-­than-temporary impairment loss in excess of $20 million. Income from loans and guarantees Unrealized losses on equity investments that are accounted for IFC’s primary interest earning asset is its loan portfolio. Income at fair value through net income in FY12 totaled $128 million, as from loans and guarantees for FY12 totaled $938 million, compared compared with gains of $454 million in FY11. Seven investments in with $877 million in FY11, an increase of $61 million. equity funds accounted for $146  million of the unrealized losses The disbursed loan portfolio grew by $1,159  million, from in FY12. Six investments in equity funds accounted for $199 mil- $19,884 million at June 30, 2011 to $21,043 million at June 30, 2012. lion of the unrealized gains in FY11. Individual investments in such The weighted average contractual interest rate on loans at June 30, Funds provided a significant component of the unrealized gains 2012 was 4.7%, versus 4.6% at June 30, 2011. These factors resulted and losses. in $90 million higher interest income than in FY11. Commitment Income from debt securities and financial fees were $12 million higher than in FY11. Recoveries Income from debt securities increased to $81 million in FY12 from of interest on loans removed from non-­ accrual status, net of rever- $46 million in FY11, an increase of $35 million. The largest compo­ sals of income on loans placed in nonaccrual status were $14 million nents of the increase were higher interest income ($21 million) and higher than in FY11. Gain on sales of loan was $2 million as com- higher unrealized gains on debt securities accounted for at fair pared to no such gains in FY11. Income from IFC’s participation value ($23  million) in FY12 when compared with FY11. Realized notes over and above minimum contractual interest and other gains on debt securities were $14 million higher in FY12 as com- income were $10  million higher than in FY11. Unrealized gains pared to FY11. Management’s Discussion and Analysis _ 27 Provision for losses on loans and guarantees bought back $0.6 billion of its market borrowings ($0.3 billion in The quality of IFC’s loan portfolio, as measured by average coun- FY11). Charges on borrowings of $181  million in FY12 ($140  mil- try risk ratings and average credit risk ratings was substantially lion in FY11) are reported net of gains on buybacks of $19 million unchanged during FY12. By another measure, non-­ performing ($10 million in FY11). loans decreased from $943  million (4.7%) of the disbursed loan The weighted average rate of IFC’s borrowings outstanding portfolio at June 30, 2011 to $859 million (4.1%) at June 30, 2012. IFC from market sources, after the effects of borrowing-­ related deriv- recorded provision for losses on loans and guarantees of $112 mil- atives, and excluding short-­ term borrowings issued under the lion in FY12 ($76 million specific provisions on loans, $39 million Discount Note Program, rose during the year from 0.3% at June 30, portfolio provisions on loans, and $3  million release of provision 2011 to 0.7% at June  30, 2012. The size of the borrowings port- for losses on guarantees) as compared to release of provision of folio (excluding the short-­ term Discount Note Program), net of $40 million in FY11 ($16 million release in specific provisions, and borrowing-­ related derivatives and before fair value adjustments, $24 million release in portfolio provisions). increased by $6.8 billion during FY12 from $33.9 billion at June 30, On June  30, 2012, IFC’s total reserves against losses on loans 2011, to $40.7 billion at June 30, 2012. were 6.6% of the disbursed loan portfolio (6.6% at June 30, 2011). Other income Specific reserves against losses at June 30, 2012 of $447 million Other income of $448  million for FY12 was $226  million higher ($382  million at June  30, 2011) are held against impaired loans than in FY11 ($222  million). Other income in FY12 includes of $923 million ($918 million at June 30, 2011), a coverage ratio of income from the P6 local currency liquidity portfolio of $43 mil- 48% (42%). lion (reported in income from liquid asset trading in FY13 and Income from liquid asset trading activities amounting to $44 ­million in FY11), management fees and service fee Income from liquid asset trading activities comprises interest reimbursements from AMC of $28 million ($28 million in FY11) and from time deposits and securities, net gains and losses on trading income from advisory services of $269 million ($0 in FY11). In FY12, activities, and a small currency effect. The liquid assets portfolio, income from advisory services included $189 million contributed net of derivatives and securities lending activities, increased from by donors and $25 million of fees from clients and administrative $24.5 billion at June 30, 2011, to $29.7 billion at June 30, 2012. fees from donors. Income from liquid asset trading activities totaled $313 million Other expenses in FY12 ($529 million in FY11). In FY12 and FY11, all liquid asset Administrative expenses (the principal component of other portfolios, except for the P7 portfolio (which has an NAV less than expenses) increased by $98  million from $700  million in FY11 to $10 million), outperformed their respective benchmarks. $798 million in FY12, driven largely by a 9% increase in staffing and, In addition to interest income and foreign currency transaction to a lesser extent, salary increases to existing staff. Administrative gains of $648 million, the portfolio of ABS and MBS experienced expenses include the grossing-­ up effect of certain revenues and fair value losses totaling $8  million in FY12. Holdings in other expenses attributable to IFC’s reimbursable program and Jeopardy products, including US Treasuries, global government bonds, high Projects ($22  million in FY12, as compared with $24  million in quality corporate bonds and derivatives generated $327 million of FY11). IFC recorded an expense from pension and other postre- losses in FY12. tirement benefit plans in FY12 of $96  million, as compared with At June 30, 2012, trading securities with a fair value of $150 mil- $109 million in FY11, a decrease driven by actuarial assumptions. lion are classified as Level 3 securities ($210 million on June 30, 2011). Advisory services expenses totaled $290  million in FY12 The P1 portfolio generated a return of $218 million in FY12, or ($153  million in FY11). Advisory services expenses included 0.95%. In FY11, the P1 portfolio generated a return of $330 million, $189 million of funds contributed by donors that were utilized in or 2.29%. The externally managed P3 portfolio, managed against the provision of advisory services. the same variable rate benchmark as the P1 portfolio, returned $13 million in FY12, or 1.64%, $7 million higher than the $6 million, Net gains and losses on other non-­trading financial instruments or 0.97% return in FY11. As discussed in more detail in Note A to IFC’s FY12 Consolidated The P2 and externally-­ managed P4 portfolios returned Financial Statements, IFC accounts for certain financial instru- $60 million (1.15%) and $13 million (2.00%) in FY12, respectively, ments at fair value with unrealized gains and losses on such financial as compared to $179  million (3.33%) and $9  million (1.87%) in instruments being reported in net income, namely: (i) all swapped FY11, respectively. market borrowings; and (ii) all equity investments in which IFC IFC’s P0 portfolio earned $9 million in FY12, a total return of has greater than 20% holdings and/or equity and fund investments 0.47%, as compared to $4 million (0.44%) in FY11. The P7 portfolio which, in the absence of the Fair Value Option, would be required earned less than $0.5 million (1.15%) in FY12 as compared to earn- to be accounted for under the equity method, and (iii) substantially ing $1 million (1.32%) in FY11. all market borrowings. All other non-­trading derivatives, including Charges on borrowings stand-­alone and embedded derivatives in the loan, equity and debt IFC’s charges on borrowings increased by $41  million, from security portfolios continue to be accounted for at fair value. $140 million in FY11 to $181 million in FY12, largely reflecting the higher US dollar interest rate environment and increased level of borrowings, when comparing FY12 and FY11. During FY12, IFC 28 _ IFC Financials and Projects 2013 The resulting effects of fair value accounting for these non-­ Other comprehensive income trading financial instruments on net income in FY12 and FY11 are Unrealized gains and losses on equity investmenTS summarized as follows (US$ millions): and debt securities IFC’s investments in debt securities and equity investments that are FY12 FY11 listed in markets that provide readily determinable fair values at Realized gains and losses on derivatives associated for-sale, with unrealized gains fair value are classified as available-­ with investments $ 11 $ 63 and losses on such investments being reported in OCI until real- monetary gains on derivatives associated with Non-­ investments 10 22 ized. When realized, the gain or loss is transferred to net income. Unrealized gains and losses on derivatives Changes in unrealized gains and losses on equity investments and associated with investments (34) (23) debt securities reported in OCI are significantly impacted by (i) the Unrealized gains and losses on market borrowings global environment for emerging markets; and (ii) the realization of and associated derivatives, net (206) 93 gains on sales of such equity investments and debt securities. t rading Net gains and losses on other non-­ financial instruments accounted for at fair value $ (219) $ 155 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 own FY12 FY11 credit spread when measured against US$ LIBOR. As credit spreads Net unrealized gains and losses on equity investments arising during the year: widen, unrealized gains are recorded and when credit spreads nar- $ 290 row, unrealized losses are recorded (notwithstanding the impact Unrealized gains $ 697 of other factors, such as changes in risk-­ free interest and foreign Unrealized losses (813) (309) currency exchange rates). The magnitude and direction (gain or Reclassification adjustment for realized gains and impairments included in net income 277 (274) loss) can be volatile from period to period but do not alter cash flow. Net unrealized gains and losses on equity IFC’s policy is to generally match currency, amount and timing of investments $ (246) $ 114 cash flows on market borrowings with cash flows on associated Net unrealized gains and losses on debt securities derivatives entered into contemporaneously. arising during the year In FY11, the trend decline in global interest rate paused tempo- Unrealized gains $ 85 $ 234 rarily in the second quarter of the year and interest rates remained Unrealized losses (358) (97) stable at low levels subsequently. Credit spreads were little changed Reclassification adjustment for realized gains, non credit-­ related portion of impairments which throughout FY11 and resulting pricing was at around LIBOR flat for were recognized in net income and impairments IFC’s benchmark US$ global bond offerings. In FY10, credit spreads included in net income 14 4 remained elevated relative to the levels that prevailed before FY09. Net unrealized gains and losses on debt securities $ (259) $ 141 As a result, IFC reported unrealized gains for FY11 of $93 million, Total unrealized gains and losses on equity investments and debt securities $ (505) $ 255 as compared to unrealized losses of $226 million in FY10. In FY12, unsettled conditions in European sovereign debt markets Unrecognized net actuarial gains and and renewed signs of flagging economic activity were accompanied losses and unrecognized prior service costs by further interest rate declines from already low levels. Risk appe- on benefit plans tites in the capital markets receded, as evidenced by some flight to Changes in the funded status of pension and other postretirement quality along the credit spectrum. This led to better pricing for AAA benefit plans are recognized in OCI, to the extent they are not rec- IFC issues which in FY11 sat at around LIBOR flat, but moved back ognized in net income under periodic benefit cost for the year. to 5 to 10 basis points below LIBOR by the end of FY12. This develop- During FY12, IFC experienced a loss of $525 million primarily ment, along with movements in foreign exchange basis swap rates, due to the following factors: resulted in adverse after swap revaluations on IFC’s financial state- Unrecognized net actuarial losses on benefits plans: $501 million ments and IFC reported unrealized losses for FY12 of $206 million, of unrecognized net actuarial losses, primarily due to the decrease as compared to unrealized gains of $93 million in FY11. in the discount rates used to determine the projected benefit obli- IFC reported net losses on derivatives associated with invest- gations and lower return on pension assets. The discount rate ments (principally put options, stock options, conversion features, assumption used to determine the projected benefit obligation for warrants and swaps associated with loans) of $13 million in FY12 the largest benefit plan, the Staff Retirement Plan, decreased from (net gains of $62 million in FY11). Gains and losses are highly con- 5.3% at June 30, 2011 to 3.9% at June 30, 2012. centrated, with five derivatives accounting for $113 million of gains Unrecognized net prior service cost on benefit plans: $24 million and five derivatives accounting for $73 million of losses in FY12 (five of unrecognized prior service cost, primarily due to an amendment derivatives accounting for $140 million of gains and five derivatives made to the pension plan. See notes to FY12 Consolidated Financial accounting for $58 million of losses in FY11). Statements — ​Note W — ​Pension and Other Postretirement Benefits for further details. Grants to IDA During FY12, IFC recorded a grant to IDA of $330 million, as com- pared with $600 million in FY11. Management’s Discussion and Analysis _ 29 VIII. GOVERNANCE AND CONTROL BOARD MEMBERSHIP SENIOR MANAGEMENT CHANGES In accordance with its Articles of Agreement, members of the Board of Directors are appointed or elected every two years by their mem- The following changes occurred in the Senior Management of IFC ber governments. Currently, the Board of Directors is composed of since June 30, 2012: 25 Directors. These Directors are neither officers nor staff of IFC. Dr. Jim Yong Kim became President, effective July 1, 2012. The President is the only member of the Board of Directors from Mr. Thierry Tanoh retired as Vice President, Sub-­Saharan Africa, management, serving as a non-­ voting member and as Chairman of Latin America and the Caribbean, and Western Europe, effective the Board of Directors. July 16, 2012. Mr. Bernard Sheahan, Director, Global Infrastructure The Board of Directors has established several Committees and Natural Resources, was appointed Acting Vice President, Sub-­ including: Saharan Africa, Latin America and the Caribbean, and Western »»Audit Committee Europe, effective July 16, 2012 and ending on February 14, 2013. »»Budget Committee Mr. Jin-­Yong Cai became Executive Vice President and CEO, »»Committee on Development Effectiveness effective October 1, 2012. »»Committee on Governance and Executive Directors’ Ms. Rachel Robbins retired as Vice President and General Administrative Matters Counsel, effective October  31, 2012. Mr. David Harris, Deputy »»Ethics Committee General Counsel, was Acting Vice President and General Counsel, »»Human Resources Committee effective November 1, 2012 and ending on March 31, 2013. The Board of Directors and their Committees function in contin- Mr. Jean Philippe Prosper became Vice President, Sub-­ Saharan uous session at the principal offices of IBRD, as business requires. Africa, Latin America and the Caribbean, effective February 15, 2013. Each Committee’s terms of reference establishes its respective roles Mr. Dimitris Tsitsiragos’ title changed from Vice President, and responsibilities. As Committees do not vote on issues, their Eastern Europe, Central Asia, Middle East and North Africa to role is primarily to serve the Board of Directors in discharging Vice President, Europe, Central Asia, Middle East and North Africa, its responsibilities. effective February 15, 2013. The Board of Directors considers proposals made by the Ms. Saadia Khairi’s title changed from Vice President, Risk, President on the use of IFC’s net income: retained earnings and Finance and Strategy to Vice President, Risk Management and designation of retained earnings and is responsible for the conduct Reporting, effective February 15, 2013. of the general operations of IFC. The Directors are also responsible Mr. Rashad Kaldany’s title changed from Vice President, Global for presenting to the Board of Governors, at the Annual meetings, Industries to Vice President and Chief Operating Officer, effective audited accounts, an administrative budget, and an annual report February 15, 2013. on operations and policies as well as other matters. Mr. Ethiopis Tafara was appointed IFC’s Vice President and AUDIT COMMITTEE General Counsel, effective April 1, 2013. Ms. Dorothy Berry retired as Vice President, Human Resources, Membership Communications, and Administration, effective June 30, 2013. The The Audit Committee consists of eight Directors. Membership on position of Vice President, Human Resources, Communications, the Audit Committee is determined by the Board of Directors, based and Administration will not be filled. Effective July 1, 2013, Human upon nominations by the Chairman of the Board of Directors, fol- Resource services to IFC will be provided by the World Bank Group lowing informal consultation with the Directors. Integrated Services, and IFC Human Resources business partners, under the leadership of Sean McGrath. Key Responsibilities Mr. Rashad Kaldany, Vice President and Chief Operating The Audit Committee is appointed by the Board of Directors Officer will retire from IFC on September 6, 2013 whereupon the to assist it in the oversight and assessment of IFC’s finances and positions will not be filled. accounting, including the effectiveness of financial policies, the integrity of financial statements, the system of internal controls GENERAL GOVERNANCE regarding finance, accounting and ethics (including fraud and corruption), and financial and operational risks. The Audit Com- IFC’s decision-­making structure consists of the Board of Governors, mittee also has the responsibility for reviewing the performance the Board of Directors, the President, the Executive Vice President and recommending to the Board of Directors the appointment of and CEO, other officers and staff. The Board of Governors is the the external auditor, as well as monitoring the independence of the highest decision-­making authority. Governors are appointed by external auditor. The Audit Committee participates in oversight of their member governments for a five-­ year term, which is renew- the internal audit function and reviews the annual internal audit able. The Board of Governors may delegate authority to the Board plan. In the execution of its role, the Audit Committee discusses of Directors to exercise any of its powers, except those reserved to with management, the external auditors, and the internal auditors, the Board of Governors under the Articles of Agreement. financial issues and policies which have a bearing on IFC’s finan- cial position and risk-­bearing capacity. The Committee also reviews with the external auditor the financial statements prior to their publication and recommends the annual audited financial state- ments for approval to the Board of Directors. The Audit Committee 30 _ IFC Financials and Projects 2013 monitors the evolution of developments in corporate governance Auditor independence and the role of audit committees on an ongoing basis and updated its terms of reference in July 2009. The appointment of the external auditor of IFC is governed by a set of Board of Director-­ approved principles. Key features of those Executive Sessions principles include: Under the Audit Committee’s terms of reference, members of the »»Prohibition of the external auditor from the provision of all non Audit Committee may convene in executive session at any time, audit-­related services. without management present. It meets separately in executive ses- »»All audit-­related services must be pre-­approved on a case-­by-case sion with the external and internal auditors. basis by the Board of Directors, upon recommendation of the Access to Resources and to Management Audit Committee. Throughout the year, the Audit Committee receives a large volume »»Mandatory rebidding of the external audit contract every five of information, which supports the execution of its duties. The years, with a limitation of two consecutive terms and mandatory Audit Committee meets both formally and informally through- rotation thereafter. out the year to discuss relevant matters. The Audit Committee has External auditors are appointed to a five-­ year term of service. complete access to management and reviews and discusses with This is subject to annual reappointment based on the recommen- management topics contemplated in their Terms of Reference. dation of the Audit Committee and approval of a resolution by the The Audit Committee has the capacity, under exceptional cir- Board of Directors. In FY14, KPMG LLP will begin a second five-­ cumstances, to obtain advice and assistance from outside legal, year term as IFC’s external auditor. accounting or other advisors as deemed appropriate. Communication between the external auditor and the Audit Committee is ongoing, as frequently as is deemed necessary by either party. The Audit Committee meets periodically with the BUSINESS CONDUCT external auditor, and individual members of the Audit Committee IFC promotes a positive work environment where staff members have independent access to the external auditor. IFC’s external understand their ethical obligations to the institution, which are auditors also follow the communication requirements with audit embodied in its Core Values and Principles of Staff Employment. committees set out under generally accepted auditing standards in In support of this commitment, the institution has in place a the United States of America. code of conduct, entitled Living our Values (the Code). The Code applies to all World Bank Group staff worldwide and is available on INTERNAL CONTROL www.worldbank.org. Internal Control Over Financial Reporting In addition to the Code, Staff and Administrative Manuals, guid- Management makes an annual assertion whether, as of June 30 ance for staff is also provided through programs, training materials, of each fiscal year, its system of internal control over its external and other resources. Managers are responsible for ensuring that financial reporting has met the criteria for effective internal con- internal systems, policies, and procedures are consistently aligned trol over external financial reporting as described in the Internal with the IFC’s business conduct framework. Control-­Integrated Framework issued in 1992 by the Committee of There exists both an Ethics HelpLine and a Fraud and Corruption Sponsoring Organizations of the Treadway Commission. hotline. A third-­ party service offers numerous methods of world- Concurrently, IFC’s external auditor provides an attestation wide communication. Reporting channels include: phone, mail, report on whether management’s assertion regarding the effective- email, or through confidential submission through a website. ness of internal control over external financial reporting is fairly IFC has in place procedures for the receipt, retention and stated in all material respects. handling of recommendations and concerns relating to business For each fiscal year, management performs an evaluation of conduct identified during accounting, internal control and audit- internal control over external financial reporting for the purpose ing processes. of determining if there are any changes made in internal controls Staff Rules clarify and codify the obligations of staff in reporting during the fiscal year covered by the report that materially affect, suspected fraud, corruption or other misconduct that may threaten or would be reasonably likely to materially affect IFC’s internal con- operations or governance of the Corporation. Additionally, these trol over external financial reporting. As of June 30, 2013, no such rules offer protection from retaliation. changes had occurred. Disclosure Controls and Procedures Disclosure controls and procedures are those processes which are designed to ensure that information required to be disclosed is accumulated and communicated to management as appropriate, to allow timely decisions regarding required disclosure by IFC. Management has undertaken an evaluation of the effectiveness of such controls and procedures. Based on that evaluation, man- agement has concluded that these controls and procedures were effective as of June 30, 2013. _ 31 32 _ Page 39 NATIONAL FINANCE CO INTERN ON ORPORATIO _ 33 Page 40 NATIONAL FINANCE CO INTERN ON ORPORATIO 34 _ 4 Page 41 NATIONAL FINANCE CO INTERN ON ORPORATIO _ 35 4 Page 42 NATIONAL FINANCE CO INTERN ON ORPORATIO 36 _ Page 43 INTERNATIONAL FINANCE CORPORATION CONSOLIDATED BALANCE SHEETS as of June 30, 2013 and June 30, 2012 (US$ millions) 2013 2012 Assets Cash and due from banks .......................................................................................................... $ 616 $ 1,328 Time deposits ............................................................................................................................ 5,889 5,719 Trading securities - Notes C and R ........................................................................................... 30,349 28,868 Securities purchased under resale agreements ........................................................................ 337 964 Investments - Notes B, D, E, F, R and U Loans ($493 - June 30, 2013 and $591 - June 30, 2012 at fair value; $43 - June 30, 2013 and $60 - June 30, 2012 at lower of cost or fair value; net of reserve against losses of $1,628 - June 30, 2013 and $1,381 - June 30, 2012) - Notes D, E and R ............................................................................................................. 20,831 19,496 Equity investments ($8,576 - June 30, 2013 and $6,708 - June 30, 2012 at fair value) - Notes B, D and R ... 11,695 9,774 Debt securities - Notes D, F and R ........................................................................................ 2,151 2,168 Total investments .......................................................................................................... 34,677 31,438 Derivative assets - Notes Q and R ............................................................................................ 3,376 4,615 Receivables and other assets - Note J ...................................................................................... 2,281 2,829 Total assets ..................................................................................................................... $ 77,525 $ 75,761 Liabilities and capital Liabilities Securities sold under repurchase agreements ...................................................................... $ 5,736 $ 6,397 Borrowings outstanding - Notes K and R .............................................................................. From market sources at amortized cost ........................................................................... 1,715 1,777 From market sources at fair value ..................................................................................... 42,924 42,846 From International Bank for Reconstruction and Development at amortized cost ............ 230 42 Total borrowings ........................................................................................................... 44,869 44,665 Derivative liabilities - Notes Q and R ..................................................................................... 2,310 1,261 Payables and other liabilities - Note L ................................................................................... 2,335 2,858 Total liabilities ................................................................................................................... 55,250 55,181 Capital Capital stock, authorized (2,580,000 - June 30, 2013 and June 30, 2012) shares of $1,000 par value each - Note M Subscribed and paid-in ................................................................................................ 2,403 2,372 Accumulated other comprehensive income - Note O ............................................................ 1,121 513 Retained earnings - Note O ................................................................................................... 18,713 17,695 Total IFC capital ........................................................................................................... 22,237 20,580 Noncontrolling interests ......................................................................................................... 38 - Total capital .................................................................................................................. 22,275 20,580 Total liabilities and capital ........................................................................................... $ 77,525 $ 75,761 The notes to the Consolidated Financial Statements are an integral part of these statements _ 37 Page 44 INTERNATIONAL FINANCE CORPORATION CONSOLIDATED INCOME STATEMENTS for each of the three years ended June 30, 2013 (US$ millions) 2013 2012 2011 Income from investments Income from loans and guarantees - Note E ............................................................ $ 1,059 $ 938 $ 877 (Provision) release of provision for losses on loans, guarantees and other receivables - Note E ............................................................................. (243) (117) 40 Income from equity investments - Note G ................................................................. 752 1,457 1,464 Income from debt securities - Note F ........................................................................ 5 81 46 Total income from investments ..................................................................... 1,573 2,359 2,427 Income from liquid asset trading activities - Note C ..................................................... 500 313 529 Charges on borrowings - Note K .................................................................................. (220) (181) (140) Income from investments and liquid asset trading activities, after charges on borrowings .............................................................................. 1,853 2,491 2,816 Other income Service fees ............................................................................................................. 101 60 88 Advisory services income ......................................................................................... 239 269 - Other - Notes B and N ............................................................................................. 101 119 134 Total other income ............................................................................................. 441 448 222 Other expenses Administrative expenses - Note X ............................................................................ (845) (798) (700) Advisory services expenses ..................................................................................... (351) (290) (153) Expense from pension and other postretirement benefit plans - Note W ................ (173) (96) (109) Other - Note B ........................................................................................................... (32) (23) (19) Total other expenses ......................................................................................... (1,401) (1,207) (981) Foreign currency transaction gains and losses on non-trading activities...................... 35 145 (33) Income before net gains and losses on other non-trading financial instruments accounted for at fair value and grants to IDA............................ 928 1,877 2,024 Net gains and losses on other non-trading financial instruments accounted for at fair value - Note P Realized gains .......................................................................................................... 35 11 63 Gains on non-monetary exchanges ......................................................................... 2 10 22 Unrealized gains (losses) .......................................................................................... 385 (240) 70 Total net gains (losses) on other non-trading financial instruments accounted for at fair value ............................................................................. 422 (219) 155 Income before grants to IDA ................................................................................... 1,350 1,658 2,179 Grants to IDA - Note O .................................................................................................. (340) (330) (600) Net income ............................................................................................................... $ 1,010 $ 1,328 $ 1,579 Less: Net loss attributable to noncontrolling interests................................................... 8 - - Net income attributable to IFC ............................................................................... $ 1,018 $ 1,328 $ 1,579 The notes to the Consolidated Financial Statements are an integral part of these statements 38 _ Page 45 INTERNATIONAL FINANCE CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME for each of the three years ended June 30, 2013 (US$ millions) 2013 2012 2011 Net income attributable to IFC ................................................................................... $ 1,018 $ 1,328 $ 1,579 Other comprehensive income (loss) Unrealized gains and losses on debt securities Net unrealized (losses) gains on available-for-sale debt securities arising during the year ...................................................................................................... (7) (273) 137 Add (less): reclassification adjustment for realized (gains) losses included in net income .............................................................................. (10) (12) 2 Less: reclassification adjustment for gains on non-monetary exchanges included in net income .............................................................................. (7) (1) - Add: reclassification adjustment for other-than-temporary impairments included in net income .............................................................................. 46 27 2 Net unrealized gains (losses) on debt securities......................................... 22 (259) 141 Unrealized gains and losses on equity investments Net unrealized gains (losses) on available-for-sale equity investments arising during the year ...................................................................................................... 361 (523) 388 Less: reclassification adjustment for realized gains included in net income ......... (265) (143) (405) Add: reclassification adjustment for other-than-temporary impairments included in net income .............................................................................. 289 420 131 Net unrealized gains (losses) on equity investments ................................. 385 (246) 114 Net unrecognized actuarial gains (losses) and unrecognized prior service credits (costs) on benefit plans ........................................................................ 201 (525) 86 Total other comprehensive income (loss) ........................................................... 608 (1,030) 341 Total comprehensive income ..................................................................... $ 1,626 $ 298 $ 1,920 The notes to the Consolidated Financial Statements are an integral part of these statements _ 39 Page 46 INTERNATIONAL FINANCE CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL for each of the three years ended June 30, 2013 (US$ millions) Attributable to IFC Accumulated other Undesignated Designated Total comprehensive Non- Retained retained retained income - Capital Total IFC controlling Total earnings earnings earnings Note O stock capital interests capital At June 30, 2010 $ 14,307 $ 481 $ 14,788 $ 1,202 $ 2,369 $ 18,359 $ - $ 18,359 Year ended June 30, 2011 Net income attributable to IFC 1,579 1,579 1,579 1,579 Other comprehensive income attributable to IFC 341 341 341 Designation 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 $ - $ 20,279 Year ended June 30, 2012 Net income attributable to IFC 1,328 1,328 1,328 1,328 Other comprehensive loss attributable to IFC (1,030) (1,030) (1,030) Designation of retained earnings - Note O (399) 399 - - - Payments received for IFC capital stock subscribed 3 3 3 Expenditures against designated retained earnings - Note O 412 (412) - - - At June 30, 2012 $ 17,373 $ 322 $ 17,695 $ 513 $ 2,372 $ 20,580 $ - $ 20,580 Year ended June 30, 2013 Net income attributable to IFC 1,018 1,018 1,018 1,018 Other comprehensive income attributable to IFC 608 608 608 Payments received for IFC capital stock subscribed 31 31 31 Designation of retained earnings - Note O (420) 420 - - - Expenditures against designated retained earnings - Note O 464 (464) - - - Noncontrolling interests issued - 46 46 Net loss attributable to noncontrolling interests - (8) (8) At June 30, 2013 $ 18,435 $ 278 $ 18,713 $ 1,121 $ 2,403 $ 22,237 $ 38 $ 22,275 The notes to the Consolidated Financial Statements are an integral part of these statements 40 _ Page 47 INTERNATIONAL FINANCE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS for each of the three years ended June 30, 2013 (US$ millions) 2013 2012 2011 Cash flows from investing activities Loan disbursements ................................................................................................. $ (6,940) $ (5,651) $ (4,519) Investments in equity securities ................................................................................ (2,549) (1,810) (1,884) Investments in debt securities .................................................................................. (523) (520) (312) Loan repayments ..................................................................................................... 5,321 3,733 3,297 Debt securities repayments ..................................................................................... 377 231 72 Proceeds from sales of loans.................................................................................... - 10 26 Proceeds from sales of equity investments .............................................................. 1,502 2,452 1,433 Proceeds from sales of debt securities .................................................................... 35 56 12 Net cash used in investing activities ............................................................ (2,777) (1,499) (1,875) Cash flows from financing activities Medium and long-term borrowings New issues ........................................................................................................... 12,718 11,636 9,882 Retirement ............................................................................................................ (9,481) (5,182) (5,139) Medium and long-term borrowings related derivatives, net .................................. 401 329 410 Short-term borrowings, net ....................................................................................... (337) (49) 43 Capital subscriptions ................................................................................................. 31 3 - Noncontrolling interests issued ................................................................................. 46 - - Net cash provided by financing activities ................................................... 3,378 6,737 5,196 Cash flows from operating activities Net income attributable to IFC .................................................................................. 1,018 1,328 1,579 Add: Net loss attributable to noncontrolling interests ................................................ (8) - - Net income ............................................................................................................... 1,010 1,328 1,579 Adjustments to reconcile net income to net cash used in operating activities: Gains on non-monetary exchanges of loans ........................................................ (20) (78) (9) Realized gains on debt securities and gains on non-monetary exchanges.......... (17) (13) (2) Realized gains on equity investments and gains on non-monetary exchanges ... (927) (2,003) (954) Unrealized (gains) losses on loans accounted for at fair value ............................ (35) 57 (79) Unrealized losses (gains) on debt securities accounted for at fair value … ......... 39 (21) 2 Unrealized (gains) losses on equity investments ................................................. (26) 128 (454) Provision (release of provision) for losses on loans and guarantees ................... 243 117 (40) Other-than-temporary impairments on debt securities ......................................... 46 27 2 Other-than-temporary impairments on equity investments................................... 441 692 218 Net discounts paid on retirement of borrowings………………………………….. .. (2) (1) (3) Net realized gains on extinguishment of borrowings ............................................ (11) (19) (10) Foreign currency transaction (gains) losses on non-trading activities .................. (35) (145) 33 Net (gains) losses on other non-trading financial instruments accounted for at fair value ................................................................................ (422) 219 (155) Change in accrued income on loans, time deposits and securities ..................... 18 (48) 51 Change in payables and other liabilities .............................................................. (666) 1,171 354 Change in receivables and other assets .............................................................. 696 (331) 138 Change in trading securities and securities purchased and sold under resale and repurchase agreements .................................................................. (1,800) (5,211) (4,722) Net cash used in operating activities .......................................................... (1,468) (4,131) (4,051) Change in cash and cash equivalents ......................................................................... (867) 1,107 (730) Effect of exchange rate changes on cash and cash equivalents ................................. 325 473 234 Net change in cash and cash equivalents ................................................................... (542) 1,580 (496) Beginning cash and cash equivalents .......................................................................... 7,047 5,467 5,963 Ending cash and cash equivalents .......................................................................... $ 6,505 $ 7,047 $ 5,467 Composition of cash and cash equivalents Cash and due from banks ......................................................................................... $ 616 $ 1,328 $ 642 Time deposits ........................................................................................................... 5,889 5,719 4,825 Total cash and cash equivalents .......................................................................... $ 6,505 $ 7,047 $ 5,467 The notes to the Consolidated Financial Statements are an integral part of these statements _ 41 Page 48 INTERNATIONAL FINANCE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS for each of the three years ended June 30, 2013 (US$ millions) 2013 2012 2011 Supplemental disclosure Change in ending balances resulting from currency exchange rate fluctuations: Loans outstanding ............................................................................................... $ 21 $ (675) $ 601 Debt securities ..................................................................................................... (19) (221) 142 Loan and debt security-related currency swaps .................................................. 63 915 (699) Borrowings ............................................................................................................ 1,868 1,282 (2,358) Borrowing-related currency swaps ...................................................................... (1,876) (1,275) 2,327 Client risk management-related currency swaps .................................................. - - (6) Charges on borrowings paid, net .............................................................................. $ 277 $ 139 $ 159 Non-cash items: Loan and debt securities conversion to equity, net .............................................. $ 77 $ 90 $ 75 Increase in net assets due to exchange, recorded at fair value, of equity investment for non-cash asset ........................................................... $ 217 $ - $ - The notes to the Consolidated Financial Statements are an integral part of these statements 42 _ Page 49 INTERNATIONAL FINANCE CORPORATION CONSOLIDATED STATEMENT OF CAPITAL STOCK AND VOTING POWER as of June 30, 2013 (US$ thousands) Capital Stock Voting Power Capital Stock Voting Power Amount Percent Number of Percent Amount Percent Number of Percent Members paid of total votes of total Members paid of total votes of total Afghanistan ............................. 111 * 878 0.03 Lesotho ………………………... 71 * 838 0.03 Albania .................................... 1,302 0.05 2,069 0.08 Liberia …………………………. 83 * 850 0.03 Algeria ..................................... 5,621 0.23 6,388 0.25 Libya …………………………… 55 * 822 0.03 Angola ..................................... 1,481 0.06 2,248 0.09 Lithuania ………………………. 2,341 0.1 3,108 0.12 Antigua and Barbuda .............. 13 * 780 0.03 Luxembourg…………………… 2,139 0.09 2,906 0.11 Argentina ................................. 38,129 1.59 38,896 1.53 Macedonia, FYR of …………... 536 0.02 1,303 0.05 Armenia ................................... 992 0.04 1,759 0.07 Madagascar …………………... 432 0.02 1,199 0.05 Australia .................................. 47,329 1.97 48,096 1.89 Malawi …………………………. 1,822 0.08 2,589 0.1 Austria ..................................... 19,741 0.82 20,508 0.81 Malaysia ………………………. 15,222 0.63 15,989 0.63 Azerbaijan ............................... 2,367 0.1 3,134 0.12 Maldives ………………………. 16 * 783 0.03 Bahamas, The ………………... 335 0.01 1,102 0.04 Mali …………………………….. 451 0.02 1,218 0.05 Bahrain ………………………… 1,746 0.07 2,513 0.1 Malta …………………………… 1,615 0.07 2,382 0.09 Bangladesh …………………… 9,037 0.38 9,804 0.39 Marshall Islands ……………… 663 0.03 1,430 0.06 Barbados ……………………… 361 0.02 1,128 0.04 Mauritania …………………….. 214 0.01 981 0.04 Belarus .................................... 5,162 0.21 5,929 0.23 Mauritius ………………………. 1,665 0.07 2,432 0.1 Belgium ................................... 50,610 2.11 51,377 2.02 Mexico …………………………. 27,589 1.15 28,356 1.11 Belize ...................................... 101 * 868 0.03 Micronesia, Fed. States of…… 744 0.03 1,511 0.06 Benin …………………………... 119 * 886 0.03 Moldova ……………………….. 1,192 0.05 1,959 0.08 Bhutan …………………………. 720 0.03 1,487 0.06 Mongolia ………………………. 144 0.01 911 0.04 Bolivia …………………………. 1,902 0.08 2,669 0.1 Montenegro …………………… 1,035 0.04 1,802 0.07 Bosnia and Herzegovina ……. 620 0.03 1,387 0.05 Morocco ……………………….. 9,632 0.4 10,399 0.41 Botswana ……………………… 113 * 880 0.03 Mozambique ………………….. 322 0.01 1,089 0.04 Brazil …………………………... 39,479 1.64 40,246 1.58 Myanmar ………………………. 666 0.03 1,433 0.06 Bulgaria ……………………….. 4,867 0.2 5,634 0.22 Namibia ……………………….. 404 0.02 1,171 0.05 Burkina Faso ........................... 836 0.03 1,603 0.06 Nepal …………………………... 822 0.03 1,589 0.06 Burundi .................................... 100 * 867 0.03 Netherlands …………………… 56,131 2.34 56,898 2.24 Cambodia ................................ 339 0.01 1,106 0.04 New Zealand ………………….. 3,583 0.15 4,350 0.17 Cameroon ............................... 885 0.04 1,652 0.06 Nicaragua ……………………... 715 0.03 1,482 0.06 Canada ………………………... 81,342 3.38 82,109 3.23 Niger …………………………… 147 0.01 914 0.04 Cape Verde …………………… 15 * 782 0.03 Nigeria …………………………. 21,643 0.9 22,410 0.88 Central African Republic ……. 119 * 886 0.03 Norway ………………………… 17,599 0.73 18,366 0.72 Chad …………………………… 1,364 0.06 2,131 0.08 Oman ………………………….. 1,187 0.05 1,954 0.08 Chile …………………………… 11,710 0.49 12,477 0.49 Pakistan ……………………….. 19,380 0.81 20,147 0.79 China ………………………….. 43,047 1.79 43,814 1.72 Palau …………………………... 25 * 792 0.03 Colombia ……………………… 12,606 0.52 13,373 0.53 Panama ……………………….. 1,007 0.04 1,774 0.07 Comoros ………………………. 14 * 781 0.03 Papua New Guinea ………….. 1,147 0.05 1,914 0.08 Congo, Dem. Rep. of ……….. 2,159 0.09 2,926 0.12 Paraguay ……………………… 436 0.02 1,203 0.05 Congo, Republic of …………... 131 0.01 898 0.04 Peru ……………………………. 6,898 0.29 7,665 0.3 Costa Rica .............................. 952 0.04 1,719 0.07 Philippines …………………….. 13,653 0.57 14,420 0.57 Côte d'Ivoire ............................ 3,544 0.15 4,311 0.17 Poland …………………………. 7,236 0.3 8,003 0.31 Croatia .................................... 2,882 0.12 3,649 0.14 Portugal ……………………….. 8,324 0.35 9,091 0.36 Cyprus …………………………. 2,139 0.09 2,906 0.11 Qatar …………………………... 1,650 0.07 2,417 0.09 Czech Republic ………………. 8,913 0.37 9,680 0.38 Romania ………………………. 2,661 0.11 3,428 0.13 Denmark ………………………. 18,554 0.77 19,321 0.76 Russian Federation ………….. 81,342 3.38 82,109 3.23 Djibouti ………………………… 21 * 788 0.03 Rwanda ……………………….. 306 0.01 1,073 0.04 Dominica ................................. 42 * 809 0.03 Samoa …………………………. 35 * 802 0.03 Dominican Republic ................ 1,187 0.05 1,954 0.08 Sao Tome and Principe ……… 439 0.02 1,206 0.05 Ecuador ................................... 2,161 0.09 2,928 0.12 Saudi Arabia ………………….. 30,062 1.25 30,829 1.21 Egypt, Arab Republic of .......... 12,360 0.51 13,127 0.52 Senegal ……………………….. 2,299 0.1 3,066 0.12 El Salvador .............................. 29 * 796 0.03 Serbia ………………………….. 1,803 0.08 2,570 0.1 Equatorial Guinea ................... 43 * 810 0.03 Seychelles …………………….. 27 * 794 0.03 Eritrea ..................................... 935 0.04 1,702 0.07 Sierra Leone ………………….. 223 0.01 990 0.04 Estonia .................................... 1,434 0.06 2,201 0.09 Singapore ……………………... 177 0.01 944 0.04 Ethiopia ………………………... 127 0.01 894 0.04 Slovak Republic ………………. 4,457 0.19 5,224 0.21 Fiji ……………………………… 287 0.01 1,054 0.04 Slovenia ……………………….. 1,585 0.07 2,352 0.09 Finland ………………………… 15,697 0.65 16,464 0.65 Solomon Islands ……………… 37 * 804 0.03 France …………………………. 121,015 5.04 121,782 4.79 Somalia ………………………... 83 * 850 0.03 Gabon …………………………. 1,268 0.05 2,035 0.08 South Africa …………………… 17,418 0.72 18,185 0.71 Gambia, The ………………….. 94 * 861 0.03 South Sudan ………………….. 1,880 0.08 2,647 0.1 Georgia ………………………... 1,380 0.06 2,147 0.08 Spain …………………………... 37,026 1.54 37,793 1.49 Germany ………………………. 128,908 5.36 129,675 5.1 Sri Lanka ……………………… 7,135 0.3 7,902 0.31 Ghana …………………………. 5,071 0.21 5,838 0.23 St. Kitts and Nevis …………… 638 0.03 1,405 0.06 Greece .................................... 6,898 0.29 7,665 0.3 St. Lucia ……………………….. 74 * 841 0.03 Grenada .................................. 74 * 841 0.03 Sudan ………………………….. 111 * 878 0.03 Guatemala .............................. 1,084 0.05 1,851 0.07 Suriname ……………………… 620 0.03 1,387 0.05 Guinea .................................... 339 0.01 1,106 0.04 Swaziland ……………………... 684 0.03 1,451 0.06 Guinea-Bissau ........................ 18 * 785 0.03 Sweden ………………………... 26,876 1.12 27,643 1.09 Guyana ………………………... 1,392 0.06 2,159 0.08 Switzerland ……………………. 44,063 1.83 44,830 1.76 Haiti ……………………………. 822 0.03 1,589 0.06 Syrian Arab Republic ………… 194 0.01 961 0.04 Honduras ……………………… 495 0.02 1,262 0.05 Tajikistan ……………………… 1,212 0.05 1,979 0.08 Hungary ………………………. 10,932 0.45 11,699 0.46 Tanzania ………………………. 1,003 0.04 1,770 0.07 Iceland ………………………… 42 * 809 0.03 Thailand ……………………….. 11,201 0.47 11,968 0.47 India ……………………………. 81,342 3.38 82,109 3.23 Timor-Leste …………………… 777 0.03 1,544 0.06 Indonesia ……………………… 29,384 1.22 30,151 1.19 Togo …………………………… 808 0.03 1,575 0.06 Iran, Islamic Republic of …….. 1,444 0.06 2,211 0.09 Tonga ………………………….. 34 * 801 0.03 Iraq …………………………….. 147 0.01 914 0.04 Trinidad and Tobago ………… 4,112 0.17 4,879 0.19 Ireland …………………………. 1,290 0.05 2,057 0.08 Tunisia ………………………… 3,566 0.15 4,333 0.17 Israel …………………………… 2,135 0.09 2,902 0.11 Turkey …………………………. 14,545 0.61 15,312 0.6 Italy ……………………………. 81,342 3.38 82,109 3.23 Turkmenistan …………………. 810 0.03 1,577 0.06 Jamaica ……………………….. 4,282 0.18 5,049 0.2 Uganda ………………………... 735 0.03 1,502 0.06 Japan ………………………….. 141,174 5.87 141,941 5.58 Ukraine ………………………… 9,505 0.4 10,272 0.4 Jordan …………………………. 941 0.04 1,708 0.07 United Arab Emirates ………... 4,033 0.17 4,800 0.19 Kazakhstan …………………… 4,637 0.19 5,404 0.21 United Kingdom ………………. 121,015 5.04 121,782 4.79 Kenya …………………………. 4,041 0.17 4,808 0.19 United States …………………. 569,379 23.69 570,146 22.41 Kiribati ………………………… 12 * 779 0.03 Uruguay ……………………….. 3,569 0.15 4,336 0.17 Korea, Republic of …………… 22,020 0.92 22,787 0.9 Uzbekistan ……………………. 3,873 0.16 4,640 0.18 Kosovo ………………………… 1,454 0.06 2,221 0.09 Vanuatu ……………………….. 55 * 822 0.03 Kuwait …………………………. 9,947 0.41 10,714 0.42 Venezuela, Rep. Boliv. de ….. 27,588 1.15 28,355 1.11 Kyrgyz Republic ……………… 1,720 0.07 2,487 0.1 Vietnam ……………………….. 446 0.02 1,213 0.05 Lao People's Dem. Rep. …….. 278 0.01 1,045 0.04 Yemen, Republic of ………….. 715 0.03 1,482 0.06 Latvia ………………………….. 2,150 0.09 2,917 0.11 Zambia ………………………… 1,286 0.05 2,053 0.08 Lebanon ……………………….. 135 0.01 902 0.04 Zimbabwe …………………….. 2,120 0.09 2,887 0.11 * Less than .005 percent Total June 30, 2013 2,403,217 100.00+ 2,544,345 100.00+ + May differ from the sum of the individual percentages shown because of rounding Total June 30, 2012 2,371,896 100.00+ 2,511,184 100.00+ The notes to the Consolidated Financial Statements are an integral part of these statements _ 43 Page 50 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS PURPOSE The International Finance Corporation (IFC), an international organization, was established in 1956 to further economic development in its member countries by encouraging the growth of private enterprise. IFC is a member of the World Bank Group, which also comprises the International Bank for Reconstruction and Development (IBRD), the International Development Association (IDA), the Multilateral Investment Guarantee Agency (MIGA), and the International Centre for Settlement of Investment Disputes (ICSID). Each member is legally and financially independent. Transactions with other World Bank Group members are disclosed in the notes that follow. IFC’s activities are closely coordinated with and complement the overall development objectives of the other World Bank Group institutions. IFC, together with private investors, assists in financing the establishment, improvement and expansion of private sector enterprises by making loans, equity investments and investments in debt securities where sufficient private capital is not otherwise available on reasonable terms. IFC’s share capital is provided by its member countries. It raises most of the funds for its investment activities through the issuance of notes, bonds and other debt securities in the international capital markets. IFC also plays a catalytic role in mobilizing additional funding from other investors and lenders through parallel loans, loan participations, partial credit guarantees, securitizations, loan sales, risk sharing facilities, and fund investments through the IFC Asset Management Company, LLC and other IFC crisis initiatives. In addition to project finance and mobilization, IFC offers an array of financial and technical advisory services to private businesses in the developing world to increase their chances of success. It also advises governments on how to create an environment hospitable to the growth of private enterprise and foreign investment. NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING AND RELATED POLICIES The Consolidated Financial Statements include the financial statements of IFC and consolidated subsidiaries as detailed in Note B. The accounting and reporting policies of IFC conform with accounting principles generally accepted in the United States of America (US GAAP). In the opinion of management, the Consolidated Financial Statements reflect all adjustments necessary for the fair presentation of IFC’s financial position and results of operation. Consolidated Financial Statements presentation – IFC has reclassified certain amounts on the consolidated statement of cash flows for the year ended June 30, 2012 to amend the presentation of certain foreign currency related remeasurements. The reclassification had the effect of reducing "change in trading securities and securities purchased and sold under resale and repurchase agreements" and increasing "effect of exchange rate changes on cash and cash equivalents" for the year ended June 30, 2012, each in the amount of $909 million. The reclassification had no impact on the consolidated balance sheet or the consolidated income statement. Advisory services – Beginning July 1, 2011, IFC adopted a new reporting basis for funds received from donors for IFC’s advisory services business and reported advisory services business as a separate segment. See Notes T and V. Funding received for IFC advisory services from governments and other donors are recognized as contribution revenue when the conditions on which they depend are substantially met. Advisory services expenses are recognized in the period incurred. Advisory client fees and administration fees are recognized as income when earned. Functional currency – IFC’s functional currency is the United States dollar (US dollars or $). Use of estimates – The preparation of the Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of income and expense during the reporting periods. Actual results could differ from these estimates. A significant degree of judgment has been used in the determination of: the reserve against losses on loans and impairment of debt securities and equity investments; estimated fair values of financial instruments accounted for at fair value (including equity investments, debt securities, loans, trading securities and derivative instruments); projected benefit obligations, fair value of pension and other postretirement benefit plan assets, and net periodic pension income or expense. There are inherent risks and uncertainties related to IFC’s operations. The possibility exists that changing economic conditions could have an adverse effect on the financial position of IFC. IFC uses internal models to determine the fair values of derivative and other financial instruments and the aggregate level of the reserve against losses on loans and impairment of equity investments. IFC undertakes continuous review and respecification of these models with the objective of refining its estimates, consistent with evolving best practices appropriate to its operations. Changes in estimates resulting from refinements in the assumptions and methodologies incorporated in the models are reflected in net income in the period in which the enhanced models are first applied. Consolidation, non-controlling interests and variable interest entities – IFC consolidates: i) all majority-owned subsidiaries; ii) limited partnerships in which it is the general partner, unless the presumption of control is overcome by certain management participation or other rights held by minority shareholders/limited partners; and iii) variable interest entities (VIEs) for which IFC is deemed to be the VIE's primary beneficiary (together, consolidated subsidiaries). Significant intercompany accounts and transactions are eliminated in consolidation. Equity interests in consolidated subsidiaries held by third parties are referred to as non-controlling interests. Such interests and the amount of consolidated net income/loss attributable to those interests are identified within IFC's consolidated balance sheet and consolidated income statement as "non-controlling interest" and "net income attributable to non-controlling interest", respectively. 44 _ Page 51 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS An entity is a VIE if: i) its equity is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties; ii) its equity investors do not have decision-making rights about the entity's operations; or iii) if its equity investors do not absorb the expected losses or receive the expected returns of the entity proportionally to their voting rights. A variable interest is a contractual, ownership or other interest whose value changes as the fair value of the VIE's net assets change. IFC's variable interests in VIEs arise from financial instruments, service contracts, guarantees, leases or other monetary interests in those entities. IFC is considered to be the primary beneficiary of a VIE if it has the power to direct the VIE's activities that most significantly impact its economic performance and the obligation to absorb losses of or the right to receive benefits from the VIE that could potentially be significant to the VIE unless: i) the entity has the attributes of an investment company or for which it is industry practice to account for their assets at fair value through earnings; ii) IFC has an explicit or implicit obligation to fund losses of the entity that could be potentially significant to that entity; and iii) the entity is a securitization vehicle, an asset-backed financing entity, or an entity that was formerly considered a qualifying special purpose entity, as well as entities that 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. In those cases, IFC is considered to be the entity's primary beneficiary if it will absorb the majority of the VIE's expected losses or expected residual returns. IFC has a number of investments in VIEs that it manages and supervises in a manner consistent with other portfolio investments. Fair Value Option and Fair Value Measurements – IFC has adopted 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 825 and subsequently entered into: i) investees in which IFC has significant influence: a) direct investments in securities issued by the investee and, if IFC would have otherwise been required to apply equity method accounting, all other financial interests in the investee (e.g., loans) b) investments in Limited Liability Partnerships (LLPs), Limited Liability Companies (LLCs) and other investment fund structures that maintain specific ownership accounts and loans or guarantees to such; ii) direct equity investments representing 20 percent or more ownership but in which IFC does not have significant influence; iii) certain hybrid instruments in the investment portfolio; and iv) all market borrowings, except for such borrowings having no associated derivative instruments. Beginning July 1, 2010, IFC has elected the Fair Value Option for all new equity interests in funds. All borrowings for which the Fair Value Option has been elected are associated with existing derivative instruments used to create an economic hedge. Measuring at fair value those borrowings for which the Fair Value Option has been elected mitigates the earnings volatility caused by measuring the borrowings and related derivative differently (in the absence of a designated accounting hedge) without having to apply ASC Topic 815’s, Derivatives and Hedging (ASC 815) complex hedge accounting requirements. The Fair Value Option was not elected for all borrowings from IBRD and all other market borrowings because such borrowings fund assets with similar characteristics. Measuring at fair value those equity investments that would otherwise require equity method accounting simplifies the accounting and renders a carrying amount on the consolidated balance sheet based on a measure (fair value) that IFC considers superior to equity method accounting. For the investments that otherwise would require equity method accounting for which the Fair Value Option is elected, ASC 825 requires the Fair Value Option to also be applied to all eligible financial interests in the same entity. IFC has disbursed loans to certain of such investees; therefore, the Fair Value Option is also applied to those loans. IFC elected the Fair Value Option for equity investments with 20% or more ownership where it does not have significant influence so that the same measurement method (fair value) will be applied to all equity investments with more than 20% ownership. Equity securities held by consolidated subsidiaries that are investment companies Pursuant to ASC Topic 946, Financial Services - Investment Companies (ASC 946) and ASC Topic 810, Consolidation, equity securities held by consolidated subsidiaries that are investment companies are accounted for at fair value, with unrealized gains and losses reported in earnings. _ 45 Page 52 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fair Value Measurements ASC 820 defines fair value as the price that would be received to sell an asset or transfer a liability (i.e., an exit price) in an orderly transaction between independent, knowledgeable and willing market participants at the measurement date assuming the transaction occurs in the entity’s principal (or most advantageous) market. Fair value must be based on assumptions market participants would use (inputs) in determining the price and measured assuming that market participants act in their economic best interest, therefore, their fair values are determined based on a transaction to sell or transfer the asset or liability on a standalone basis. Under ASC 820, fair value measurements are not adjusted for transaction costs. Notwithstanding the following paragraph, pursuant to ASC Topic 320, Investments - Debt and Equity Securities (ASC 320), IFC reports equity investments that are listed in markets that provide readily determinable fair values at fair value, with unrealized gains and losses being reported in other comprehensive income. The fair value hierarchy established by ASC 820 gives the highest priority to unadjusted quoted prices in active markets for identical unrestricted assets and liabilities (Level 1), the next highest priority to observable market based inputs or unobservable inputs that are corroborated by market data from independent sources (Level 2) and the lowest priority to unobservable inputs that are not corroborated by market data (Level 3). Fair value measurements are required to maximize the use of available observable inputs. Level 1 primarily consists of financial instruments whose values are based on unadjusted quoted market prices. It includes IFC’s equity investments, which are listed in markets that provide readily determinable fair values, government issues and money market funds in the liquid assets portfolio, and market borrowings that are listed on exchanges. Level 2 includes financial instruments that are valued using models and other valuation methodologies. These models consider various assumptions and inputs, including time value, yield curves, volatility factors, prepayment speeds, default rates, loss severity and current market and contractual pricing for the underlying asset, as well as other relevant economic measures. Substantially all of these inputs are observable in the market place, can be derived from observable data or are supported by observable levels at which market transactions are executed. Financial instruments categorized as Level 2 include non-exchange-traded derivatives such as interest rate swaps, cross-currency swaps, certain asset- backed securities, as well as the majority of trading securities in the liquid asset portfolio, and the portion of IFC’s borrowings accounted for at fair value not included in Level 1. Level 3 consists of financial instruments whose fair value is estimated based on internally developed models or methodologies utilizing significant inputs that are non-observable. It also includes financial instruments whose fair value is estimated based on price information from independent sources that cannot be corroborated by observable market data. Level 3 includes equity investments that are not listed in markets that provide readily determinable fair values, all loans for which IFC has elected the Fair Value Option, all of IFC’s debt securities in the investment portfolio, and certain hard-to-price securities in the liquid assets portfolio. IFC estimates the fair value of its investments in private equity funds that do not have readily determinable fair value based on the funds’ net asset values (NAVs) per share as a practical expedient to the extent that a fund reports its investment assets at fair value and has all the attributes of an investment company, pursuant to ASC 946. If the NAV is not as of IFC’s measurement date, IFC adjusts the most recent NAV, as necessary, to estimate a NAV for the investment that is calculated in a manner consistent with the fair value measurement principles established by ASC 820. Remeasurement of foreign currency transactions – Assets and liabilities not denominated in US dollars, other than disbursed equity investments, are expressed in US dollars at the exchange rates prevailing at June 30, 2013 and June 30, 2012. Disbursed equity investments, other than those accounted for at fair value, are expressed in US dollars at the prevailing exchange rates at the time of disbursement. Income and expenses are recorded based on the rates of exchange prevailing at the time of the transaction. Transaction gains and losses are credited or charged to income. Loans – IFC originates loans to facilitate project finance, restructuring, refinancing, corporate finance, and/or other developmental objectives. Loans are recorded as assets when disbursed. Loans are generally carried at the principal amounts outstanding adjusted for net unamortized loan origination costs and fees. It is IFC’s practice to obtain collateral security such as, but not limited to, mortgages and third-party guarantees. Certain loans are carried at fair value in accordance with the Fair Value Option as discussed above. Unrealized gains and losses on loans accounted for at fair value under the Fair Value Option are reported in income from loans and guarantees on the consolidated income statement. Certain loans originated by IFC contain income participation, prepayment and conversion features. These features are bifurcated and separately accounted for in accordance with ASC 815 if IFC has not elected the Fair Value Option for the loan host contracts and the features meet the definition of a derivative, and are not considered to be clearly and closely related to their host loan contracts. Otherwise, these features are accounted for as part of their host loan contracts in accordance with IFC’s accounting policies for loans as indicated herein. Loans held for sale are carried at the lower of cost or fair value. The excess, if any, of amortized cost over fair value is accounted for as a valuation allowance. Changes in the valuation allowance are recognized in net income as they occur. Revenue recognition on loans – Interest income and commitment fees on loans are recorded as income on an accrual basis. Loan origination fees and direct loan origination costs are deferred and amortized over the estimated life of the originated loan; such amortization is determined using the interest method unless the loan is a revolving credit facility in which case amortization is determined using the straight-line method. Prepayment fees are recorded as income when received in freely convertible currencies. 46 _ Page 53 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS IFC does not recognize income on loans where collectability is in doubt or payments of interest or principal are past due more than 60 days unless management anticipates that collection of interest will occur in the near future. Any interest accrued on a loan placed in nonaccrual status is reversed out of income and is thereafter recognized as income only when the actual payment is received. Interest not previously recognized but capitalized as part of a debt restructuring is recorded as deferred income, included in the consolidated balance sheet in payables and other liabilities, and credited to income only when the related principal is received. Such capitalized interest is considered in the computation of the reserve against losses on loans in the consolidated balance sheet. Reserve against losses on loans – IFC recognizes impairment on loans not carried at fair value in the consolidated balance sheet through the reserve against losses on loans, recording a provision or release of provision for losses on loans in net income, which increases or decreases the reserve against losses on loans. Individually impaired loans are measured based on the present value of expected future cash flows to be received, observable market prices, or for loans that are dependent on collateral for repayment, the estimated fair value of the collateral. The reserve against losses on loans reflects management’s estimates of both identified probable losses on individual loans (specific reserves) and probable losses inherent in the portfolio but not specifically identifiable (portfolio reserves). The determination of identified probable losses represents management’s judgment of the creditworthiness of the borrower. Reserves against losses are established through a review of individual loans undertaken on a quarterly basis. IFC considers a loan as impaired when, based on current information and events, it is probable that IFC will be unable to collect all amounts due according to the loan’s contractual terms. Information and events, with respect to the borrower and/or the economic and political environment in which it operates, considered in determining that a loan is impaired include, but not limited to, the borrower’s financial difficulties, breach of contract, bankruptcy/reorganization, credit rating downgrade as well as geopolitical conflict, financial/economic crisis, commodity price decline, adverse local government action and natural disaster. Unidentified probable losses are the losses incurred at the reporting date that have not yet been specifically identified. The risks inherent in the portfolio that are considered in determining unidentified probable losses are those proven to exist by past experience and include: country systemic risk; the risk of correlation or contagion of losses between markets; uninsured and uninsurable risks; nonperformance under guarantees and support agreements; and opacity of, or misrepresentation in, financial statements. There were no changes, during the periods presented herein, to IFC’s accounting policies and methodologies used to estimate its reserve against loan losses. For purposes of providing certain disclosures about IFC’s entire reserve against losses on loans, IFC considers its entire loan portfolio to comprise one portfolio segment. A portfolio segment is the level at which the method for estimating the reserve against losses on loans is developed and documented. Loans are written-off when IFC has exhausted all possible means of recovery, by reducing the reserve against losses on loans. Such reductions in the reserve are partially offset by recoveries, if any, associated with previously written-off loans. Equity investments – IFC invests primarily for developmental impact; IFC does not seek to take operational, controlling, or strategic equity positions within its investees. Equity investments are acquired through direct ownership of equity instruments of investees, as a limited partner in LLPs and LLCs, and/or as an investor in private equity funds. 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. Notwithstanding the foregoing, equity securities held by consolidated subsidiaries that are investment companies are accounted for at fair value, with unrealized gains and losses reported in earnings. IFC’s investments in certain private equity funds in which IFC is deemed to have a controlling financial interest, as are fully consolidated by IFC, as the presumption of control by the fund manager or the general partner has been overcome. Certain equity investments, for which recovery of invested capital is uncertain, are accounted for under the cost recovery method, such that receipts of freely convertible currencies are first applied to recovery of invested capital and then to income from equity investments. The cost recovery method is principally applied to IFC's investments in its oil and gas unincorporated joint ventures (UJVs). IFC’s share of conditional asset retirement obligations related to investments in UJVs are recorded when the fair value of the obligations can be reasonably estimated. The obligations are capitalized and systematically amortized over the estimated economic useful lives. Unrealized gains and losses on equity investments accounted for at fair value under the Fair Value Option are reported in income from equity investments on the consolidated income statement. Unrealized gains and losses on equity investments listed in markets that provide readily determinable fair values which are accounted for as available-for-sale are reported in other comprehensive income. Realized gains on the sale or redemption of equity investments are measured against the average cost of the investments sold and are generally recorded as income from equity investments when received. Capital losses are recognized when incurred. _ 47 Page 54 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Profit participations received on equity investments are recorded when received in freely convertible currencies. Dividends received on equity investments through June 30, 2011 were recorded as income when received in freely convertible currencies. Beginning July 1, 2011, dividends on listed equity investments are recorded on the ex dividend date - dividends on unlisted equity investments are recorded upon receipt of notice of declaration. Realized gains on the sale or redemption of equity investments are measured against the average cost of the investments sold and, through June 30, 2011, were recorded as income in income from equity investments when received in freely convertible currencies. Beginning July 1, 2011, realized gains on listed equity investments are recorded upon trade date - realized gains on unlisted equity investments are recorded upon incurring the obligation to deliver the applicable shares. Losses are recognized when incurred. IFC enters into put and call option and warrant agreements in connection with certain equity investments; these are accounted for in accordance with ASC 815 to the extent they meet the definition of a derivative. Gains and losses on nonmonetary exchanges – Nonmonetary transactions typically arise through: (1) the exchange of nonmonetary assets by exercising a conversion option that results in the exchange of one financial instrument (i.e., loan, equity, or debt security) for another financial instrument (i.e., debt securities or equity shares); or (2) a nonreciprocal transfer where IFC receives a nonmonetary asset for which no assets are relinquished in exchange. Generally, accounting for exchanges of nonmonetary assets should be based on the fair values of the assets involved. Thus, the amount initially recorded for a nonmonetary asset received in exchange for another nonmonetary asset is the fair value of the asset received. The difference between the fair value of the asset received and the recorded amount of the asset surrendered (immediately prior to the exchange transaction) is recorded as a gain or loss on non-monetary exchanges in the income statement. Impairment of equity investments – Equity investments accounted for at cost, less impairment and available-for-sale are assessed for impairment each quarter. When impairment is identified, it is generally deemed to be other than temporary, and the equity investment is written down to the impaired value, which becomes the new cost basis in the equity investment. Such other than temporary impairments are recognized in net income. Subsequent increases in the fair value of available-for-sale equity investments are included in other comprehensive income - subsequent decreases in fair value, if not other than temporary impairment, also are included in other comprehensive income. Debt securities – Debt securities in the investment portfolio are classified as available-for-sale and carried at fair value on the consolidated balance sheet with unrealized gains and losses included in accumulated other comprehensive income until realized. Realized gains on sales of debt securities and interest on debt securities is included in income from debt securities on the consolidated income statement. Certain debt securities are carried at fair value in accordance with the Fair Value Option as discussed above. Unrealized gains and losses on debt securities accounted for at fair value under the Fair Value Option are reported in income from debt securities on the consolidated income statement. IFC invests in certain debt securities with conversion features; these features are accounted for in accordance with ASC 815 to the extent they meet the definition of a derivative. Impairment of debt securities – In determining whether an unrealized loss on debt securities is other-than-temporary, IFC considers all relevant information including the length of time and the extent to which fair value has been less than amortized cost, whether IFC intends to sell the debt security or whether it is more likely than not that IFC will be required to sell the debt security, the payment structure of the obligation and the ability of the issuer to make scheduled interest or principal payments, any changes to the ratings of a security, and relevant adverse conditions specifically related to the security, an industry or geographic sector. Debt securities in the investment portfolio are assessed for impairment each quarter. When impairment is identified, the entire impairment is recognized in net income if (1) IFC intends to sell the security, or (2) it is more likely than not that IFC will be required to sell the security before recovery. However, if IFC does not intend to sell the security and it is not more likely than not that IFC will be required to sell the security but the security has suffered a credit loss, the impairment charge will be separated into the credit loss component, which is recognized in net income, and the remainder which is recorded in other comprehensive income. The impaired value becomes the new amortized cost basis of the debt security. Subsequent increases and decreases - if not an additional other-than-temporary impairment - in the fair value of debt securities are included in other comprehensive income. The difference between the new amortized cost basis of debt securities for which an other-than-temporary impairment has been recognized in net income and the cash flows expected to be collected is accreted to interest income using the effective yield method. Significant subsequent increases in the expected or actual cash flows previously expected are recognized as a prospective adjustment of the yield. Guarantees – IFC extends financial guarantee facilities to its clients to provide credit enhancement for their debt securities and trade obligations. IFC offers partial credit guarantees to clients covering, on a risk-sharing basis, client obligations on bonds or loans. Under the terms of IFC's guarantees, IFC agrees to assume responsibility for the client’s financial obligations in the event of default by the client (i.e., failure to pay when payment is due). Guarantees are regarded as issued when IFC commits to the guarantee. Guarantees are regarded as outstanding when the underlying financial obligation of the client is incurred, and this date is considered to be the “inception” of the guarantee. Guarantees are regarded as called when IFC’s obligation under the guarantee has been invoked. There are two liabilities associated with the guarantees: (i) the stand-ready obligation to perform and (ii) the contingent liability. The fair value of the stand-ready obligation to perform is recognized at the inception of the guarantee unless a contingent liability exists at that time or is expected to exist in the near term. The contingent liability associated with the financial guarantee is recognized when it is probable the guarantee will be called and when the amount of guarantee called can be reasonably estimated. 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. 48 _ Page 55 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Designations of retained earnings – IFC establishes funding mechanisms for specific Board approved purposes through designations of retained earnings. Designations of retained earnings for grants to IDA are recorded as a transfer from undesignated retained earnings to designated retained earnings when the designation is approved by the Board of Governors. All other designations are recorded as a transfer from undesignated retained earnings to designated retained earnings when the designation is noted with approval by the Board of Directors. Total designations of retained earnings are determined based on IFC’s annual income before expenditures against designated retained earnings and net gains and losses on other non-trading financial instruments accounted for at fair value in excess of $150 million, and contemplating the financial capacity and strategic priorities of IFC. Expenditures resulting from such designations are recorded as expenses in IFC’s consolidated income statement in the year in which they are incurred, also having the effect of reducing the respective designated retained earnings for such purposes. Expenditures are deemed to have been incurred when IFC has ceded control of the funds to the recipient. If the recipient is deemed to be controlled by IFC, the expenditure is deemed to have been incurred only when the recipient disburses the funds to a non-related party. On occasion, recipients who are deemed to be controlled by IFC make investments. In such cases, IFC includes those assets on its consolidated balance sheet until the recipient disposes of or transfers the asset or IFC is deemed to no longer be in control of the recipient. These investments have had no material impact on IFC’s financial position, results of operations, or cash flows. Investments resulting from such designations are recorded on IFC’s consolidated balance sheet in the year in which they occur, also having the effect of reducing the respective designated retained earnings for such purposes. Liquid asset portfolio – The liquid asset portfolio, as defined by IFC, consists of: time deposits and securities; related derivative instruments; securities purchased under resale agreements, securities sold under repurchase agreements; receivables from sales of securities and payables for purchases of securities; and related accrued income and charges. 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. Securities and related derivative instruments within IFC’s liquid asset portfolio are classified as trading and are carried at fair value with any changes in fair value reported in income from liquid asset trading activities. Interest on securities and amortization of premiums and accretion of discounts are also reported in income from liquid asset trading activities. Gains and losses realized on the sale of trading securities are computed on a specific security basis. IFC classifies cash and due from banks and time deposits (collectively, cash and cash equivalents) as cash and as cash equivalents in the consolidated statement of cash flows because they are generally readily convertible to known amounts of cash within 90 days of acquisition generally when the original maturities for such instruments are under 90 days or in some cases are under 180 days. Repurchase 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. _ 49 Page 56 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS All derivative instruments are recorded on the consolidated balance sheet at fair value as derivative assets or derivative liabilities. Where they are not clearly and closely related to the host contract, certain derivative instruments embedded in loans, debt securities and equity investments are bifurcated from the host contract and recorded at fair value as derivative assets and liabilities. The fair value at inception of such embedded derivatives is excluded from the carrying amount of the host contracts on the consolidated balance sheet. Changes in fair values of derivative instruments used in the liquid asset portfolio are recorded in income from liquid asset trading activities. Changes in fair values of derivative instruments other than those in the liquid asset portfolio are recorded in net gains and losses on other non-trading financial instruments accounted for at fair value. The risk management policy for each of IFC’s principal business activities and the accounting policies particular to them are described below. Lending activities IFC’s policy is to closely match the currency, interest rate basis, and maturity of its loans and borrowings. Derivative instruments are used to convert the cash flows from fixed rate US dollar or non-US dollar loans into variable rate US dollars. IFC has elected not to designate any hedging relationships for any of its lending-related derivatives. Client risk management activities IFC enters into derivatives transactions with its clients to help them hedge their own currency, interest rate, or commodity risk, which, in turn, improves the overall quality of IFC’s loan portfolio. To hedge the market risks that arise from these transactions with clients, IFC enters into offsetting derivative transactions with matching terms with authorized market counterparties. Changes in fair value of all derivatives associated with these activities are reported in net income in net gains and losses on other non-trading financial instruments accounted for at fair value. 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. 50 _ Page 57 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Recently adopted accounting standards – 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 was the year ended 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. ASU 2011-05 is effective for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2011 (which was the year ended June 30, 2012 for IFC). Accounting and financial reporting developments – In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Act) became law. The Act seeks to reform the U.S. financial regulatory system by introducing new regulators and extending regulation over new markets, entities, and activities. The implementation of the Act is dependent on the development of various rules to clarify and interpret its requirements. Pending the development of these rules, no impact on IFC has been determined as of June 30, 2013. IFC continues to evaluate the potential future implications of the Act. In December 2011, the FASB issued ASU 2011-11, Disclosures about Offsetting Assets and Liabilities (ASU 2011-11), and ASU 2011-12, Deferral of the Effective date for Amendments to the Presentation of reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05 (ASU 2011-12). ASU 2011-11 contains new disclosure requirements regarding the reporting entity’s rights of setoff and related arrangements associated with its financial instruments and derivatives. The new disclosures will also provide information about both gross and net exposures. ASU 2011-11 is effective for annual reporting periods, and interim periods within those annual periods, beginning on or after January 1, 2013 (which is the year ending June 30, 2014 for IFC), and must be applied retroactively. In January 2013, the FASB issued ASU 2013-01, Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities (ASU 2013-01). ASU 2013-01 clarifies that instruments within ASC 2011-11’s scope are limited to derivatives, repurchase and reverse repurchase (resale) agreements and securities lending transactions that are either offset in accordance with ASC 210-20-45 or ASC 815-10-45 or subject to a master netting arrangement or similar agreement. In February 2013, the FASB issued ASU 2013-02, Reporting Amounts Reclassified Out of Accumulated Other Comprehensive Income (ASU 2013- 02). ASU 2013-02 requires disclosure of information about changes in AOCI balances by component and significant items reclassified out of AOCI. It does not amend any existing reporting requirements for measuring net income or other comprehensive income. ASU 2013-02 is effective for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2012 (which is the year ending June 30, 2014 for IFC). In June 2013, the FASB issued ASU 2013-08, Investment Companies (Topic 946); Amendments to the Scope, Measurement and Disclosure Requirements (ASU 2013-08). Among other things, ASU 2013-08 amends the criteria for an entity to qualify as an investment company under ASC Topic 946, introduces new disclosure requirements applicable to investment companies, and amends the measurement criteria for certain investments by an investment company in another investment company. ASU 2013-08 is applicable for annual reporting periods and interim periods within those annual periods, beginning after December 15, 2013 (which is the year ending June 30, 2015 for IFC). IFC is currently evaluating the impact of ASU 2013-08. In addition, during the year ended June 30, 2013, the FASB issued and/or approved various other ASUs. IFC analyzed and implemented the new guidance, as appropriate, with no material impact on the financial position, results of operations or cash flows of IFC. _ 51 Page 58 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE B – SCOPE OF CONSOLIDATION IFC Asset Management Company, LLC (AMC) and AMC Funds IFC through its wholly owned subsidiary, AMC, seeks 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, 2013, IFC has provided $2 million of capital to AMC ($2 million - June 30, 2012). As a result of the consolidation of AMC, IFC’s consolidated balance sheet at June 30, 2013 includes $18 million in cash, receivables and other assets ($12 million - June 30, 2012), less than $0.5 million in equity investments (less than $0.5 million - June 30, 2012) and $1 million in payables and other liabilities ($2 million - June 30, 2012). Other income in IFC’s consolidated income statement includes $40 million during the year ended June 30, 2013 ($28 million - year ended June 30, 2012 and $28 million - year ended June 30, 2011) and other expenses includes $11 million during the year ended June 30, 2013 ($10 million - year ended June 30, 2012 and $5 million - year ended June 30, 2011). At June 30, 2013, AMC managed seven funds (collectively referred to as the AMC Funds). All AMC Funds are investment companies and are required to report their investment assets at fair value through net income. IFC’s ownership interests in these AMC Funds are shown in the following table: AMC Fund IFC’s ownership interest IFC Capitalization (Equity) Fund, L.P. 61% IFC Capitalization (Subordinated Debt) Fund, L.P. 13% IFC African, Latin American and Caribbean Fund, LP 20% Africa Capitalization Fund, Ltd. - IFC Russian Bank Capitalization Fund, LP 45% (*) (*) IFC Catalyst Funds 27% IFC Global Infrastructure Fund, LP 20% (*) The ownership interest of 27% reflects IFC’s ownership interest taking into consideration the overall commitments for the IFC Catalyst Fund, which is comprised of IFC Catalyst Fund, LP and IFC Catalyst Fund (UK), LP (collectively, IFC Catalyst Fund). IFC does not have an ownership interest in the IFC Catalyst Fund (UK), LP. IFC’s investments in AMC Funds, except for IFC Russian Bank Capitalization Fund, LP (RBCF), are accounted for at fair value under the Fair Value Option. RBCF, created in June 2012, is consolidated into IFC’s financial statements because of the presumption of control by IFC as owner of the general partner of RBCF. As a result of consolidating RBCF, IFC’s consolidated balance sheet at June 30, 2013 includes $74 million of equity investments ($0 - June 30, 2012), and noncontrolling interests of $38 million ($0 - June 30, 2012). These noncontrolling interests meet the ASC's definition of mandatorily redeemable financial instruments because the terms of the underlying partnership agreement provide for a termination date at which time its remaining assets are to be sold, its liabilities settled and the remaining net proceeds distributed to the noncontrolling interest holders and IFC. RBCF's termination date is 2021 with a possible extension to 2023. As RBCF is considered an investment company, its investment securities (equity investments) are measured at fair value in IFC's consolidated balance sheet; therefore, the settlement value or estimate of cash that would be due and payable to settle these noncontrolling interests, assuming an orderly liquidation of RBCF on June 30, 2013, approximates the $38 million of noncontrolling interests reflected on IFC's consolidated balance sheet at June 30, 2013. Other Consolidated entities In October 2009, IFC created a special purpose vehicle, Hilal Sukuk Company, to facilitate a $100 million Sukuk under IFC’s borrowings program. The Sukuk is scheduled to mature in November 2014. Hilal Sukuk Company is a VIE and has been consolidated into these Consolidated Financial Statements, albeit with no material impact. The collective impact of this and other entities consolidated into these Consolidated Financial Statements under the VIE or voting interest model is insignificant. 52 _ Page 59 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE C – LIQUID ASSET PORTFOLIO Income from liquid asset trading activities Income from the liquid asset trading activities for the years ended June 30, 2013, June 30, 2012 and June 30, 2011 comprises (US$ millions): 2013 2012 2011 Interest income $ 430 $ 670 $ 473 Net gains and losses on trading activities: Realized losses (103) (70) (76) Unrealized gains (losses) 173 (287) 132 Net gains (losses) on trading activities 70 (357) 56 Total income from liquid asset trading activities $ 500 $ 313 $ 529 Net gains and losses on trading activities comprises net gains on asset-backed and mortgage-backed securities of $161 million in the year ended June 30, 2013 ($8 million losses - year ended June 30, 2012; $159 million gains - year ended June 30, 2011) and net losses on other trading securities of $91 million in the year ended June 30, 2013 ($349 million losses - year ended June 30, 2012; $103 million losses - year ended June 30, 2011). The annualized rate of return on the trading liquid asset portfolio, calculated as total income from the liquid asset trading activities divided by fair value average daily balance of total trading securities, during the year ended June 30, 2013, was 1.6% (1.2% - year ended June 30, 2012; 2.1% - year ended June 30, 2011). After the effect of associated derivative instruments, the liquid asset portfolio generally reprices within one year. Composition of liquid asset portfolio The composition of IFC’s liquid asset portfolio included in the consolidated balance sheet captions is as follows (US$ millions): June 30, 2013 June 30, 2012 Assets Cash and due from banks $ 65 $ 883 Time deposits 5,889 5,038 Trading securities 30,349 28,868 Securities purchased under resale agreements 337 964 Derivative assets 376 264 Receivables and other assets: Receivables from unsettled security trades 236 691 Accrued interest income on time deposits and securities 135 123 Accrued income on derivative instruments 21 20 Total assets 37,408 36,851 Liabilities Securities sold under repurchase agreements 5,736 6,397 Derivative liabilities 210 223 Payables and other liabilities: Payables for unsettled security trades 179 477 Accrued charges on derivative instruments 46 33 Total liabilities 6,171 7,130 Total net liquid asset portfolio $ 31,237 $ 29,721 The liquid asset portfolio is denominated primarily in US dollars; investments in other currencies, net of the effect of associated derivative instruments that convert non-US dollar securities into US dollar securities, represent 2.7% of the portfolio at June 30, 2013 (2.7% - June 30, 2012). Collateral The estimated fair value of securities held by IFC at June 30, 2013 as collateral in connection with derivatives transactions and purchase and resale agreements that may be sold or repledged was $1,029 million ($3,387 million - June 30, 2012). Collateral given by IFC to counterparties in connection with repurchase agreements that may be sold or repledged by the counterparty approximates the amounts classified as Securities sold under repurchase agreements. At June 30, 2013, trading securities with a carrying amount (fair value) of $205 million ($210 million - June 30, 2012) were pledged in connection with borrowings under a short-term discount note program, the carrying amount of which was $1,317 million ($1,400 million - June 30, 2012). _ 53 Page 60 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Trading securities Trading securities comprises: Year ended June 30, 2013 At June 30, 2013 Fair value average Weighted average daily balance Fair value contractual (US$ million) (US$ millions) maturity (years) Government, agency and government-sponsored agency obligations $ 14,927 $ 14,047 2.1 Asset-backed securities 8,569 9,076 17.9 Corporate securities 6,464 6,458 2.6 Money market funds 463 768 n/a Total trading securities $ 30,423 $ 30,349 Year ended June 30, 2012 At June 30, 2012 Fair value average Weighted average daily balance Fair value contractual (US$ million) (US$ millions) maturity (years) Government, agency and government-sponsored agency obligations $ 11,367 $ 13,684 1.6 Asset-backed securities 7,419 8,252 18.6 Corporate securities 6,634 6,823 2.2 Money market funds 463 109 n/a Total trading securities $ 25,883 $ 28,868 The expected maturity of the asset-backed securities may be significantly shorter than the contractual maturity, as reported above, due to prepayment features. NOTE D – INVESTMENTS The carrying amount of investments at June 30, 2013 and June 30, 2012 comprises (US$ millions): June 30, 2013 June 30, 2012 Loans Loans at amortized cost $ 21,923 $ 20,226 Less: Reserve against losses on loans (1,628) (1,381) Net loans 20,295 18,845 Loans held for sale at lower of amortized cost or fair value 43 60 Loans accounted for at fair value under the Fair Value Option (outstanding principal balance $474 - June 30, 2013, $607 - June 30, 2012) 493 591 Total loans 20,831 19,496 Equity investments Equity investments at cost less impairment* 3,119 3,066 Equity investments accounted for at fair value as available-for-sale (cost $2,397 - June 30, 2013, $1,783 - June 30, 2012) 4,230 3,231 Equity investments accounted for at fair value (cost $3,697 - June 30, 2013, $2,636 - June 30, 2012) 4,346 3,477 Total equity investments 11,695 9,774 Debt securities Debt securities accounted for at fair value as available-for-sale (amortized cost $1,889 - June 30, 2013, $1,916 - June 30, 2012) 1,911 1,916 Debt securities accounted for at fair value under the Fair Value Option (amortized cost $237 - June 30, 2013, $210 - June 30, 2012) 240 252 Total debt securities 2,151 2,168 Total carrying amount of investments $ 34,677 $ 31,438 * Equity investments at cost less impairment at June 30, 2013 includes unrealized gains of $2 million ($2 million - June 30, 2012) related to equity investments accounted for as available-for-sale in previous periods and for which readily determinable fair vales are no longer available. 54 _ Page 61 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The distribution of the investment portfolio by industry sector and by geographical region and a reconciliation of total disbursed portfolio to carrying amount of investments is as follows (US$ millions): June 30, 2013 June 30, 2012 Sector Equity Debt Equity Debt Loans investments securities Total Loans investments securities Total Manufacturing, agribusiness and services Asia $ 2,020 $ 503 $ 264 $ 2,787 $ 1,946 $ 385 $ 201 $ 2,532 Europe, Middle East and North Africa 3,297 634 76 4,007 3,131 599 36 3,766 Sub-Saharan Africa, Latin America and Caribbean 2,105 473 36 2,614 1,947 390 37 2,374 Other 1,018 100 - 1,118 615 - - 615 Total manufacturing, agribusiness and services 8,440 1,710 376 10,526 7,639 1,374 274 9,287 Financial markets Asia 1,842 1,381 125 3,348 1,218 1,098 274 2,590 Europe, Middle East and North Africa 2,337 1,815 755 4,907 2,660 1,564 552 4,776 Sub-Saharan Africa, Latin America and Caribbean 2,061 1,797 437 4,295 1,796 1,526 682 4,004 Other 302 872 164 1,338 382 546 128 1,056 Total financial markets 6,542 5,865 1,481 13,888 6,056 4,734 1,636 12,426 Infrastructure and natural resources Asia 1,702 430 66 2,198 1,742 401 55 2,198 Europe, Middle East and North Africa 2,314 399 66 2,779 2,273 356 10 2,639 Sub-Saharan Africa, Latin America and Caribbean 3,194 622 69 3,885 3,078 448 130 3,656 Other 414 183 12 609 255 234 5 494 Total infrastructure and natural resources 7,624 1,634 213 9,471 7,348 1,439 200 8,987 Total disbursed investment portfolio $ 22,606 $ 9,209 $ 2,070 $ 33,885 $ 21,043 $ 7,547 $ 2,110 $ 30,700 Reserve against losses on loans (1,628) (1,628) (1,381) (1,381) Unamortized deferred loan origination fees, net and other (139) (139) (120) (120) Disbursed amount allocated to a related financial instrument reported separately in other assets or derivative assets (35) (37) - (72) (38) (64) (3) (105) Adjustments to disbursed investment portfolio 8 44 - 52 8 3 (12) (1) Unrealized losses on equity investments held by consolidated VIEs (3) (3) (1) (1) Unrealized gains on investments accounted for at fair value as available- for-sale 1,833 78 1,911 1,448 31 1,479 Unrealized gains (losses) on investments 19 649 3 671 (16) 841 42 867 Carrying amount of investments $ 20,831 $ 11,695 $ 2,151 $ 34,677 $ 19,496 $ 9,774 $ 2,168 $ 31,438 _ 55 Page 62 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE E – LOANS AND GUARANTEES Loans Income from loans and guarantees for the years ended June 30, 2013, June 30, 2012 and June 30, 2011, comprise the following (US$ millions): 2013 2012 2011 Interest income $ 879 $ 818 $ 704 Commitment fees 35 29 33 Other financial fees 90 68 52 Gains on sale of loans - 2 - Gains on non-monetary exchanges 20 78 9 Unrealized gains (losses) on loans accounted for at fair value under the Fair Value Option 35 (57) 79 Income from loans and guarantees $ 1,059 $ 938 $ 877 The currency composition and average contractual rate of the disbursed loan portfolio are summarized below: June 30, 2013 June 30, 2012 Average Average Amount contractual Amount contractual (US$ millions) rate (%) (US$ millions) rate (%) US dollar $ 16,711 3.9 $ 15,635 4.2 Euro 2,959 4.0 2,831 4.4 Chinese renminbi 472 5.4 337 5.1 Indian rupee 417 10.0 390 9.8 Mexican peso 417 7.9 367 2.9 Philippine pesos 273 7.2 308 7.9 Brazilian real 245 8.9 157 8.9 South African rand 233 9.1 165 9.2 Russian ruble 207 10.8 224 11.3 Indonesian rupiah 198 8.3 145 9.5 Colombian pesos 83 8.3 117 10.1 Turkish lira 48 12.1 52 13.1 Vietnamese dong 40 17.4 52 14.3 Other currencies OECD currencies 39 3.2 53 3.4 Non-OECD currencies 264 8.9 210 7.0 Total disbursed loan portfolio $ 22,606 4.5 $ 21,043 4.7 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, 2014 through June 30, 2018 and thereafter, as follows (US$ millions): 2014 2015 2016 2017 2018 Thereafter Total Fixed rate loans $ 994 $ 576 $ 774 $ 368 $ 662 $ 1,294 $ 4,668 Variable rate loans 4,210 2,711 2,920 2,129 1,814 4,154 17,938 Total disbursed loan portfolio $ 5,204 $ 3,287 $ 3,694 $ 2,497 $ 2,476 $ 5,448 $ 22,606 At June 30, 2013, 21% of the disbursed loan portfolio consisted of fixed rate loans (21% - June 30, 2012), while the remainder was at variable rates. At June 30, 2013, the disbursed loan portfolio included $86 million of loans serving as collateral under secured borrowing arrangements ($100 million - June 30, 2012). IFC’s disbursed variable rate loans generally reprice within one year. During the year ended June 30, 2013, IFC received mortgage loans with an initial carrying amount of $0 ($6 million - year ended June 30, 2012) in conjunction with the settlement of borrowers obligation to IFC. These loans are classified as held-for-sale. 56 _ Page 63 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Reserve against losses on loans and provision for losses on loans Changes in the reserve against losses on loans for the years ended June 30, 2013, June 30, 2012 and June 30, 2011, as well as the related recorded investment in loans, evaluated for impairment individually (specific reserves) and on a pool basis (portfolio reserves) respectively, are summarized below (US$ millions): Year ended June 30, 2013 Specific Portfolio Total reserves reserves reserves Beginning balance $ 447 $ 934 $ 1,381 Provision (release of provision for) losses on loans, net 298 (49) 249 Write-offs (13) - (13) Foreign currency transaction adjustments (2) 2 - Other adjustments* 11 - 11 Ending balance $ 741 $ 887 $ 1,628 Related recorded investment in loans at June 30, 2013 evaluated for impairment** $ 21,923 $ 20,520 $ 21,923 Recorded investment in loans with specific reserves $ 1,403 Year ended June 30, 2012 Specific Portfolio Total reserves reserves reserves Beginning balance $ 382 $ 925 $ 1,307 Provision for losses on loans, net 76 39 115 Write-offs (13) - (13) Recoveries of previously written off loans 2 - 2 Foreign currency transaction adjustments (5) (30) (35) Other adjustments* 5 - 5 Ending balance $ 447 $ 934 $ 1,381 Related recorded investment in loans at June 30, 2012 evaluated for impairment** $ 20,226 $ 19,303 $ 20,226 Recorded investment in loans with specific reserves $ 923 Year ended June 30, 2011 Specific Portfolio Total reserves 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 Recorded investment in loans with specific reserves $ 918 *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. _ 57 Page 64 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Reserve for losses on guarantees and other receivables and provision for losses on guarantees and other receivables Changes in the reserve against losses on guarantees for the years ended June 30, 2013, June 30, 2012 and June 30, 2011, are summarized below (US$ millions): 2013 2012 2011 Beginning balance $ 21 $ 24 $ 24 Release of provision for losses on guarantees (4) (3) - Ending balance $ 17 $ 21 $ 24 Changes in the reserve against losses on other receivables for the years ended June 30, 2013, June 30, 2012 and June 30, 2011, are summarized below (US$ millions): 2013 2012 2011 Beginning balance $ 5 $ - $ - (Release of) provision for losses on other receivables (2) 5 - Ending balance $ 3 $ 5 $ - Impaired loans The average recorded investment during the year ended June 30, 2013, in loans at amortized cost that are impaired was $1,352 million ($908 million - year ended June 30, 2012). The recorded investment in loans at amortized cost that are impaired at June 30, 2013 was $1,403 million ($923 million - June 30, 2012). Loans at amortized cost that are impaired with specific reserves are summarized by industry sector and geographic region as follows (US$ millions): June 30, 2013 Unpaid Related Average Interest Recorded principal specific recorded income investment balance reserve investment recognized Manufacturing, agribusiness and services Asia $ 165 $ 171 $ 116 $ 162 $ 2 Europe, Middle East and North Africa 508 517 297 515 10 Sub-Saharan Africa, Latin America and Caribbean 398 460 189 333 13 Total manufacturing, agribusiness and services 1,071 1,148 602 1,010 25 Financial markets Asia 15 17 3 18 1 Europe, Middle East and North Africa 17 24 7 22 1 Sub-Saharan Africa, Latin America and Caribbean 7 32 7 7 1 Total financial markets 39 73 17 47 3 Infrastructure and natural resources Asia 72 72 35 72 - Europe, Middle East and North Africa - - - - - Sub-Saharan Africa, Latin America and Caribbean 188 188 76 187 4 Other 33 33 11 36 2 Total infrastructure and natural resources 293 293 122 295 6 Total $ 1,403 $ 1,514 $ 741 $ 1,352 $ 34 IFC had no impaired loans at June 30, 2013 with no specific reserves. 58 _ Page 65 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2012 Unpaid Related Average Interest Recorded principal specific recorded income investment balance reserve investment recognized Manufacturing, agribusiness and services Asia $ 100 $ 106 $ 72 $ 101 $ - Europe, Middle East and North Africa 436 444 235 440 12 Sub-Saharan Africa, Latin America and Caribbean 181 244 46 163 5 Total manufacturing, agribusiness and services 717 794 353 704 17 Financial markets Asia 22 24 5 19 2 Europe, Middle East and North Africa 40 46 18 48 3 Sub-Saharan Africa, Latin America and Caribbean 7 32 7 7 1 Total financial markets 69 102 30 74 6 Infrastructure and natural resources Asia 73 73 25 70 3 Europe, Middle East and North Africa 14 14 6 14 - Sub-Saharan Africa, Latin America and Caribbean 50 51 33 46 3 Total infrastructure and natural resources 137 138 64 130 6 Total $ 923 $ 1,034 $ 447 $ 908 $ 29 IFC had no impaired loans at June 30, 2012 with no specific reserves. Nonaccruing loans Loans on which the accrual of interest has been discontinued amounted to $1,272 million at June 30, 2013 ($859 million - June 30, 2012). The interest income on such loans for the years ended June 30, 2013 and June 30, 2012 is summarized as follows (US$ millions): 2013 2012 2011 Interest income not recognized on nonaccruing loans $ 90 $ 47 $ 61 Interest income recognized on loans in nonaccrual status related to current and prior years, on a cash basis 38 21 22 The recorded investment in nonaccruing loans at amortized cost is summarized by industry sector and geographic region as follow (US$ millions): June 30, 2013 Total recorded Manufacturing, Infrastructure investment in agribusiness Financial and natural nonaccruing and services markets resources loans Asia $ 148 $ 15 $ 64 $ 227 Europe, Middle East and North Africa 460 4 - 464 Sub-Saharan Africa, Latin America and Caribbean 388 - 129 517 Total disbursed loans at amortized cost $ 996 $ 19 $ 193 $ 1,208 June 30, 2012 Total recorded Manufacturing, Infrastructure investment in agribusiness Financial and natural nonaccruing and services markets resources loans Asia $ 82 $ - $ 8 $ 90 Europe, Middle East and North Africa 467 9 14 490 Sub-Saharan Africa, Latin America and Caribbean 142 - 32 174 Total disbursed loans at amortized cost $ 691 $ 9 $ 54 $ 754 _ 59 Page 66 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, 2013 30-59 60-89 90 days days days or greater Total Total past due past due past due past due Current loans Manufacturing, agribusiness and services Asia $ - $ - $ 141 $ 141 $ 1,820 $ 1,961 Europe, Middle East and North Africa 10 - 399 409 2,803 3,212 Sub-Saharan Africa, Latin America and Caribbean 31 35 146 212 1,860 2,072 Other - - - - 1,017 1,017 Total manufacturing, agribusiness and services 41 35 686 762 7,500 8,262 Financial markets Asia - - - - 1,837 1,837 Europe, Middle East and North Africa 1 - 4 5 2,290 2,295 Sub-Saharan Africa, Latin America and Caribbean - - - - 1,946 1,946 Other - 1 - 1 216 217 Total financial markets 1 1 4 6 6,289 6,295 Infrastructure and natural resources Asia - 4 64 68 1,627 1,695 Europe, Middle East and North Africa - - - - 2,306 2,306 Sub-Saharan Africa, Latin America and Caribbean - - 130 130 2,996 3,126 Other - - - - 413 413 Total infrastructure and natural resources - 4 194 198 7,342 7,540 Total disbursed loans at amortized cost $ 42 $ 40 $ 884 $ 966 $ 21,131 $ 22,097 Unamortized deferred loan origination fees, net and other (139) Disbursed amount allocated to a related financial instrument reported separately in other assets or derivative assets (35) Recorded investment in loans at amortized cost $ 21,923 At June 30, 2013, there are no loans 90 days or greater past due still accruing. 60 _ Page 67 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2012 30-59 60-89 90 days days days or greater Total Total past due past due past due past due Current loans Manufacturing, agribusiness and services Asia $ 18 $ - $ 73 $ 91 $ 1,821 $ 1,912 Europe, Middle East and North Africa - 26 397 423 2,600 3,023 Sub-Saharan Africa, Latin America and Caribbean - 40 63 103 1,824 1,927 Other - - - - 615 615 Total manufacturing, agribusiness and services 18 66 533 617 6,860 7,477 Financial markets Asia - - - - 1,198 1,198 Europe, Middle East and North Africa - - 4 4 2,576 2,580 Sub-Saharan Africa, Latin America and Caribbean - - - - 1,712 1,712 Other - - - - 330 330 Total financial markets - - 4 4 5,816 5,820 Infrastructure and natural resources Asia - - - - 1,548 1,548 Europe, Middle East and North Africa - - 14 14 2,250 2,264 Sub-Saharan Africa, Latin America and Caribbean - - 32 32 2,988 3,020 Other - - - - 255 255 Total infrastructure and natural resources - - 46 46 7,041 7,087 Total disbursed loans at amortized cost $ 18 $ 66 $ 583 $ 667 $ 19,717 $ 20,384 Unamortized deferred loan origination fees, net and other (120) Disbursed amount allocated to a related financial instrument reported separately in other assets or derivative assets (38) Recorded investment in loans at amortized cost $ 20,226 At June 30, 2012, there are no loans 90 days or greater past due still accruing. _ 61 Page 68 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. 62 _ Page 69 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A summary of IFC’s loans at amortized cost by credit quality indicator updated effective June 30, 2013 and June 30, 2012 respectively, as well as by industry sector and geographic region follows (US$ millions): June 30, 2013 Very good Good Average Watch Substandard Doubtful Loss Total Manufacturing, agribusiness and services Asia $ - $ 420 $ 830 $ 440 $ 86 $ 51 $ 134 $ 1,961 Europe, Middle East and North Africa 9 369 986 994 400 86 368 3,212 Sub-Saharan Africa, Latin America and Caribbean Europe 25 184 998 344 208 248 65 2,072 Other - 826 164 24 3 - - 1,017 Total manufacturing, agribusiness and services 34 1,799 2,978 1,802 697 385 567 8,262 Financial markets Asia 41 713 813 242 12 16 - 1,837 Europe, Middle East and North Africa - 530 1,280 289 165 27 4 2,295 Sub-Saharan Africa, Latin America and Caribbean - 870 911 148 10 7 - 1,946 Other - - 1 216 - - - 217 Total financial markets 41 2,113 3,005 895 187 50 4 6,295 Infrastructure and natural resources Asia - 291 589 664 79 8 64 1,695 Europe, Middle East and North Africa - 245 825 924 290 22 - 2,306 Sub-Saharan Africa, Latin America and Caribbean - 232 1,072 1,472 238 43 69 3,126 Other - 35 49 123 206 - - 413 Total infrastructure and natural resources - 803 2,535 3,183 813 73 133 7,540 Total disbursed loans at amortized cost $ 75 $ 4,715 $ 8,518 $ 5,880 $ 1,697 $ 508 $ 704 $ 22,097 Unamortized deferred loan origination fees, net and other (139) Disbursed amount allocated to a related financial instrument reported separately in other assets or derivative assets (35) Recorded investment in loans at amortized cost $ 21,923 _ 63 Page 70 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2012 Very good Good Average Watch Substandard Doubtful Loss Total Manufacturing, agribusiness and services Asia $ - $ 381 $ 793 $ 461 $ 187 $ 81 $ 9 $ 1,912 Europe, Middle East and North Africa - 312 1,092 904 302 231 182 3,023 Sub-Saharan Africa, Latin America and Caribbean Europe - 218 933 531 110 114 21 1,927 Other - 336 279 - - - - 615 Total manufacturing, agribusiness and services - 1,247 3,097 1,896 599 426 212 7,477 Financial markets Asia - 649 283 244 - 22 - 1,198 Europe, Middle East and North Africa - 425 1,440 387 267 57 4 2,580 Sub-Saharan Africa, Latin America and Caribbean - 338 1,181 176 10 7 - 1,712 Other - - - 330 - - - 330 Total financial markets - 1,412 2,904 1,137 277 86 4 5,820 Infrastructure and natural resources Asia - 257 553 630 35 41 32 1,548 Europe, Middle East and North Africa - 243 779 1,066 31 143 2 2,264 Sub-Saharan Africa, Latin America and Caribbean - 301 1,015 1,383 226 54 41 3,020 Other - 44 102 109 - - - 255 Total infrastructure and natural resources - 845 2,449 3,188 292 238 75 7,087 Total disbursed loans at amortized cost $ - $ 3,504 $ 8,450 $ 6,221 $ 1,168 $ 750 $ 291 $ 20,384 Unamortized deferred loan origination fees, net and other (120) Disbursed amount allocated to a related financial instrument reported separately in other assets or derivative assets (38) Recorded investment in loans at amortized cost $ 20,226 Loan modifications during the year ended June 30, 2013 considered troubled debt restructurings were not significant. There were no loans that defaulted during the year ended June 30, 2013 that had been modified in a troubled debt restructuring within 12 months prior to the date of default. Guarantees IFC extends financial guarantee facilities to its clients to provide full or partial credit enhancement for their debt securities and trade obligations. Under the terms of IFC’s guarantees, IFC agrees to assume responsibility for the client’s financial obligations in the event of default by the client, where default is defined as failure to pay when payment is due. Guarantees entered into by IFC generally have maturities consistent with those of the loan portfolio. Guarantees signed at June 30, 2013 totaled $4,933 million ($4,507 million - June 30, 2012). Guarantees of $3,565 million that were outstanding (i.e., not called) at June 30, 2013 ($3,420 million - June 30, 2012), were not included in loans on IFC’s consolidated balance sheet. The outstanding amount represents the maximum amount of undiscounted future payments that IFC could be required to make under these guarantees. 64 _ Page 71 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE F – DEBT SECURITIES Income from debt securities for the years ended June 30, 2013, June 30, 2012 and June 30, 2011, comprise the following (US$ millions): 2013 2012 2011 Interest income $ 59 $ 60 $ 39 Dividends 14 14 9 Realized gains (losses) on sales of debt securities 10 12 (2) Gains on non-monetary exchanges 7 1 4 Other-than-temporary impairments (46) (27) (2) Unrealized (losses) gains on debt securities accounted for at fair value under the Fair Value Option (39) 21 (2) Total income from debt securities $ 5 $ 81 $ 46 Debt securities accounted for as available-for-sale at June 30, 2013 and June 30, 2012 comprise (US$ millions): June 30, 2013 June 30, 2012 Amortized Unrealized Amortized Unrealized cost gains losses Fair value cost gains losses Fair value Corporate debt securities $ 1,381 $ 6 $ (17) $ 1,370 $ 1,425 $ - $ (26) $ 1,399 Preferred shares 438 43 (10) 471 483 41 (15) 509 Asset-backed securities 67 - - 67 6 - - 6 Other debt securities 3 - - 3 2 - - 2 Total $ 1,889 $ 49 $ (27) $ 1,911 $ 1,916 $ 41 $ (41) $ 1,916 Unrealized losses on debt securities accounted for as available-for-sale at June 30, 2013 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 $ 224 $ (5) $ 173 $ (12) $ 397 $ (17) Preferred shares 23 (2) 106 (8) 129 (10) Total $ 247 $ (7) $ 279 $ (20) $ 526 $ (27) Unrealized losses on debt securities accounted for as available-for-sale at June 30, 2012 are summarized below (US$ millions): Less than 12 months 12 months or greater Total Fair Unrealized Fair Unrealized Fair Unrealized value losses value losses value losses Corporate debt securities $ 127 $ (3) $ 339 $ (23) $ 466 $ (26) Preferred shares 179 (15) - - 179 (15) Total $ 306 $ (18) $ 339 $ (23) $ 645 $ (41) 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. _ 65 Page 72 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Debt securities with contractual maturities that are accounted for as available-for-sale have contractual maturities during the years ending June 30, 2014 through June 30, 2018 and thereafter, as follows (US$ millions): 2014 2015 2016 2017 2018 Thereafter Total Corporate debt securities $ 207 $ 201 $ 136 $ 100 $ 319 $ 345 $ 1,308 Asset-backed securities 2 2 67 2 1 12 86 Preferred shares - - - - - 44 44 Total disbursed portfolio of debt securities with contractual maturities $ 209 $ 203 $ 203 $ 102 $ 320 $ 401 $ 1,438 The expected maturity of asset-backed securities may differ from the contractual maturity, as reported above, due to prepayment features. In addition, IFC has $505 million of redeemable preferred shares and other debt securities with undefined maturities ($489 million - June 30, 2012). The currency composition and average contractual rate of debt securities with contractual maturities that are accounted for as available-for-sale are summarized below: June 30, 2013 June 30, 2012 Average Average Amount contractual Amount contractual (US$ millions) rate (%) (US$ millions) rate (%) US dollar $ 816 3.5 $ 541 3.5 Brazilian real 261 7.4 511 10.2 Euro 100 3.3 69 2.6 South African rand 100 5.6 121 6.1 Turkish lira 88 7.9 25 8.1 Other non-OECD currencies 73 5.3 169 6.7 Total disbursed portfolio of debt securities with contractual maturities $ 1,438 4.7 $ 1,436 6.5 After the effect of interest rate swaps and currency swaps, IFC’s debt securities with contractual maturities that are accounted for as available-for- sale are principally denominated in variable rate US dollars. NOTE G – EQUITY INVESTMENTS Income from equity investments for the years ended June 30, 2013, June 30, 2012 and June 30, 2011 comprises the following (US$ millions): 2013 2012 2011 Realized gains on equity sales, net $ 921 $ 2,000 $ 737 Gains on non-monetary exchanges 6 3 217 Dividends and profit participations 248 274 280 Custody, fees and other (8) - (6) Other-than-temporary impairments: Equity investments at cost less impairment (152) (272) (87) Equity investments available-for-sale (289) (420) (131) Total other-than-temporary impairments (441) (692) (218) Unrealized gains (losses) on equity investments 26 (128) 454 Total income from equity investments $ 752 $ 1,457 $ 1,464 Dividends and profit participations include $36 million at June 30, 2013 ($43 million - year ended June 30, 2012; $57 million - year ended June 30, 2011) of receipts received in freely convertible currency, net of cash disbursements, in respect of investments accounted for under the cost recovery method, for which cost has been fully recovered. Equity investments include several private equity funds that invest primarily in emerging markets across a range of sectors and that are accounted for at fair value under the Fair Value Option. These investments cannot be redeemed. Instead distributions are received through the liquidation of the underlying assets of the funds. IFC estimates that the underlying assets of the funds will be liquidated over five to eight years. The fair values of all these funds have been determined using the net asset value of IFC’s ownership interest in partners’ capital and totaled $2,687 million as of June 30, 2013 ($2,181 million - June 30, 2012). 66 _ Page 73 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE H – INVESTMENT TRANSACTIONS COMMITTED BUT NOT DISBURSED OR UTILIZED Loan, equity and debt security commitments signed but not yet disbursed, and guarantee and client risk management facilities signed but not yet utilized are summarized below (US$ millions): June 30, 2013 June 30, 2012 Investment transactions committed but not disbursed: Loans, equity investments and debt securities $ 10,358 $ 9,641 Investment transactions committed but not utilized: Guarantees 1,368 1,087 Client risk management facilities 290 250 Total investment transactions committed but not disbursed or utilized $ 12,016 $ 10,978 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, 2013 June 30, 2012 Loan participations signed as commitments but not disbursed $ 1,961 $ 1,880 Loan participations disbursed and outstanding which are serviced by IFC $ 6,621 $ 6,463 NOTE J – RECEIVABLES AND OTHER ASSETS Receivables and other assets are summarized below (US$ millions): June 30, 2013 June 30, 2012 Receivables from unsettled security trades $ 236 $ 691 Accrued interest income on time deposits and securities 135 126 Accrued income on derivative instruments 440 507 Accrued interest income on loans 207 229 Headquarters building: Land 89 89 Building 233 225 Less: Accumulated building depreciation (122) (106) Headquarters building, net 200 208 Deferred charges and other assets 1,063 1,068 Total receivables and other assets $ 2,281 $ 2,829 _ 67 Page 74 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, 2013 Interest rate swaps Currency swaps notional principal Market borrowings payable (receivable) payable (receivable) Net currency obligation Notional Amount Weighted Amount Weighted amount Weighted Amount Weighted (US$ average (US$ average (US$ average (US$ average millions) rate (%) millions) rate (%) millions) rate (%) millions) rate (%) US dollar $ 25,148 1.9 $ 18,400 (0.2) $ 37,767 0.4 $ 43,328 0.3 (37,987) (1.4) Australian dollar 8,136 4.8 (8,136) (4.8) - - - - Japanese yen 2,684 2.6 (2,684) (2.6) - - - - New Zealand dollar 1,616 4.3 (1,616) (4.3) - - - - Turkish lira 1,367 7.5 (1,367) (7.5) - - - - Brazilian real 1,318 6.3 (1,318) (6.3) - - - - South African rand 692 6.3 (692) (6.3) - - - - Russian ruble 498 3.8 (406) (3.8) - - 122 4.6 30 6.4 - - Pound sterling 447 2.9 (447) (2.9) - - - - Chinese renminbi 432 3.0 (81) (1.9) - - 351 3.2 Mexican peso 320 4.8 (320) (4.8) - - - - Euro 277 7.2 (269) (7.4) 8 0.4 8 0.4 (8) (0.3) Canadian dollar 183 2.8 (183) (2.8) - - - - Norwegian kroner 166 3.3 (166) (3.3) - - - - Hong Kong dollar 128 5.1 (128) (5.1) - - - - Nigerian naira 74 10.2 (49) (10.2) - - 25 10.2 Costa Rican colones 60 7.9 (60) (7.9) - - - - C.F.A. franc 40 4.3 - - - - 40 4.3 South Korean won 39 1.8 (39) (1.8) - - - - New Ghanaian cedi 11 14.9 (11) (14.9) - - - - Dominican pesos 9 10.5 - - - - 9 10.5 Principal at face value 43,645 $ 458 $ (220) $ 43,883 0.4 Borrowings under the short- term Discount Note Program 1,316 44,961 Unamortized discounts, net (499) Total market borrowings 44,462 Fair value adjustments 177 Carrying amount of market borrowings $ 44,639 68 _ Page 75 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2012 Interest rate swaps Currency swaps notional principal Market borrowings payable (receivable) payable (receivable) Net currency obligation Notional Amount Weighted Amount Weighted amount Weighted Amount Weighted (US $ average (US $ average (US $ average (US $ average millions) rate (%) millions) rate (%) millions) rate (%) millions) rate (%) US dollar $ 22,573 2.3 $ 17,946 (0.5) $ 35,208 0.7 $ 40,273 0.6 (35,454) (1.7) Australian dollar 9,048 5.4 (9,048) (5.4) - - - - Japanese yen 3,831 2.1 (3,831) (2.1) - - - - Turkish lira 1,801 8.9 (1,801) (8.9) - - - - New Zealand dollar 1,264 5.9 (1,264) (5.9) - - - - Brazilian real 913 8.4 (913) (8.4) - - - - Canadian dollar 780 4.6 (780) (4.6) - - - - South African rand 629 6.9 (629) (6.9) - - - - Pound sterling 490 3.1 (490) (3.1) - - - - Chinese renminbi 339 3.2 - - - - 339 3.2 Norwegian kroner 277 3.4 (277) (3.4) - - - - Euro 267 6.6 (259) (6.8) 8 1.0 8 1.0 (8) (0.8) - - Singapore dollar 158 1.1 (158) (1.1) - - - - Hong Kong dollar 128 5.1 (128) (5.1) - - - - Mexican peso 124 6.0 (124) (6.0) - - - - Swiss franc 111 4.6 (111) (4.6) - - - - Costa Rican colones 60 7.9 (60) (7.9) - - - - South Korean won 39 1.8 (39) (1.8) - - - - C.F.A. franc 38 4.3 - - - - 38 4.3 Russian ruble 30 5.8 (30) (5.8) - - - - 30 6.5 30 6.5 Principal at face value 42,900 $ (1,966) $ (246) $ 40,688 0.7 Borrowings under the short- term Discount Note Program 1,400 44,300 Unamortized discounts, net (640) Total market borrowings 43,660 Fair value adjustments 963 Carrying amount of market borrowings $ 44,623 The net currency obligations in C.F.A. francs, Chinese renminbi, Dominican pesos, Nigerian naira, and Russian rubles at June 30, 2013 have generally been invested and/or onlent to the clients in such currencies. The weighted average remaining maturity of IFC’s borrowings from market sources was 4.1 years at June 30, 2013 (5.5 years - June 30, 2012). Charges on borrowings for the year ended June 30, 2013 include $4 million of interest expense on secured borrowings ($5 million - year ended June 30, 2012; $4 million - year ended June 30, 2011) and is net of $11 million of gains on buybacks of market borrowings ($19 million - June 30, 2012; $10 million - year ended June 30, 2011). The net nominal amount payable from currency swaps of $458 million and the net notional amount receivable from interest rate swaps of $220 million at June 30, 2013 (receivable of $1,966 million from currency swaps and of $246 million from interest rate swaps - June 30, 2012), shown in the above table, are represented by currency and interest rate swap assets at fair value of $1,503 million and currency and interest rate swap liabilities at fair value of $1,823 million ($3,369 million and $627 million - June 30, 2012), 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, 2013 is $1,316 million ($1,400 million - June 30, 2012). Charges on borrowings for the year ended June 30, 2013, include $2 million in respect of this program ($1 million - June 30, 2012; $3 million - June 30, 2011). _ 69 Page 76 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Borrowings from IBRD Borrowings outstanding from IBRD and currency are summarized below: June 30, 2013 June 30, 2012 Principal Weighted Principal Weighted amount average amount average (US$ millions) cost (%) (US$ millions) cost (%) Saudi Arabian riyal $ 34 4.0 $ 42 4.0 US dollar 196 0.2 - - Total borrowings outstanding from IBRD $ 230 $ 42 The weighted average remaining maturity of borrowings from IBRD was 3.8 years at June 30, 2013 (2.7 years - June 30, 2012). Charges on borrowings for the year ended June 30, 2013, includes $2 million ($2 million - year ended June 30, 2012; $2 million - year ended June 30, 2011) in respect of borrowings from IBRD. Maturity of borrowings The principal amounts repayable on borrowings outstanding in all currencies, gross of any premiums or discounts, during the years ending June 30, 2014, through June 30, 2018, and thereafter are summarized below (US$ millions): 2014 2015 2016 2017 2018 Thereafter Total Borrowings from market sources $ 9,264 $ 7,053 $ 6,236 $ 7,027 $ 8,191 $ 5,874 $ 43,645 Borrowings under the short-term Discount Note Program 1,316 - - - - - 1,316 Borrowings from IBRD 8 8 8 8 198 - 230 Total borrowings, gross $ 10,588 $ 7,061 $ 6,244 $ 7,035 $ 8,389 $ 5,874 $ 45,191 Unamortized discounts, net (499) Fair value adjustments 177 Carrying amount of borrowings $ 44,869 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, 2013 June 30, 2012 Accrued charges on borrowings $ 395 $ 491 Accrued charges on derivative instruments 153 180 Payables for unsettled security trades 179 477 Secured borrowings 86 100 Liabilities under retirement benefit plans 183 338 Accounts payable, accrued expenses and other liabilities 1,225 1,162 Deferred income 114 110 Total payables and other liabilities $ 2,335 $ 2,858 NOTE M – CAPITAL TRANSACTIONS On July 20, 2010, the Board of Directors recommended that the Board of Governors approve an increase in the authorized share capital of IFC of $130 million, to $2,580 million, and the issuance of $200 million of shares (including $70 million of unallocated shares). The resolution recommended by the Board of Directors was adopted by the Board of Governors on March 9, 2012. The amendment to the Articles of Agreement and the increase in the authorized share capital have become effective on June 27, 2012. During the year ended June 30, 2013, 31,321 shares, at a par value of $1,000 each, were subscribed and paid by member countries (2,500 shares at a par value of $1,000 each - year ended June 30, 2012; 0 shares at a par value of $1,000 each - year ended June 30, 2011). 70 _ Page 77 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Under IFC’s Articles of Agreement, in the event a member withdraws from IFC, IFC and the member may negotiate on the repurchase of the member’s capital stock on such terms as may be appropriate under the circumstances. Such agreement may provide, among other things, for a final settlement of all obligations of the member to IFC. If such an agreement is not made within six months after the member withdraws or such other time as IFC and the member may agree, the repurchase price of the member’s capital stock shall be the value thereof shown by the books of IFC on the day when the member withdraws. The repurchase of capital stock is subject to certain conditions including payments in installments, at such times and in such available currency or currencies as IFC reasonably determines, taking into account the financial position of IFC. IFC’s Articles of Agreement also provide for the withdrawing member to repay losses on loans and equity investments in excess of reserves provided on the date of withdrawal. NOTE N – OTHER INCOME Other income for the year ended June 30, 2013, predominantly comprises $25 million of fees collected from clients ($20 million - year ended June 30, 2012; $24 million - year ended June 30, 2011), $41 million of income from consolidated entities ($28 million - year ended June 30, 2012; $29 million - year ended June 30, 2011) and income under other reimbursable arrangements of $8 million ($10 million - year ended June 30, 2012; $6 million - year ended June 30, 2011). NOTE O – RETAINED EARNINGS DESIGNATIONS AND RELATED EXPENDITURES AND ACCUMULATED OTHER COMPREHENSIVE INCOME Designated retained earnings The components of designated retained earnings and related expenditures are summarized below (US$ millions): Global SME Infrastructure Total Ventures Project designated Grants to Advisory Performance- for IDA Development retained IDA services based grants countries Fund earnings At June 30, 2010 $ - $ 313 $ 101 $ 37 $ 30 $ 481 Year ended June 30, 2011 Designations of retained 600 10 - - - 610 earnings Expenditures against designated retained earnings (600) (106) (47) (3) - (756) At June 30, 2011 $ - $ 217 $ 54 $ 34 $ 30 $ 335 Year ended June 30, 2012 Designations of retained 330 69 - - - 399 earnings Expenditures against designated retained earnings (330) (67) (13) (2) - (412) At June 30, 2012 $ - $ 219 $ 41 $ 32 $ 30 $ 322 Year ended June 30, 2013 Designations of retained 340 80 - - - 420 earnings Expenditures against designated retained earnings (340) (100) (10) (4) (10) (464) At June 30, 2013 $ - $ 199 $ 31 $ 28 $ 20 $ 278 On August 9, 2012, the Board of Directors approved a designation of $340 million of IFC’s retained earnings for grants to IDA and $80 million of IFC’s retained earnings for advisory services. On October 12, 2012, the Board of Governors noted with approval the designations approved by the Board of Directors. IFC recognizes designation of retained earnings for advisory services when the Board of Directors approves it and recognizes designation of retained earnings for grants to IDA when it is noted with approval by the Board of Governors. On January 15, 2013, IFC recognized expenditures against grants to IDA on signing of a grant agreement between IDA and IFC concerning the transfer to IDA and use of funds corresponding to designation of retained earnings for grants to IDA approved by the Board of Directors on August 9, 2012 and noted with approval by the Board of Governors on October 12, 2012. _ 71 Page 78 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Accumulated other comprehensive income The components of accumulated other comprehensive income at June 30, 2013 and June 30, 2012 are summarized as follows (US$ millions): June 30, 2013 June 30, 2012 Net unrealized gains on available-for-sale debt securities $ 22 $ - Net unrealized gains on available-for-sale equity investments 1,835 1,450 Unrecognized net actuarial losses and unrecognized prior service costs on benefit plans (736) (937) Total accumulated other comprehensive income $ 1,121 $ 513 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, 2013, June 30, 2012 and June 30, 2011, comprises (US$ millions): 2013 2012 2011 Net realized gains and losses on derivatives associated with investments: Realized (losses) gains on derivatives associated with loans $ (30) $ (1) $ 4 Realized gains on derivatives associated with debt securities 25 - 11 Realized gains on derivatives associated with equity investments 40 12 48 Total net realized gains on derivatives associated with investments 35 11 63 Net gains and losses on non-monetary exchanges of derivatives associated with investments: Gains (losses) on non-monetary exchanges of derivatives associated with loans 2 (1) - Gains on non-monetary exchanges of derivatives associated with debt securities - 11 8 Gains on non-monetary exchanges of derivatives associated with equity investments - - 14 Total net non-monetary gains on derivatives associated with investments 2 10 22 Net unrealized gains and losses on other non-trading financial instruments: Unrealized gains and losses on derivatives associated with investments: Unrealized gains (losses) on derivatives associated with loans 279 (99) (68) Unrealized gains (losses) on derivatives associated with debt securities 134 (14) (30) Unrealized (losses) gains on derivatives associated with equity investments (60) 79 75 Total unrealized gains (losses) on derivatives associated with investments 353 (34) (23) Unrealized gains and losses on market borrowings accounted for at fair value: Credit spread component 31 (59) (44) Interest rate, foreign exchange and other components 755 (1,148) 187 Total unrealized gains (losses) on market borrowings 786 (1,207) 143 Unrealized (losses) gains on derivatives associated with market borrowings (754) 1,001 (50) Net unrealized gains (losses) on market borrowings and associated derivatives 32 (206) 93 Total net unrealized gains (losses) on other non-trading financial instruments 385 (240) 70 Net gains (losses) on other non-trading financial instruments accounted for at fair value $ 422 $ (219) $ 155 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. 72 _ Page 79 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, 2013 and June 30, 2012 is summarized as follows (US$ millions): June 30, 2013 June 30, 2012 Consolidated balance sheet location Fair value Fair value Derivative assets Interest rate $ 684 $ 905 Foreign exchange 124 174 Interest rate and currency 1,787 3,116 Equity 780 418 Other derivative 1 2 Total derivative assets $ 3,376 $ 4,615 Derivative liabilities Interest rate $ 446 $ 410 Foreign exchange 41 68 Interest rate and currency 1,823 782 Equity and other - 1 Total derivative liabilities $ 2,310 $ 1,261 The effect of derivative instruments contracts on the consolidated income statement for the years ended June 30, 2013, June 30, 2012 and June 30, 2011 is summarized as follows (US$ millions): Derivative risk category Income statement location 2013 2012 2011 Interest rate Income from loans and guarantees $ (48) $ (39) $ (50) Income from liquid asset trading activities (237) (282) (238) Charges on borrowings 373 440 464 Other income 9 2 11 Net gains and losses on other non-trading financial instruments accounted for at fair value (365) 267 (38) Foreign exchange Foreign currency transaction gains and losses on non-trading activities 134 75 46 Income from liquid asset trading activities (179) (22) (33) Net gains and losses on other non-trading financial instruments accounted for at fair value 14 26 (11) Interest rate and currency Income from loans and guarantees (157) (187) (198) Income from debt securities (29) (61) (79) Income from liquid asset trading activities 164 (74) (32) Charges on borrowings 910 940 943 Foreign currency transaction gains and losses on non-trading activities (2,829) 512 993 Net gains and losses on other non-trading financial instruments accounted for at fair value (105) 660 (81) Other income (7) - (5) Equity Net gains and losses on other non-trading financial instruments accounted for at fair value 93 40 135 Other derivative contracts Net gains and losses on other non-trading financial instruments accounted for at fair value (1) (5) 7 Total $ (2,260) $ 2,292 $ 1,834 The income related to each derivative instrument category includes realized and unrealized gains and losses. _ 73 Page 80 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS At June 30, 2013, the outstanding volume, measured by US$ equivalent notional, of interest rate contracts was $55,400 million ($51,147 million - June 30, 2012), foreign exchange contracts was $10,853 million ($11,605 million - June 30, 2012) and interest rate and currency contracts was $31,765 million ($28,730 million - June 30, 2012). At June 30, 2013, there were 263 equity risk and other contracts related to IFC’s loan and equity investment portfolio recognized as derivatives assets or liabilities under ASC Topic 815 (221 equity risk and other contracts - June 30, 2012). 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 $724 million at June 30, 2013 ($105 million - June 30, 2012). At June 30, 2013, IFC had no collateral posted under these agreements. If IFC was downgraded from the current AAA to AA+ or less, then collateral in the amount of $233 million would be required to be posted against net liability positions with counterparties at June 30, 2013 ($6 million - June 30, 2012). As of June 30, 2013, IFC had $245 million ($183 million - June 30, 2012) of outstanding obligations to return cash collateral under master netting agreements. NOTE R – FAIR VALUE MEASUREMENTS Many of IFC’s financial instruments are not actively traded in any market. Accordingly, estimates and present value calculations of future cash flows are used to estimate the fair values. Determining future cash flows for fair value estimation is subjective and imprecise, and minor changes in assumptions or methodologies may materially affect the estimated values. The excess or deficit resulting from the difference between the carrying amounts and the fair values presented does not necessarily reflect the values which will ultimately be realized, since IFC generally holds loans, borrowings and other financial instruments with contractual maturities, with the aim of realizing their contractual cash flows. The estimated fair values reflect the interest rate environments as of June 30, 2013 and June 30, 2012. 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. IFC’s financial instruments measured at fair value have been classified as Level 1, Level 2 or Level 3 based on the fair value hierarchy in ASC 820, as described in Note A. i) Level 1 primarily consists of financial instruments whose values are based on unadjusted quoted market prices. ii) Level 2 financial instruments are valued using models and other valuation methodologies and substantially all of the inputs are observable in the market place, can be derived from observable data or are supported by observable levels at which market transactions are executed. iii) Level 3 consists of financial instruments whose fair value is estimated based on internally developed models or methodologies utilizing inputs that are non-observable. Significant increases (decreases) in any of those inputs in isolation would result in a significantly lower (higher) fair value measurement. All of IFC’s financial instruments in its liquid assets portfolio are managed according to an investment authority approved by the Board of Directors and investment guidelines approved by IFC’s Corporate Risk Committee (CRC), a subcommittee of IFC’s Management Team. Third party independent vendor prices are used to price the vast majority of the liquid assets. The vendor prices are evaluated by IFC's Treasury department and IFC’s Integrated Risk department, maintains oversight for the pricing of liquid assets. IFC’s regional and industry departments are primarily responsible for fair valuing IFC’s investment portfolio (equity investments, debt securities, loan investments and related derivatives). IFC’s Portfolio Valuation Unit and Loss Provisioning Unit in the Accounting and Financial Operations department, provide oversight over the fair valuation process by monitoring and reviewing the fair values of IFC’s investment portfolio. IFC’s Valuation Oversight Subcommittee, which is a subcommittee of CRC, reviews significant valuation principles and the reasonableness of high exposure valuations quarterly. IFC's borrowings are fair valued by the Quantitative Analysis Group in IFC’s Treasury department under the oversight of the Integrated Risk department. 74 _ Page 81 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The methodologies used and key assumptions made to estimate fair values as of June 30, 2013, and June 30, 2012, are summarized below. Liquid assets - The primary pricing source for the liquid assets is valuations obtained from external pricing services (vendor prices). The most liquid securities in the liquid asset portfolio are exchange traded futures, options, and US Treasuries. For exchange traded futures and options, exchange quoted prices are obtained and these are classified as Level 1 in accordance with ASC 820. Liquid assets valued using quoted market prices are also classified as Level 1. Securities valued using vendor prices for which there is evidence of high market trade activity may also be classified as Level 1. US Treasuries are valued using index prices and also classified as Level 1. The remaining liquid assets valued using vendor prices are classified as Level 2 or Level 3 based on the results of IFC’s evaluation of the vendor's pricing methodologies. Most vendor prices use some form of matrix pricing methodology to derive the inputs for projecting cash flows or to derive prices. When vendor prices are not available, liquid assets are valued internally by IFC using yield-pricing approach or comparables model approach and these are classified as Level 2 or Level 3 depending on the degree that the inputs are observable in the market. The critical factors in valuing liquid assets in both Level 2 and Level 3 are the estimation of cash flows and yield. Other significant inputs for valuing corporate securities, quasi-government securities and sovereign or sovereign-guaranteed securities include reported trades, broker/dealer quotes, benchmark securities, option adjusted spread curve, volatilities, and other reference data. In addition to these inputs, valuation models for securitized or collateralized securities use collateral performance inputs, such as weighted average coupon rate, weighted average maturity, conditional prepayment rate, constant default rate, vintage, and credit enhancements. Loans and debt securities - Loans and debt securities in IFC’s investment portfolio that do not have available market prices are primarily valued using discounted cash flow approaches. All loans measured at fair value are classified as Level 3. Certain loans contain embedded conversion and/or income participation features. If not bifurcated as standalone derivatives, these features are considered in determining the loans’ fair value based on the quoted market prices or other calculated values of the equity investments into which the loans are convertible and the discounted cash flows of the income participation features. The valuation techniques and significant unobservable inputs for loans and debt securities classified as Level 3 as of June 30, 2013 and June 30, 2012 are presented below: June 30, 2013 Fair value Weighted (US$ Range average Valuation technique millions) Significant inputs (%) (%) Debt securities - preferred shares Discounted cash flows $ 267 Discount rate 6.9 - 18.0 12.0 Relative valuations 130 Valuation multiples* Net asset value 148 Third party pricing Recent transactions 33 Other techniques 7 Total preferred shares 585 Loans and other debt securities Discounted cash flows 1,545 Credit default swap spreads 1.0 - 50.0 2.9 Expected recovery rates 0.0 - 85.0 45.6 Recent transactions 416 Other techniques 98 Total loans and other debt securities 2,059 Total $ 2,644 June 30, 2012 Fair value Weighted (US$ Range average Valuation technique millions) Significant inputs (%) (%) Debt securities - preferred shares Discounted cash flows $ 159 Discount rate 8.0 - 22.2 13.3 Relative valuations 91 Valuation multiples* Net asset value 123 Third party pricing Recent transactions 275 n/a n/a Other techniques 9 Total preferred shares 657 Loans and other debt securities Discounted cash flows 2,037 Credit default swap spreads 0.7 - 80.0 3.9 Expected recovery rates 0.0 - 85.0 44.8 Recent transactions 57 n/a n/a Other techniques 8 Total loans and other debt securities 2,102 Total $ 2,759 * In case of valuation techniques with multiple significant inputs, the range and weighted average are not provided. _ 75 Page 82 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Borrowings - Fair values derived by using quoted prices in active markets are classified as Level 1. Fair values derived by determining the present value of estimated future cash flows using appropriate discount rates and option specific models where appropriate are classified as Level 2. The significant inputs used in valuing borrowings classified as Level 2 are presented below: Classes Significant Inputs Structured bonds Foreign exchange rate and inter-bank yield curves, IFC's credit curve and swaption volatility matrix, foreign exchange rate volatility, equity spot price, volatility and dividend yield. Unstructured bonds Inter-bank yield curve and IFC's credit curve. As of June 30, 2013 IFC had four inflation index linked structured borrowing issues classified as level 3 with a total fair value of $391 million. The significant unobservable inputs in the valuation of this structure are the correlations between and the weights of the constituents of the inflation index. Derivative instruments - The various classes of derivative instruments include interest rate contracts, foreign exchange contracts, interest rate and currency contracts, equity contracts and other derivative contracts. Certain over the counter derivatives in the liquid asset portfolio priced in-house are classified as Level 2, while certain over the counter derivatives priced using external manager prices are classified as Level 3. Fair values for derivative instruments are derived by determining the present value of estimated future cash flows using appropriate discount rates and option specific models where appropriate. The significant inputs used in valuing the various classes of derivative instruments classified as Level 2 and significant unobservable inputs for derivative instruments classified as Level 3 as of June 30, 2013 and June 30, 2012 are presented below: Level 2 derivatives Significant Inputs Interest rate contracts Inter-bank yield curves, foreign exchange basis curve and yield curves specified to index floating rates. Foreign exchange Foreign exchange rate, inter-bank yield curves and foreign exchange basis curve. Interest rate and currency rates Foreign exchange rate, inter-bank yield curves, foreign exchange basis curve and yield curves specified to index floating rates. June 30, 2013 Fair value Weighted (US$ Range average Level 3 derivatives Type millions) Significant inputs (%) (%) Equity related derivatives Fixed strike price options $ 38 Volatilities 1.0 - 70.6 21.5 Variable strike price options 742 Contractual strike price* Other techniques 1 Borrowing related structured Inflation index linked note Inflation index weights currency swap (26) and correlations Total $ 755 June 30, 2012 Fair value Weighted (US$ Range average Level 3 derivatives Type millions) Significant inputs (%) (%) Equity related derivatives Fixed strike price options $ 76 Volatilities 14.4 -115.1 34.9 Variable strike price options 332 Contractual strike price* Other techniques 7 Other derivatives 4 Total $ 419 * In case of valuation techniques with multiple significant inputs, the range and weighted average are not provided 76 _ Page 83 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Equity investments - Equity investments valued using quoted prices in active markets are classified as Level 1. Equity investments classified as Level 2 were valued using quoted prices in inactive markets. The valuation techniques and significant unobservable inputs for equity investments classified as Level 3 as of June 30, 2013 and June 30, 2012 are presented below: June 30, 2013 Fair value Weighted Sector Valuation technique (US$ millions) Significant inputs Range (%) average (%) Banking and other financial Discounted cash flows $ 674 Cost of equity 9.2 - 22.1 15.0 institutions Asset growth rate (5.9) - 170.0 9.7 Return on assets (14.2) - 6.2 2.2 Perpetual growth rate 2.5 - 11.0 5.0 Relative valuations 261 Price/book value 1.0 - 1.3 1.3 Listed price (adjusted) 203 Discount for lock-up 8.1 - 30.0 11.2 Recent transactions 271 Other techniques 96 Total banking and other financial institutions 1,505 AMC Funds Net Asset Value 886 Recent transactions 2 Other funds Net Asset Value 1,801 Third party pricing Recent transactions 42 Total funds 2,731 Weighted average cost of Others Discounted cash flows 318 capital 6.7 - 16.7 11.8 Cost of equity 8.7 - 19.1 13.1 Relative valuations 174 Valuation multiples* Listed price (adjusted) 29 Discount for lock-up 2.1 - 24.0 11.0 Recent transactions 156 Other techniques 138 Total others 815 Total $ 5,051 * In case of valuation techniques with multiple significant inputs, the range and weighted average are not provided. _ 77 Page 84 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2012 Fair value Weighted Sector Valuation technique (US$ millions) Significant inputs Range (%) average (%) Banking and other financial Discounted cash flows $ 514 Cost of equity 9.8 - 22.7 16.8 institutions Asset growth rate (34.0) - 113.0 20.1 Return on assets (8.6) - 7.4 2.1 Perpetual growth rate 3.0 - 11.0 5.2 Relative valuations 203 Price/book value 1.5 - 2.4 1.5 Listed price (adjusted) 207 Discount for lock-up 9.4 - 27.8 12.5 Recent transactions 70 n/a n/a Other techniques 14 Total banking and other financial institutions 1,008 AMC Funds Net Asset Value 491 Other funds Net Asset Value 1,690 Third party pricing Recent transactions 103 n/a n/a Total funds 2,284 Weighted average cost of Others Discounted cash flows 177 capital 6.8 - 16.1 10.4 Cost of equity 10.2 - 16.4 13.9 Relative valuations 135 Valuation multiples* Listed price (adjusted) 37 Discount for lock-up 5.0-18.7 6.5 Recent transactions 151 n/a n/a Other techniques 161 Total others 661 Total $ 3,953 * In case of valuation techniques with multiple significant inputs, the range and weighted average are not provided. 78 _ Page 85 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, 2013 and June 30, 2012 are summarized below (US$ millions). June 30, 2013 June 30, 2012 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 $ 37,191 $ 37,191 $ 36,879 $ 36,879 Investments: Loans at amortized cost, net of reserves against losses 20,295 21,801 18,845 19,452 Loans held for sale at lower of amortized cost or fair value 43 84 60 84 Loans accounted for at fair value under the Fair Value Option 493 493 591 591 Total loans 20,831 22,378 19,496 20,127 Equity investments at cost less impairment 3,119 4,733 3,066 5,269 Equity investments accounted for at fair value as available-for- sale 4,230 4,230 3,231 3,231 Equity investments accounted for at fair value 4,346 4,346 3,477 3,477 Total equity investments 11,695 13,309 9,774 11,977 Debt securities accounted for at fair value as available-for-sale 1,911 1,911 1,916 1,916 Debt securities accounted for at fair value under the Fair Value Option 240 240 252 252 Total debt securities 2,151 2,151 2,168 2,168 Total investments 34,677 37,838 31,438 34,272 Derivative assets: Borrowings-related 1,503 1,503 3,369 3,369 Liquid asset portfolio-related and other 376 376 264 264 Investment-related 1,378 1,378 852 852 Client risk management-related 119 119 130 130 Total derivative assets 3,376 3,376 4,615 4,615 Other investment-related financial assets 5 120 37 158 Financial liabilities Securities sold under repurchase agreements and payable for cash collateral received $ 5,736 $ 5,736 $ 6,397 $ 6,397 Market and IBRD borrowings outstanding 44,869 44,863 44,665 44,669 Derivative liabilities: Borrowings-related 1,823 1,823 627 627 Liquid asset portfolio-related and other 210 210 223 223 Investment-related 157 157 281 281 Client risk management-related 120 120 130 130 Total derivative liabilities 2,310 2,310 1,261 1,261 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 $24 million at June 30, 2013 ($20 million - June 30, 2012). Fair values of loan commitments are based on present value of loan commitment fees. _ 79 Page 86 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fair value hierarchy The following tables provide information as of June 30, 2013 and June 30, 2012, about IFC’s financial assets and financial liabilities measured at fair value on a recurring basis. As required by ASC 820, financial assets and financial liabilities are classified in their entirety based on the lowest level input that is significant to the fair value measurement (US$ millions): June 30, 2013 Level 1 Level 2 Level 3 Total Trading securities: Money market funds $ 768 $ - $ - $ 768 Treasury securities 6,098 - - 6,098 Foreign government obligations 6,491 - - 6,491 Government guaranteed obligations 436 55 - 491 Supranational bonds 131 26 - 157 Municipal bonds 900 - - 900 Agency bonds 170 2 - 172 Foreign agency bonds 893 - - 893 Agency residential mortgage-backed securities 184 63 - 247 Asset-backed securities - 3,533 5 3,538 Foreign asset-backed securities - 2,359 - 2,359 Corporate bonds 4,930 - - 4,930 Commercial mortgage-backed securities - 601 - 601 Foreign residential mortgage-backed securities 19 2,281 - 2,300 Non-agency residential mortgage-backed securities - 311 34 345 Collateralized debt and collateralized loan obligations - 13 46 59 Total trading securities 21,020* 9,244 85 30,349 Loans (outstanding principal balance $474) - - 493 493 Equity investments: Banking and non-banking financial institutions 1,669 18 1,464 3,151 Insurance companies 229 73 41 343 Funds - - 2,731 2,731 Others 1,490 46 815 2,351 Total equity investments 3,388 137 5,051 8,576 Debt securities: Corporate debt securities - - 1,474 1,474 Preferred shares - - 585 585 Asset-backed securities - - 87 87 Other debt securities - - 5 5 Total debt securities - - 2,151 2,151 Derivative assets: Interest rate contracts - 684 - 684 Foreign exchange - 124 - 124 Interest rate and currency - 1,787 - 1,787 Equity - - 780 780 Others - - 1 1 Total derivative assets - 2,595 781 3,376 Total assets at fair value $ 24,408 $ 11,976 $ 8,561 $ 44,945 Borrowings: Structured bonds $ - $ 3,606 $ 391 $ 3,997 Unstructured bonds 24,798 14,129 - 38,927 Total borrowings (outstanding principal balance $43,245**) 24,798 17,735 391 42,924 Derivative liabilities: Interest rate contracts - 446 - 446 Foreign exchange - 41 - 41 Interest rate and currency rates - 1,797 26 1,823 Total derivative liabilities - 2,284 26 2,310 Total liabilities at fair value $ 24,798 $ 20,019 $ 417 $ 45,234 * includes securities priced at par plus accrued interest, which approximates fair value, with a fair value of $768 million at June 30, 2013. ** includes discount notes (not under the short-term Discount Note Program), with original maturities greater than one year, with principal due at maturity of $2,386 million, with a fair value of $1,925 million as of June 30, 2013. Note: For the year ended June 30, 2013: trading securities with a fair value of $180 million transferred from level 2 to level 1 due to indications of improved market activity; and trading securities with a fair value of $1 million were transferred from level 1 to level 2 due to decrease in market activity. Equity investments with fair value of $72 million transferred from level 1 to level 2 and $49 million from level 2 to level 1 due to decrease/increase in market activities. Bonds issued by IFC with a fair value of $1,090 million transferred from level 1 to level 2 due to change in information quality. 80 _ Page 87 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2012 Level 1 Level 2 Level 3 Total Trading securities: Money market funds $ 109 $ - $ - $ 109 Treasury securities 6,362 - - 6,362 Foreign government obligations 6,251 14 - 6,265 Government guaranteed obligations 696 1,436 - 2,132 Supranational bonds 63 38 - 101 Municipal bonds 480 301 - 781 Agency bonds (95) 4 - (91) Foreign agency bonds 1,020 171 - 1,191 Agency residential mortgage-backed securities 213 62 - 275 Asset-backed securities - 3,780 10 3,790 Foreign asset-backed securities 1 1,026 - 1,027 Corporate bonds 3,503 73 - 3,576 Commercial mortgage-backed securities - 874 - 874 Foreign residential mortgage-backed securities 24 1,946 - 1,970 Non-agency residential mortgage-backed securities - 348 46 394 Collateralized debt and collateralized loan obligations - 18 94 112 Total trading securities 18,627* 10,091 150 28,868 Loans (outstanding principal balance $607) - - 591 591 Equity investments: Banking and non-banking financial institutions 1,353 69 930 2,352 Insurance companies 114 13 78 205 Funds - - 2,284 2,284 Others 1,145 61 661 1,867 Total equity investments 2,612 143 3,953 6,708 Debt securities: Corporate debt securities - - 1,495 1,495 Preferred shares - - 657 657 Asset-backed securities - - 7 7 Other debt securities - - 9 9 Total debt securities - - 2,168 2,168 Derivative assets: Interest rate contracts - 905 - 905 Foreign exchange - 174 - 174 Interest rate and currency rate - 3,116 - 3,116 Equity - - 418 418 Other - - 2 2 Total derivative assets - 4,195 420 4,615 Total assets at fair value $ 21,239 $ 14,429 $ 7,282 $ 42,950 Borrowings: Structured bonds $ - $ 6,219 $ - $ 6,219 Unstructured bonds 23,444 13,183 - 36,627 Total borrowings (outstanding principal balance $42,523**) 23,444 19,402 - 42,846 Derivative liabilities: Interest rate contracts - 410 - 410 Foreign exchange - 68 - 68 Interest rate and currency rates - 782 - 782 Equity price risk contracts - - 1 1 Total derivative liabilities - 1,260 1 1,261 Total liabilities at fair value $ 23,444 $ 20,662 $ 1 $ 44,107 * includes securities priced at par plus accrued interest, which approximates fair value, with a fair value of $109 million at June 30, 2012. ** includes discount notes (not under the short-term Discount Note Program), with original maturities greater than one year, with principal due at maturity of $3,229 million, with a fair value of $2,640 million as of June 30, 2012. Note: For the year ended June 30, 2012: trading securities with a fair value of $214 million were transferred from level 2 to level 1 due to indications of improved market activity; and, trading securities with a fair value of $749 million were transferred from level 1 to level 2 due to decrease in market activity. Equity investments with fair value of $116 million were transferred from level 1 to level 2 due to decrease in market activity. Bonds issued by IFC with a fair value of $514 million were transferred from level 2 to level 1, while bonds issued with a fair value of $1,952 million were transferred from level 1 to level 2 due to change in information quality. _ 81 Page 88 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following tables present the changes in the carrying value of IFC’s Level 3 financial assets and financial liabilities for the year ended June 30, 2013 and June 30, 2012 (US$ millions). IFC’s policy is to recognize transfers in and transfers out at the beginning of the reporting period. Level 3 trading securities for the year ended June 30, 2013 Asset Mortgage Collateralized Total backed backed loan and debt securities securities obligations Balance as of July 1, 2012 $ 10 $ 46 $ 94 $ 150 Transfers out Level 3 (*) (5) - - (5) Net gains and losses (realized and unrealized) in net income - 9 19 28 Purchases, issuances, sales and settlements: Purchases 5 - - 5 Sales (5) - (4) (9) Settlements and others - (21) (63) (84) Balance as of June 30, 2013 $ 5 $ 34 $ 46 $ 85 For the year ended June 30, 2013: Net unrealized gains and losses included in net income $ - $ 13 $ 18 $ 31 (*)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 2012 beginning balance as of June 30, 2013. Level 3 loans for the year ended June 30, 2013 Loans Total Balance as of July 1, 2012 $ 591 $ 591 Net gains and losses (realized and unrealized) in: Net income 38 38 Purchases, issuances, sales and settlements: Issuances 141 141 Settlements and others (277) (277) Balance as of June 30, 2013 $ 493 $ 493 For the year ended June 30, 2013: Net unrealized gains and losses included in net income $ 38 $ 38 Level 3 debt securities for the year ended June 30, 2013 Corporate Preferred Asset Others Total securities shares backed securities Balance as of July 1, 2012 $ 1,495 $ 657 $ 7 $ 9 $ 2,168 Net gains and losses (realized and unrealized) in: Net income (14) (37) - (4) (55) Other comprehensive income 14 1 - - 15 Purchases, issuances, sales and settlements: Purchases 387 50 86 - 523 Proceeds from sales - (35) - - (35) Settlements and others (408) (51) (6) - (465) Balance as of June 30, 2013 $ 1,474 $ 585 $ 87 $ 5 $ 2,151 For the year ended June 30, 2013: Net unrealized gains and losses included in net income $ (1) $ (48) $ - $ (4) $ (53) Net unrealized gains and losses included in other comprehensive income $ 18 $ 2 $ (1) $ - $ 19 82 _ Page 89 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Level 3 equity investments for the year ended June 30, 2013 Banking and Insurance Funds Others Total non-banking companies institutions Balance as of July 1, 2012 $ 930 $ 78 $ 2,284 $ 661 $ 3,953 Transfers into Level 3 (*) 52 - - - 52 Transfers out of Level 3 (**) (65) (51) - (33) (149) Net gains and losses (realized and unrealized) in: Net income 4 (8) 34 (75) (45) Other comprehensive income 43 2 - 6 51 Purchases, issuances, sales and settlements: Purchases 322 21 713 167 1,223 Proceeds from sales (13) - (316) (19) (348) Settlements and others 191 (1) 16 108 314 Balance as of June 30, 2013 $ 1,464 $ 41 $ 2,731 $ 815 $ 5,051 For the year ended June 30, 2013: Net unrealized gains and losses included in net income $ 39 $ (8) $ (142) $ (77) $ (188) Net unrealized gains and losses included in other comprehensive income $ 50 $ 2 $ - $ 5 $ 57 (*) Transfers into Level 3 are due to lack of observable market data resulting from a decrease in market activity for these securities as of June 30, 2013. (**)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 2012 beginning balance as of June 30, 2013. Level 3 derivative assets for the year ended June 30, 2013 Equity Other Total Balance as of July 1, 2012 $ 418 $ 2 $ 420 Net gains and losses (realized and unrealized) in: Net income 93 (1) 92 Purchases, issuances, sales and settlements: Purchases 5 - 5 Settlements and others 264 - 264 Balance as of June 30, 2013 $ 780 $ 1 $ 781 For the year ended June 30, 2013: Net unrealized gains and losses included in net income $ 78 $ (2) $ 76 Level 3 bond liabilities for the year ended June 30, 2013 Structured Unstructured Total Balance as of July 1, 2012 $ - $ - $ - Net gains and losses (realized and unrealized) in: Net income 52 - 52 Purchases, issuances, sales and settlements: Issuances (443) - (443) Balance as of June 30, 2013 $ (391) $ - $ (391) For the year ended June 30, 2013: Net unrealized gains and losses included in net income $ 52 $ - $ 52 _ 83 Page 90 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Level 3 derivative liabilities for the year ended June 30, 2013 Interest rate and currency Total Balance as of July 1, 2012 $ - $ - Net gains and losses (realized and unrealized) in: Net income (34) (34) Purchases, issuances, sales and settlements: Purchases and other 8 8 Balance as of June 30, 2013 $ (26) $ (26) For the year ended June 30, 2013: Net unrealized gains and losses included in net income $ (34) $ (34) Level 3 trading securities for the year ended June 30, 2012 Asset Mortgage Collateralized backed backed loan and debt securities securities obligations Total Balance as of July 1, 2011 $ 43 $ 64 $ 103 $ 210 Transfers into Level 3 (*) 5 - - 5 Transfers out of Level 3 (**) (43) (13) - (56) Net gains and losses (realized and unrealized) in: Net income - (5) 13 8 Purchases, issuances, sales and settlements: Purchases 5 - - 5 Settlements and others - - (22) (22) Balance as of June 30, 2012 $ 10 $ 46 $ 94 $ 150 For the year ended June 30, 2012: Net unrealized gains and losses included in net income $ - $ 10 $ 12 $ 22 (*) Transfers into Level 3 are due to lack of observable market data resulting from a decrease in market activity for these securities as of June 30, 2012. (**)Transfers out of Level 3 are due to availability of observable market data resulting from an increase in market activity for these securities or sales of some securities that were part of June 2011 beginning balance as of June 30, 2012. Level 3 loans for the year ended June 30, 2012 Loans Total Balance as of July 1, 2011 $ 637 $ 637 Net gains and losses (realized and unrealized) in: Net income (13) (13) Purchases, issuances, sales and settlements: Issuances 129 129 Settlements and others (162) (162) Balance as of June 30, 2012 $ 591 $ 591 For the year ended June 30, 2012: Net unrealized gains and losses included in net income $ (14) $ (14) Level 3 debt securities for the year ended June 30, 2012 Asset Corporate Preferred backed securities shares securities Others Total Balance as of July 1, 2011 $ 1,620 $ 516 $ 22 $ 8 $ 2,166 Net gains and losses (realized and unrealized) in: Net income 10 27 - 1 38 Other comprehensive income (221) (38) - - (259) Purchases, issuances, sales and settlements: Purchases 307 214 - - 521 Proceeds from sales - (56) - - (56) Settlements and others (221) (6) (15) - (242) Balance as of June 30, 2012 $ 1,495 $ 657 $ 7 $ 9 $ 2,168 For the year ended June 30, 2012: Net unrealized gains and losses included in net income $ (7) $ 13 $ - $ 1 $ 7 Net unrealized gains and losses included in other comprehensive income $ (171) $ (38) $ - $ - $ (209) 84 _ Page 91 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Level 3 equity investments for the year ended June 30, 2012 Banking and non-banking Insurance institutions companies Funds Others Total Balance as of July 1, 2011 $ 566 $ 14 $ 2,104 $ 548 $ 3,232 Transfers into Level 3 (*) 393 - - 21 414 Transfers out of Level 3 (**) (110) - - (59) (169) Net gains and losses (realized and unrealized) in: Net income (4) (2) (19) (8) (33) Other comprehensive income (3) 41 - 19 57 Purchases, issuances, sales and settlements: Purchases 58 13 436 138 645 Proceeds from sales (28) - (237) (1) (266) Settlements and others 58 12 - 3 73 Balance as of June 30, 2012 $ 930 $ 78 $ 2,284 $ 661 $ 3,953 For the year ended June 30, 2012: Net unrealized gains and losses included in net income $ 29 $ (2) $ (157) $ (6) $ (136) Net unrealized gains and losses included in other comprehensive income $ (3) $ 41 $ - $ 19 $ 57 (*) Transfers into Level 3 are due to lack of observable market data resulting from a decrease in market activity for these securities as of June 30, 2012. (**)Transfers out of Level 3 are due to availability of observable market data resulting from an increase in market activity for these securities or sales of some securities that were part of June 2011 beginning balance as of June 30, 2012. Level 3 derivative assets for the year ended June 30, 2012 Equity Other Total Balance as of July 1, 2011 $ 390 $ 7 $ 397 Net gains and losses (realized and unrealized) in: Net income 40 (5) 35 Purchases, issuances, sales and settlements: Purchases and issuances 8 - 8 Settlements and others (20) - (20) Balance as of June 30, 2012 $ 418 $ 2 $ 420 For the year ended June 30, 2012: Net unrealized gains and losses included in net income $ 70 $ (5) $ 65 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, 2013, equity investments, accounted for at cost less impairment, with a carrying amount of $1,090 million were written down to their fair value of $938 million ($1,519 million and $1,247 million - June 30, 2012), resulting in a loss of $152 million, which was included in income from equity investments in the consolidated income statement during the year ended June 30, 2013 (loss of $272 million - year ended June 30, 2012). The amount of the write-down was based on a Level 3 measure of fair value. _ 85 Page 92 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE S – CURRENCY POSITION IFC conducts its operations for loans, debt securities, equity investments, time deposits, trading securities, and borrowings in multiple currencies. IFC’s policy is to minimize the level of currency risk by closely matching the currency of its assets (other than equity investments and quasi-equity investments) and liabilities by using hedging instruments. IFC’s equity investments in enterprises located in its developing member countries are typically made in the local currency of the country. As a matter of policy, IFC carries the currency risk of equity investments and funds these investments from its capital and retained earnings. The following table summarizes IFC’s exposure in major currencies at June 30, 2013 and June 30, 2012 (US$ millions): June 30, 2013 Fair value Japanese Other and other US dollar Euro yen currencies adjustments Total Assets Cash and cash equivalents $ 2,965 $ 1,461 $ 4 $ 2,075 $ - $ 6,505 Trading securities 17,630 2,256 330 10,133 - 30,349 Securities purchased under resale agreements 337 - - - - 337 Investments: Loans 16,594 2,935 20 2,910 - 22,459 Less: Reserve against losses on loans (1,200) (218) - (210) - (1,628) Net loans 15,394 2,717 20 2,700 - 20,831 Equity investments - - - 11,695 - 11,695 Debt securities 1,528 100 - 523 - 2,151 Total investments 16,922 2,817 20 14,918 - 34,677 Derivative assets 6,833 537 2,683 15,623 (22,300) 3,376 Receivables and other assets 1,238 577 41 425 - 2,281 Total assets $ 45,925 $ 7,648 $ 3,078 $ 43,174 $ (22,300) $ 77,525 Liabilities Securities sold under repurchase agreements $ 5,715 $ 21 $ - $ - $ - $ 5,736 Borrowings 26,406 278 2,685 15,500 - 44,869 Derivative liabilities 9,009 6,438 26 9,874 (23,037) 2,310 Payables and other liabilities 1,346 584 40 365 - 2,335 Total liabilities $ 42,476 $ 7,321 $ 2,751 $ 25,739 $ (23,037) $ 55,250 86 _ Page 93 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2012 Fair value Japanese Other and other US dollar Euro yen currencies adjustments Total Assets Cash and cash equivalents $ 2,397 $ 1,480 $ 208 $ 2,962 $ - $ 7,047 Trading securities 18,763 997 1,359 7,749 - 28,868 Securities purchased under resale agreements 931 - - 33 - 964 Investments Loans 15,496 2,807 30 2,544 - 20,877 Less: Reserve against losses on loans (1,120) (164) (1) (96) - (1,381) Net loans 14,376 2,643 29 2,448 - 19,496 Equity investments - - - 9,774 - 9,774 Debt securities 1,287 69 - 812 - 2,168 Total investments 15,663 2,712 29 13,034 - 31,438 Derivative assets 6,454 393 3,832 16,034 (22,098) 4,615 Receivables and other assets 1,986 80 36 727 - 2,829 Total assets $ 46,194 $ 5,662 $ 5,464 $ 40,539 $ (22,098) $ 75,761 Liabilities Securities sold under repurchase agreements $ 6,397 $ - $ - $ - $ - $ 6,397 Borrowings 24,672 267 3,833 15,893 - 44,665 Derivative liabilities 6,811 4,871 1,383 10,492 (22,296) 1,261 Payables and other liabilities 2,099 89 36 634 - 2,858 Total liabilities $ 39,979 $ 5,227 $ 5,252 $ 27,019 $ (22,296) $ 55,181 NOTE T – SEGMENT REPORTING For management purposes, IFC’s business comprises three segments: investment services, treasury services and advisory services. The investment services segment consists primarily of lending and investing in debt and equity securities. The investment services segment also includes AMC, which is not separately disclosed due to its immaterial impact. Further information about the impact of AMC on IFC’s consolidated balance sheets and income statements can be found in Note B. Operationally, the treasury services segment consists of the borrowing, liquid asset management, asset and liability management and client risk management activities. Advisory services provide consultation services to governments and the private sector. Consistent with internal reporting, net income or expense from asset and liability management and client risk management activities in support of investment services is allocated from the treasury segment to the investment services segment. The performance of investment services, treasury services and advisory services is assessed by senior management on the basis of net income for each segment, return on assets, and return on capital employed. Advisory services are primarily assessed based on the level and adequacy of its funding sources (See Note V). IFC’s management reporting system and policies are used to determine revenues and expenses attributable to each segment. Consistent with internal reporting, administrative expenses are allocated to each segment based largely upon personnel costs and segment headcounts. Transactions between segments are immaterial and, thus, are not a factor in reconciling to the consolidated data. _ 87 Page 94 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS An analysis of IFC’s major components of income and expense by business segment for the years ended June 30, 2013, June 30, 2012 and June 30, 2011, is provided below (US$ millions): June 30, 2013 Investment Treasury Advisory services services services Total Income from loans and guarantees $ 1,059 $ - $ - $ 1,059 Provision for losses on loans, guarantees and other receivables (243) - - (243) Income from equity investments 752 - - 752 Income from debt securities 5 - - 5 Income from liquid asset trading activities - 500 - 500 Charges on borrowings (109) (111) - (220) Advisory services income - - 239 239 Other income 202 - - 202 Administrative expenses (781) (22) (42) (845) Advisory services expenses - - (351) (351) Expense from pension and other postretirement benefit plans (120) (6) (47) (173) Other expenses (32) - - (32) Foreign currency transaction gains and losses on non-trading activities 35 - - 35 Income (loss) before net gains and losses on other non-trading financial instruments accounted for at fair value and grants to IDA 768 361 (201) 928 Net gains and losses on other non-trading financial instruments accounted for at fair value Realized gains 35 - - 35 Gains on non-monetary exchanges 2 - - 2 Unrealized gains 353 32 - 385 Income (loss) before grants to IDA 1,158 393 (201) 1,350 Grants to IDA (340) - - (340) Net income (loss) 818 393 (201) 1,010 Less: Net loss attributable to noncontrolling interests 8 - - 8 Net income (loss) attributable to IFC $ 826 $ 393 $ (201) $ 1,018 June 30, 2012 Investment Treasury Advisory services services services Total Income from loans and guarantees $ 938 $ - $ - $ 938 Provision for losses on loans, guarantees and other receivables (117) - - (117) Income from equity investments 1,457 - - 1,457 Income from debt securities 81 - - 81 Income from liquid asset trading activities - 313 - 313 Charges on borrowings (92) (89) - (181) Advisory services income - - 269 269 Other income 179 - - 179 Administrative expenses (728) (23) (47) (798) Advisory services expenses - - (290) (290) Expense from pension and other postretirement benefit plans (68) (3) (25) (96) Other expenses (23) - - (23) Foreign currency transaction gains and losses on non-trading activities 145 - - 145 Income (loss) before net gains and losses on other non-trading financial instruments accounted for at fair value and grants to IDA 1,772 198 (93) 1,877 Net gains and losses on other non-trading financial instruments accounted for at fair value Realized gains 11 - - 11 Gains on non-monetary exchanges 10 - - 10 Unrealized losses (34) (206) - (240) Income (loss) before grants to IDA 1,759 (8) (93) 1,658 Grants to IDA (330) - - (330) Net income (loss) $ 1,429 $ (8) $ (93) $ 1,328 88 _ Page 95 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2011 Investment Treasury Advisory services services services Total Income from loans and guarantees $ 869 $ 8 $ - $ 877 Release of provisions for losses on loans, guarantees and other receivables 40 - - 40 Income from equity investments 1,464 - - 1,464 Income from debt securities 46 - - 46 Income from liquid asset trading activities - 529 - 529 Charges on borrowings (109) (31) - (140) Other income 222 - - 222 Administrative expenses (665) (9) (26) (700) Advisory services expenses - - (153) (153) Expense from pension and other postretirement benefit plans (80) (4) (25) (109) Other expenses (19) - - (19) Foreign currency transaction gains and losses on non-trading activities (33) - - (33) Income (loss) before net gains and losses on other non-trading financial instruments accounted for at fair value and grants to IDA 1,735 493 (204) 2,024 Net gains and losses on other non-trading financial instruments accounted for at fair value Realized gains 63 - - 63 Gains on non-monetary exchanges 22 - - 22 Unrealized gains (losses) (23) 93 - 70 Income (loss) before grants to IDA 1,797 586 (204) 2,179 Grants to IDA (600) - - (600) Net income (loss) $ 1,197 $ 586 $ (204) $ 1,579 Geographical segment data in respect of investment services is disclosed in Note D, and the composition of Liquid Assets is provided in Note C. NOTE U – VARIABLE INTEREST ENTITIES Significant variable interests IFC has identified 139 investments in VIEs which are not consolidated by IFC but in which it is deemed to hold significant variable interests at June 30, 2013 (106 investments - June 30, 2012). 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 $22,810 million at June 30, 2013 ($18,143 million - June 30, 2012). 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 $4,712 million at June 30, 2013 ($3,213 million - June 30, 2012). _ 89 Page 96 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The industry sector and geographical regional analysis of IFC’s maximum exposures as a result of its investment in these VIEs at June 30, 2013 and June 30, 2012 is as follows (US$ millions): June 30, 2013 Equity Debt Risk Loans investments securities Guarantees management Total Manufacturing, agribusiness and services Asia $ 91 $ 7 $ 19 $ - $ - $ 117 Europe, Middle East and North Africa 459 18 1 - - 478 Sub-Saharan Africa, Latin America and Caribbean 266 42 - - - 308 Total manufacturing, agribusiness and services 816 67 20 - - 903 Financial markets Asia 158 69 - 51 10 288 Europe, Middle East and North Africa 55 263 201 2 - 521 Sub-Saharan Africa, Latin America and Caribbean 48 208 41 121 - 418 Other 78 1 159 - 15 253 Total financial markets 339 541 401 174 25 1,480 Infrastructure and natural resources Asia 594 42 8 - - 644 Europe, Middle East and North Africa 429 39 4 - 48 520 Sub-Saharan Africa, Latin America and Caribbean 1,081 28 14 7 35 1,165 Total infrastructure and natural resources 2,104 109 26 7 83 2,329 Maximum exposure to VIEs $ 3,259 $ 717 $ 447 $ 181 $ 108 $ 4,712 June 30, 2012 Equity Debt Risk Loans investments securities Guarantees management Total Manufacturing, agribusiness and services Asia $ 93 $ - $ 4 $ - $ - $ 97 Europe, Middle East and North Africa 284 30 3 - - 317 Sub-Saharan Africa, Latin America and Caribbean 140 31 - - - 171 Total manufacturing, agribusiness and services 517 61 7 - - 585 Financial markets Asia 20 57 - - - 77 Europe, Middle East and North Africa 56 42 85 - - 183 Sub-Saharan Africa, Latin America and Caribbean 62 114 55 1 - 232 Other 72 - 122 - 13 207 Total financial markets 210 213 262 1 13 699 Infrastructure and natural resources Asia 721 33 33 - - 787 Europe, Middle East and North Africa 406 31 2 - 72 511 Sub-Saharan Africa, Latin America and Caribbean 556 27 25 8 15 631 Total infrastructure and natural resources 1,683 91 60 8 87 1,929 Maximum exposure to VIEs $ 2,410 $ 365 $ 329 $ 9 $ 100 $ 3,213 90 _ Page 97 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The carrying value of investments and maximum exposure to VIEs at June 30, 2013 and June 30, 2012 is as follows (US$ millions): June 30, 2013 Carrying value Committed but Maximum Investment category of investments not yet disbursed exposure Loans $ 2,207 $ 1,052 $ 3,259 Equity investments 504 213 717 Debt securities 447 - 447 Guarantees 181 - 181 Risk management 69 39 108 Maximum exposure to VIEs $ 3,408 $ 1,304 $ 4,712 June 30, 2012 Carrying value Committed but Maximum Investment category of investments not yet disbursed exposure Loans $ 1,749 $ 661 $ 2,410 Equity investments 212 153 365 Debt securities 329 - 329 Guarantees 9 - 9 Risk management 79 21 100 Maximum exposure to VIEs $ 2,378 $ 835 $ 3,213 NOTE V – ADVISORY SERVICES IFC provides advisory services to government and private sector clients through four business lines: access to finance; investment climate; public- private partnerships; and sustainable business. IFC funds this business line by a combination of cash received from government and other donors and IFC’s operations via retained earnings and operating budget designations as well as fees received from the recipients of the services. IFC administers donor funds through trust funds. The donor funds may be used to support feasibility studies, project preparation, and other advisory services initiatives. Donor funds are restricted for purposes specified in agreements with the donors. IFC’s funding for advisory services are made in accordance with terms approved by IFC’s Board. Donor funds under administration and IFC’s funding can be comingled in accordance with administration agreements with donors. The comingled funds are held in a separate liquid asset investment portfolio managed by IBRD, which is not commingled with IFC’s other liquid assets and is reported at fair value in other assets. Donor funds are refundable until expended for their designated purpose. As of June 30, 2013, other assets include undisbursed donor funds of $391 million ($406 million - June 30, 2012) and IFC’s advisory services funding of $170 million ($196 million - June 30, 2012). Included in other liabilities as of June 30, 2013 is $391 million ($406 million - June 30, 2012) of refundable undisbursed donor funds. _ 91 Page 98 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE W – PENSION AND OTHER POSTRETIREMENT BENEFITS IBRD, IFC and MIGA participate in a defined benefit Staff Retirement Plan (SRP), a Retired Staff Benefits Plan (RSBP) and a Post-Employment Benefits Plan (PEBP) that cover substantially all of their staff members. The SRP provides pension benefits and includes a cash balance plan. The RSBP provides certain health and life insurance benefits to eligible retirees. The PEBP provides certain pension benefits administered outside the SRP. IFC uses a June 30 measurement date for its pension and other postretirement benefit plans. The amounts presented below reflect IFC’s respective share of the costs, assets and liabilities of the plans. All costs, assets and liabilities associated with these plans are allocated between IBRD, IFC and MIGA based upon their employees’ respective participation in the plans. Costs allocated to IBRD are then shared between IBRD and IDA based on an agreed cost-sharing ratio. IDA, IFC and MIGA reimburse IBRD for their proportionate share of any contributions made to these plans by IBRD. Contributions to these plans are calculated as a percentage of salary. The following table summarizes the benefit costs associated with the SRP, RSBP, and PEBP allocated to IFC for the years ended June 30, 2013, June 30, 2012 and June 30 2011 (US$ millions): SRP RSBP PEBP 2013 2012 2011 2013 2012 2011 2013 2012 2011 Benefit cost Service cost $ 116 $ 87 $ 78 $ 25 $ 17 $ 16 $ 11 $ 9 $ 8 Interest cost 101 112 109 17 17 16 7 6 5 Expected return on plan assets (141) (150) (137) (18) (18) (16) - - - Amortization of prior service cost 1 2 1 2 - * * * * Amortization of unrecognized net loss 36 6 20 9 4 6 7 4 3 Net periodic pension cost (income) $ 113 $ 57 $ 71 $ 35 $ 20 $ 22 $ 25 $ 19 $ 16 * Less than $0.5 million The expenses for the SRP, RSBP, and PEBP are included in expense from pension and other postretirement benefit plans. For the years ended June 30, 2013, June 30, 2012 and June 30, 2011, expenses for these plans of $173 million, $96 million and $109 million, respectively, were allocated to IFC. The following table summarizes the projected benefit obligations, fair value of plan assets, and funded status associated with the SRP, RSBP, and PEBP for IFC for the years ended June 30, 2013 and June 30, 2012 (US$ millions). Since the assets for the PEBP are not held in an irrevocable trust separate from the assets of IBRD, they do not qualify for off-balance sheet accounting and are therefore included in IBRD's investment portfolio. IFC has recognized a receivable (prepaid asset) from IBRD and a payable (liability) to IBRD equal to the amount required to support the plan. The assets of the PEBP are invested in fixed income and equity instruments. SRP RSBP PEBP 2013 2012 2013 2012 2013 2012 Projected benefit obligations Beginning of year $ 2,647 $ 2,166 $ 416 $ 305 $ 175 $ 127 Service cost 116 87 25 17 11 9 Interest cost 101 112 17 17 7 7 Participant contributions 30 27 2 2 1 * Federal subsidy received - - * - - - Plan amendments - - 2 25 - - Benefits paid (106) (100) (7) (6) (5) (6) Actuarial loss (gain) (85) 355 (22) 56 6 38 End of year 2,703 2,647 433 416 195 175 Fair value of plan assets Beginning of year 2,431 2,347 294 266 - - Participant contributions 30 27 2 2 - - Actual return on assets 183 94 23 6 - - Employer contributions 75 63 28 26 - - Benefits paid (106) (100) (7) (6) - - End of year 2,613 2,431 340 294 - - Funded status* (90) (216) (93) (122) (195) (175) Accumulated benefit obligations $ 1,918 $ 1,812 $ 433 $ 416 $ 163 $ 148 * Positive funded status is reflected in Receivables and other assets under prepaid pension and other postretirement benefit cost, in Note J; negative funded status is included in Payables and other liabilities under liabilities under retirement benefits plans, in Note L 92 _ Page 99 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS During the fiscal year ended June 30, 2012, amendments were made to the RSBP. These included: (i) Providing reimbursements for standard and income related premiums paid by eligible Medicare B participants effective on July 1, 2012, (ii) moving from the current Retiree Drug Subsidy (RDS) arrangement to an Employer Group Waiver Plan (EGWP) effective January 1, 2013, (iii) providing reimbursements of Medicare Part D income-related premium amounts once the plan moved to the EGWP arrangement and (iv) eliminating the Medicare savings feature. The combined effect of these changes was a $25 million increase to the projected benefit obligation at June 30, 2012. During the fiscal year ended June 30, 2013, IFC decided not to transition the RSBP plan from RDS to EGWP following further evaluations of the design and administrative requirements of the EGWP. The effect of this change was a $2 million increase to the projected benefit obligation at June 30, 2013. The following tables present the amounts included in Accumulated other comprehensive income relating to Pension and Other Postretirement Benefits (US$ millions): Amounts included in Accumulated other comprehensive income in the year ended June 30, 2013: SRP RSBP PEBP Total Net actuarial loss $ 485 $ 115 $ 108 $ 708 Prior service cost 3 25 - 28 Net amount recognized in accumulated other comprehensive loss $ 488 $ 140 $ 108 $ 736 Amounts included in Accumulated other comprehensive income in the year ended June 30, 2012: SRP RSBP PEBP Total Net actuarial loss $ 648 $ 151 $ 108 $ 907 Prior service cost 4 25 1 30 Net amount recognized in accumulated other comprehensive loss $ 652 $ 176 $ 109 $ 937 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, 2014 are as follows (US$ millions): SRP RSBP PEBP Total Net actuarial loss $ 20 $ 5 $ 7 $ 32 Prior service cost 1 3 * 4 Net amount recognized in accumulated other comprehensive loss $ 21 $ 8 $ 7 $ 36 * Less than $0.5 million Assumptions The actuarial assumptions used are based on financial market interest rates, inflation expectations, past experience, and management’s best estimate of future benefit changes and economic conditions. Changes in these assumptions will impact future benefit costs and obligations. The expected long-term rate of return for the SRP assets is a weighted average of the expected long-term (10 years or more) returns for the various asset classes, weighted by the portfolio allocation. Asset class returns are developed using a forward-looking building block approach and are not strictly based on historical returns. Equity returns are generally developed as the sum of expected inflation, expected real earnings growth and expected long-term dividend yield. Bond returns are generally developed as the sum of expected inflation, real bond yield, 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. _ 93 Page 100 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following tables present the weighted-average assumptions used in determining the projected benefit obligations and the net periodic pension costs for the years ended June 30, 2013, June 30, 2012 and June 30, 2011: Weighted average assumptions used to determine projected benefit obligation (%) SRP RSBP PEBP 2013 2012 2011 2013 2012 2011 2013 2012 2011 Discount rate 4.60 3.90 5.30 4.80 4.10 5.50 4.50 3.90 5.20 Rate of compensation increase 5.70 5.40 5.90 5.70 5.40 5.90 Health care growth rates - at end of fiscal year 5.90 6.30 6.90 Ultimate health care growth rate 3.90 3.60 4.00 Year in which ultimate rate is reached 2022 2022 2022 Weighted average assumptions used to determine net periodic pension cost (%) SRP RSBP PEBP 2013 2012 2011 2013 2012 2011 2013 2012 2011 Discount rate 3.90 5.30 5.75 4.10 5.50 6.00 3.90 5.20 5.75 Expected return on plan assets 5.80 6.40 6.75 6.10 6.70 7.75 Rate of compensation increase 5.40 5.90 6.20 5.40 5.90 6.20 Health care growth rates - at end of fiscal year 6.30 6.90 7.00 Ultimate health care growth rate 3.60 4.00 4.25 Year in which ultimate rate is reached 2022 2022 2022 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 $ 12 $ (9) Effect on projected benefit obligation $ 109 $ (82) 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., target mix of assets) around which the plans are invested. The SAA for the plans is reviewed in detail and reset about every three years, with more frequent reviews and changes if and as needed based on market conditions. 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 based on the actuarial assumptions. Given the relatively long investment horizons of the SRP and RSBP, and the relatively modest liquidity needs over the short-term to pay benefits and meet other cash requirements, the focus of the investment strategy is on generating sustainable long-term investment returns through various asset classes and strategies including public and 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 SAA is comprised of a diversified portfolio drawn from among fixed-income, equity, real assets and absolute return strategies. 94 _ Page 101 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table presents the actual and target asset allocation at June 30, 2013 and June 30, 2012 by asset category for the SRP and RSBP. The target allocations for SRP and RSBP were last revised in May 2013. SRP RSBP Target % of Plan Assets Target % of Plan Assets Allocation Allocation 2013 (%) 2013 2012 2013 (%) 2013 2012 Asset class Public equity 27 30 24 29 30 27 Fixed income & cash 26 28 33 24 29 32 Private equity 20 18 20 20 21 24 Hedge funds 10 12 11 10 9 8 Real assets* 12 12 12 12 11 9 Opportunistic** 5 - - 5 - - Total 100 100 100 100 100 100 * Real assets include public and private real estate, infrastructure and timber. ** Opportunistic strategies are designed to take advantage of temporary market opportunities that are not captured in other parts of portfolio. Significant concentrations of risk in Plan assets The assets of the SRP and RSBP are diversified across a variety of asset classes. Investments in these asset classes are further diversified across funds, managers, strategies, geographies and sectors, to limit the impact of any individual investment. In spite of such level of diversification, equity market risk remains the primary source of the overall return volatility of the Plans. Risk management practices Managing investment risk is an integral part of managing the assets of the Plans. Liability driven investment management and asset diversification are central to the overall investment strategy and risk management approach for the SRP. The surplus volatility risk (defined as the annualized standard deviation of asset returns relative to that of liabilities) and downside risk measures are considered key indicators of the Plan’s overall investment risk. These measures are used to define the risk tolerance level and establish the overall level of investment risk. Investment risk is regularly monitored at the absolute level, as well as at the relative levels with respect to the investment policy, manager benchmarks, and liabilities of the Plans. Stress tests are performed periodically using relevant market scenarios to assess the impact of extreme market events. Monitoring of performance (at both manager and asset class levels) against benchmarks, and compliance with investment guidelines, is carried out on a regular basis as part of the risk monitoring process. Risk management for different asset classes is tailored to their specific characteristics and is an integral part of the external managers’ due diligence and monitoring processes. Credit risk is monitored on a regular basis and assessed for possible credit event impacts. The liquidity position of the Plans is analyzed at regular intervals and periodically tested using various stress scenarios to ensure that the Plans have sufficient liquidity to meet all cash flow requirements. In addition, the long-term cash flow needs of the Plans are considered during the SAA exercise and are one of the main drivers in determining maximum allocation to the illiquid investment vehicles. The plans mitigate operational risk by maintaining a system of internal controls along with other checks and balances at various levels. _ 95 Page 102 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, 2013 and June 30, 2012 (US$ millions): June 30, 2013 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 $ * $ 40 $ - $ 40 $ * $ 6 $ - $ 6 Securities purchased under resale agreements 55 - - 55 4 - - 4 Government and agency securities 513 119 - 632 35 53 - 88 Corporate and convertible bonds - 25 - 25 - 2 - 2 Asset-backed securities - 14 - 14 - * - * Mortgage-backed securities - 32 - 32 - * - * Total debt securities 568 230 - 798 39 61 - 100 Equity securities US common stocks 88 - - 88 7 - - 7 Non-US common stocks 419 - - 419 52 - - 52 Mutual funds 27 - - 27 7 - - 7 Real estate investment trusts 56 - - 56 6 - - 6 Total equity securities 590 - - 590 72 - - 72 Commingled funds - 226 - 226 - 37 - 37 Private equity - - 483 483 - - 71 71 Hedge funds - 205 79 284 - 21 8 29 Derivative assets/ liabilities * 2 - 2 (*) * - * Real estate (including infrastructure and timber) - 76 181 257 - 6 23 29 Other assets/ liabilities**, net - (*) - (27) - - - 2 Total Assets $ 1,158 $ 739 $ 743 $ 2,613 $ 111 $ 125 $ 102 $ 340 June 30, 2012 Fair value measurements on a recurring basis SRP RSBP Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Debt securities Time deposits $ - $ 9 $ - $ 9 $ - $ 4 $ - $ 4 Securities purchased under resale agreements 15 - - 15 3 - - 3 Government and agency securities 595 104 - 699 38 49 - 87 Corporate and convertible bonds - 27 * 27 - 3 - 3 Asset-backed securities - 9 * 9 - 1 * 1 Mortgage-backed securities - 49 * 49 - 1 * 1 Total debt securities 610 198 * 808 41 58 * 99 Equity securities US common stocks 73 - - 73 8 - - 8 Non-US common stocks 240 - - 240 33 - - 33 Mutual funds 107 - - 107 9 - - 9 Real estate investment trusts 57 - - 57 3 - - 3 Total equity securities 477 - - 477 53 - - 53 Commingled funds - 140 - 140 - 28 - 28 Private equity - - 491 491 - - 67 67 Hedge funds - 173 68 241 - 16 7 23 Derivative assets/ liabilities (*) (1) - (1) 1 (*) - 1 Real estate (including Infrastructure and timber) - 65 174 239 * 2 21 23 Other assets/ liabilities**, net - * - 36 - - - - Total Assets $ 1,087 $ 575 $ 733 $ 2,431 $ 95 $ 104 $ 95 $ 294 *Less than $0.5 million ** Includes receivables and payables carried at amounts that approximate fair value 96 _ Page 103 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following tables present a reconciliation of Level 3 assets held during the year ended June 30, 2013 and June 30, 2012 (US$ millions). For the fiscal year ended June 30, 2012, 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, 2013 SRP: Fair value measurements using significant unobservable inputs Corporate and Asset- Mortgage- convertible backed backed Private Real Hedge debt securities securities equity estate funds Total Beginning of the fiscal year $ * $ * $ * $ 491 $ 174 $ 68 $ 733 Actual return on plan assets: Relating to assets still held at the reporting date * - * 92 2 6 100 Relating to assets sold during the period - - (*) (22) 15 * (7) Purchase, issuances and settlements, net (*) (*) (*) (78) (10) 6 (82) Transfer in - - - - - 11 11 Transfer out (*) - - - - (12) (12) Balance at end of fiscal year $ - $ - $ - $ 483 $ 181 $ 79 $ 743 * Less than $0.5 million June 30, 2013 RSBP: Fair value measurements using significant unobservable inputs Corporate and Asset- Mortgage- convertible backed backed Private Real Hedge debt securities securities equity estate funds Total Beginning of the fiscal year $ - $ * $ * $ 67 $ 21 $ 7 $ 95 Actual return on plan assets: Relating to assets still held at the reporting date - - - 14 * 1 15 Relating to assets sold during the period - - - (3) 2 * (1) Purchase, issuances and settlements, net - (*) (*) (7) (*) 1 (6) Transfer in - - - - - 1 1 Transfer out - - - - - (2) (2) Balance at end of fiscal year $ - $ - $ - $ 71 $ 23 $ 8 $ 102 * Less than $0.5 million _ 97 Page 104 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2012 SRP: Fair value measurements using significant unobservable inputs Corporate and Asset- Mortgage- convertible backed backed Private Real Hedge debt securities securities equity estate funds Total Beginning of the fiscal year $ - $ 5 $ 3 $ 475 $ 139 $ 61 $ 683 Actual return on plan assets: Relating to assets still held at the reporting date * (*) 1 (42) 4 (1) (38) Relating to assets sold during the period * * (1) 40 6 (1) 44 Purchase, issuances and settlements, net (*) (5) (2) 18 25 11 47 Transfer in - - * - - 4 4 Transfer out - (*) (1) - - (6) (7) Balance at end of fiscal year $ * $ * $ * $ 491 $ 174 $ 68 $ 733 * Less than $0.5 million June 30, 2012 RSBP: Fair value measurements using significant unobservable inputs Corporate and Asset- Mortgage- convertible backed backed Private Real Hedge debt securities securities equity estate funds Total Beginning of the fiscal year $ - $ * $ * $ 66 $ 17 $ 6 $ 89 Actual return on plan assets: Relating to assets still held at the reporting date - (*) * (5) 3 (*) (2) Relating to assets sold during the period - (*) * 6 2 (*) 8 Purchase, issuances and settlements, net - (*) (*) * (1) 2 1 Transfer in - - - - - * * Transfer out - (*) (*) - - (1) (1) Balance at end of fiscal year $ - $ * $ * $ 67 $ 21 $ 7 $ 95 * Less than $0.5 million Valuation methods and assumptions The following are general descriptions of asset categories, as well as the valuation methodologies and inputs used to determine the fair value of each major category of Plan assets. It is important to note that the investment amounts in the asset categories shown in the table above may be different from the asset category allocation shown in the Investment Strategy section of the note. Asset classes in the table above are grouped by the characteristics of the investments held. The asset class break-down in the Investment Strategy section is based on management’s view of the economic exposures after considering the impact of derivatives and certain trading strategies. Debt securities Debt securities include time deposits, U.S. treasuries and agencies, debt obligations of foreign governments and debt obligations in corporations of domestic and foreign issuers. Fixed income also includes investments in asset backed securities such as collateralized mortgage obligations and mortgage backed securities. These securities are valued by independent pricing vendors at quoted market prices for the same or similar securities, where available. If quoted market prices are not available, fair values are based on discounted cash flow models using market-based parameters such as yield curves, interest rates, volatilities, foreign exchange rates and credit curves. Some debt securities are valued using techniques which require significant unobservable inputs. The selection of these inputs may involve some judgment. Management believes its estimates of fair value are reasonable given its processes for obtaining securities prices from multiple independent third-party vendors, ensuring that valuation models are reviewed and validated, and applying its approach consistently from period to period. Unless quoted prices are available, money market instruments and securities purchased under resale agreements are reported at face value which approximates fair value. 98 _ Page 105 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Equity securities Equity securities, including Real estate investment trusts (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. Reporting of those asset classes with a reporting lag, management estimates are based on the latest available information taking into account underlying market fundamentals and significant events through the balance sheet date. Investment in derivatives Investment in derivatives such as equity or bond futures, TBA securities, swaps, options and currency forwards are used to achieve a variety of objectives that include hedging interest rates and currency risks, gaining desired market exposure of a security, an index or currency exposure and rebalancing the portfolio. Over-the-counter derivatives are reported using valuations based on discounted cash flow methods incorporating market observable inputs. Estimated future benefits payments The following table shows the benefit payments expected to be paid in each of the next five years and subsequent five years. The expected benefit payments are based on the same assumptions used to measure the benefit obligation at June 30, 2013 (US$ millions): SRP RSBP PEBP Before Federal Federal subsidy subsidy July 1, 2013 - June 30, 2014 $ 109 $ 7 $ * $ 9 July 1, 2014 - June 30, 2015 117 8 * 10 July 1, 2015 - June 30, 2016 126 9 * 11 July 1, 2016 - June 30, 2017 135 10 * 12 July 1, 2017 - June 30, 2018 145 11 * 13 July 1, 2018 - June 30, 2023 872 77 2 81 * Less than $0.5 million _ 99 Page 106 INTERNATIONAL FINANCE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Expected contributions IFC’s contribution to the SRP and RSBP varies from year to year, as determined by the Pension Finance Committee, which bases its judgment on the results of annual actuarial valuations of the assets and liabilities of the SRP and RSBP. The best estimate of the amount of contributions expected to be paid to the SRP and RSBP for IFC during the year beginning July 1, 2013 is $88 million and $33 million, respectively. NOTE X – SERVICE AND SUPPORT PAYMENTS IFC obtains certain administrative and overhead services from IBRD in those areas where common services can be efficiently provided by IBRD. This includes shared costs of the Boards of Governors and Directors, and other services such as communications, internal auditing, administrative support, supplies, and insurance. IFC makes payments for these services to IBRD based on negotiated fees, chargebacks and allocated charges, where chargeback is not feasible. Expenses allocated to IFC for the year ended June 30, 2013, were $60 million ($57 million - year ended June 30, 2012; $50 million - year ended June 30, 2011). Other chargebacks include $30 million for the year ended June 30, 2013 ($26 million - year ended June 30, 2012; $26 million - year ended June 30, 2011). 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. 100 _ 07 Page 10 NATIONAL FINANCE CO INTERN ON ORPORATIO _ 101 08 Page 10 NATIONAL FINANCE CO INTERN ON ORPORATIO 102 _ _ 103 Project Commitments Fiscal Year 2013 This table includes projects signed and processed during FY13. All amounts are given in U.S. dollars, regardless of the currency of the transaction. Under the Global Trade Finance Program, IFC provides guaran- tee coverage of bank risk in emerging markets, where confirming 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 — o ​ r FI, in the case of investments through financial intermediaries that on-­ lend to cli- ents whose projects may present environmental and social risks. A: Business activities with potential significant adverse envi- ronmental or social risks and/or impacts that are diverse, irreversible, or unprecedented. B: Business activities with potential limited adverse environ- mental or social risks and/or impacts that are few in number, generally site-­specific, largely reversible, and readily addressed through mitigation measures. C: Business activities with minimal or no adverse environmental or social risks and/or impacts. FI: Business activities involving investments in FIs or through delivery mechanisms involving financial intermediation. This category is further divided into: FI–1: when an FI’s existing or proposed portfolio includes, or is expected to include, substantial financial exposure to business activities with potential significant adverse environmental or social risks or impacts that are diverse, irreversible, or unprecedented. FI–2: when an FI’s existing or proposed portfolio consists of, or is expected to consist of, business activities that have potential limited adverse environmental or social risks or impacts that are few in number, generally site-­ specific, largely reversible, and readily addressed through miti- gation measures; or includes a very limited number of business activities with potential significant adverse environmental or social risks or impacts that are diverse, irreversible, or unprecedented. FI–3: when an FI’s existing or proposed portfolio includes financial exposure to business activities that predom- inantly have minimal or no adverse environmental or social impacts. 104 _ IFC Financials and Projects 2013 Environment & IFC Loan & Social Category Quasi-Loan IFC Region Country Name Company Name Code Commitments ($) East Asia and the Pacific Cambodia ACLEDA Bank Plc. FI-2 — Prasac Microfinance Institution FI-3 10,000,000 China Anyou Biotechnology Group Company Limited B 20,000,000 Aqualyng Holding AS B 12,000,000 Bank of Beijing FI — Bank of Deyang FI — Bank of Jiangsu FI-2 — Bank of Shanghai Ltd. Co. FI-2 — Bayan Rongxing Village and Township Bank FI — CFPA Microfinance Management Co. FI-3 — CHUEE Facility — Bank of Beijing FI-2 — CHUEE Facility — Bank of Nanjing FI-2 — China Environmental Fund III, L.P. FI — China Everbright International Limited B 70,000,000 China Flooring Holding Company Limited A 40,000,000 Concord Medical Services Holdings Limited B 50,000,000 Daguan Jingyun Hydropower Industry Co., Ltd A 17,000,000 EDC China Holding Ltd B — ENN Energy Holdings Ltd. B 75,000,000 Fullerton Credit Chongqing Ltd FI 14,853,936 Fullerton Credit Hubei Ltd. FI-2 9,902,624 Fullerton Credit Sichuan Ltd FI 24,756,560 Guizhou Dushan Lidu Industry Development Co., Ltd A 6,000,000 Jiangxi Tianren Ecology Co., Ltd B — Muyuan Foodstuff Co., Ltd B 20,000,000 New Hope Agriculture and Food Fund II, L.P. FI-1 — Peak Reinsurance Holdings Limited FI-3 — Qingdao Jason Electric Co., Ltd B — SNF (China) Flocculant Co., Limited B 30,000,000 Shandong Changlin Deutz-Fahr Machinery Co., Ltd. B 13,005,000 Shanghai F-Road Commercial Services Co., Ltd FI-3 — Shanghai Fosun Pharmaceutical Group Co. Ltd B — Yingjiang Menglang Hydropower Co., Ltd A 27,000,000 East Asia and Pacific Region ADM Asia Restructuring Facility FI — Armstrong South East Asia Clean Energy Fund, L.P. FI-2 — Aureos South-East Asia Fund II LP FI — Lakeshore Capital Asia Ltd. FI-2 — Salamander Energy plc. B 10,000,000 Indonesia PT Bina Usaha Keluarga FI-3 4,937,002 PT HARUM ALAM SEGAR B 13,750,000 PT MITRA ALAM SEGAR B 4,750,000 PT Moya Indonesia B — PT Moya Tangerang B 23,553,613 PT Tirta Alam Segar B 11,750,000 PT Wintermar Offshore Marine Tbk B 10,000,000 PT. Bank Hana Indonesia FI-2 30,000,000 Sayap Mas Utama B 13,750,000 Lao People’s Democratic Republic Acleda Bank Lao Ltd FI-2 8,000,000 Mongolia Khan Bank of Mongolia, Ulanbaatar, Mongolia FI-2 20,000,000 MCS Properties Limited B 60,000,000 Mongolia Opportunities Fund I, L.P. FI — Suu JSC B — XacBank Ltd. FI-2 — Myanmar ACLEDA MFI Myanmar Co., Ltd. FI-3 2,000,000 Project Commitments _ 105 Fiscal Year 2013 IFC Equity & Trade Finance Non-Trade Total Syndications Quasi-Equity Risk Management Guarantee Finance Guarantee Commitments for Commitments Commitments ($) Commitments ($) Commitments ($) Commitments ($) IFC’s Own Account ($) [B-loans only] ($) 4,900,000 — 582,768 — 5,482,768 — — — — — 10,000,000 — — — — — 20,000,000 — — — — — 12,000,000 — — — 229,245,765 — 229,245,765 — — — 4,927,427 — 4,927,427 — — — — 74,071,105 74,071,105 — — — — 40,252,463 40,252,463 — 57,000 — — — 57,000 — 3,586,516 — — — 3,586,516 — — — — 70,723,631 70,723,631 — — — — 40,183,881 40,183,881 — 250,178 — — — 250,178 — — — — — 70,000,000 — — — — — 40,000,000 — — — — — 50,000,000 — — — — — 17,000,000 — 9,999,950 — — — 9,999,950 — — — — — 75,000,000 75,000,000 — — — — 14,853,936 — — — — — 9,902,624 — — — — — 24,756,560 — — — — — 6,000,000 — 8,500,000 — — — 8,500,000 — — — — — 20,000,000 — 20,000,000 — — — 20,000,000 — 81,950,000 — — — 81,950,000 — 6,000,000 — — — 6,000,000 — — — — — 30,000,000 — — — — — 13,005,000 — 5,500,000 — — — 5,500,000 — 25,000,000 — — — 25,000,000 — — — — — 27,000,000 — — 10,000,000 — — 10,000,000 — 20,000,000 — — — 20,000,000 — 25,000,000 — — — 25,000,000 — 20,000,000 — — — 20,000,000 — — — — — 10,000,000 — 3,932,323 — — — 8,869,324 — — — — — 13,750,000 13,750,000 — — — — 4,750,000 4,750,000 8,742,607 — — — 8,742,607 — — — — — 23,553,613 — — — — — 11,750,000 11,750,000 — — — — 10,000,000 — — — — — 30,000,000 — — — — — 13,750,000 13,750,000 — — — — 8,000,000 — — — 4,273,151 — 24,273,151 — — — — — 60,000,000 — 1,250,000 — — — 1,250,000 — — 100,000 — — 100,000 — 7,347,227 — 2,030,694 — 9,377,921 — — — — — 2,000,000 — 106 _ IFC Financials and Projects 2013 Environment & IFC Loan & Social Category Quasi-Loan IFC Region Country Name Company Name Code Commitments ($) East Asia and the Pacific Papua New Guinea Avenell Engineering System Limited B 4,000,000 Bank South Pacific FI-2 — Bank of South Pacific Limited FI-1 — Philippines Navegar I L.P. FI-2 — Philippine Asset Growth One, Inc. FI 34,479,274 Philippine Asset Growth Two, Inc. FI-3 24,312,992 Philippine Resources Savings Banking Corporation FI-3 — Thailand Bank of Ayudhya Public Company Limited FI 200,000,000 Chalybs Cylinders Ltd. B 26,155,000 Timor-Leste Tuba Rai Metin FI-3 500,000 Vietnam An Binh Commercial Joint Stock Bank FI — Asia Commercial Bank C — DongA Commercial Joint Stock Bank FI-3 — Methis Environmental Vietnam Co., Ltd. C — Orient Commercial Joint Stock Bank FI-2 — SN Power Holdings Singapore, Inc. C 400,000 Saigon Thuong Tin Commercial Joint Stock Bank FI — Vietnam International Commercial Joint Stock Bank FI-2 — Vietnam Joint Stock Commercial Bank for Industry and Trade FI — Vietnam Technological and Commercial Joint Stock Bank FI-2 — Vina Eco Board Co., Ltd. B — Europe and Central Asia Albania Banka Credins SHA FI-2 11,806,200 Bankers Petroleum Ltd. B 50,000,000 Armenia ACBA-Credit Agricole Bank Closed Joint Stock Company FI-3 — Ameriabank CJSC FI-3 — Armeconombank FI — Byblos Bank Armenia C 5,000,000 Euroterm Closed Joint Stock Company B 2,500,000 HSBC Bank Armenia cjsc FI 11,000,000 Inecobank FI-3 — Lydian International Ltd B — Azerbaijan AccessBank FI-2 15,000,000 AzeriGazbank FI — DEMIRBANK OJSC FI — Finca Azerbaijan LLC FI — JSC Bank Respublika FI-2 14,000,000 Belarus Belarusky Narodny Bank FI — JSC BPS-BANK (Formerly Belpromstroibank) C — JSC Belgazprombank C — MINSK TRANSIT BANK FI — Millex International B 20,000,000 Bosnia and Herzegovina Bekto Precisa d.o.o. B 10,393,600 Sisecam Soda Lukavac B 21,436,800 Bulgaria Eurobank EFG Bulgaria AD C — Central Asia Region Fawaz Abdulaziz Al Hokair & Co. B 25,000,000 Central Europe Region Organica Water Inc. B — Croatia Atlantic Trade d.o.o. Croatia B 20,515,033 SAME DEUTZ-FAHR Zetelice D.O.O. B 15,096,600 Vjetroelektrana Jelinak d.o.o, B 20,139,350 Georgia Bank of Georgia FI-2 — Clean Energy Invest AS A 365,200 JSC Bank Republic FI-3 — JSC MFO FINCA Georgia FI-3 4,000,000 JSC m2 Real Estate B 10,000,000 Project Commitments _ 107 Fiscal Year 2013 IFC Equity & Trade Finance Non-Trade Total Syndications Quasi-Equity Risk Management Guarantee Finance Guarantee Commitments for Commitments Commitments ($) Commitments ($) Commitments ($) Commitments ($) IFC’s Own Account ($) [B-loans only] ($) — — — — 4,000,000 — — — 4,191,792 — 4,191,792 — — — — 65,064,125 65,064,125 — 20,000,000 — — — 20,000,000 — — — — — 34,479,274 — — — — — 24,312,992 — 15,911,873 — — — 15,911,873 — — — — — 200,000,000 — — — — — 26,155,000 — — — — — 500,000 — — — 2,250,000 — 2,250,000 — — — 5,025,600 — 5,025,600 — — — 38,318,059 — 38,318,059 — 700,000 — — — 700,000 — — — 78,452,423 — 78,452,423 — — — — — 400,000 — — — 38,281,212 — 38,281,212 — — — 162,200,000 — 162,200,000 — — — 25,000,000 — 25,000,000 — — — 454,077,704 — 454,077,704 — — 300,000 — — 300,000 — — 50,000 — — 11,856,200 — — — — — 50,000,000 — — 1,000,000 — — 1,000,000 — — 1,000,000 7,549,633 — 8,549,633 — — — 1,135,590 — 1,135,590 — — — — — 5,000,000 — — — — — 2,500,000 — — — — — 11,000,000 — — — 2,000,000 — 2,000,000 — 1,949,162 — — — 1,949,162 — — — — — 15,000,000 — 1,114,366 — 3,176,417 — 4,290,783 — — — 10,568,704 — 10,568,704 — — 350,000 — — 350,000 — — — 218,613 — 14,218,613 — — — 4,675,061 — 4,675,061 — — — 23,958,415 — 23,958,415 — — — 25,739,415 — 25,739,415 — — — 5,289,566 — 5,289,566 — — — — — 20,000,000 — — — — — 10,393,600 — — 1,200,000 — — 22,636,800 — — — 28,429,873 — 28,429,873 — — — — — 25,000,000 — 4,000,000 — — — 4,000,000 — — — — — 20,515,033 — — — — — 15,096,600 — — — — — 20,139,350 30,401,280 — — 26,065,351 — 26,065,351 — — — — — 365,200 — — — 3,435,611 — 3,435,611 — — — — — 4,000,000 — — — — — 10,000,000 — 108 _ IFC Financials and Projects 2013 Environment & IFC Loan & Social Category Quasi-Loan IFC Region Country Name Company Name Code Commitments ($) Europe and Central Asia Joint Stock Company Kor Standard Bank FI-2 7,000,000 TBC Bank FI — Tetri Qudi LLC B 1,500,000 Kazakhstan Bank CenterCredit FI — Eastcomtrans LLP B 30,000,000 MicroCredit Organization Arnur Credit LLP FI-3 — Subsidiary Bank Sberbank of Russia JSC FI-2 70,000,000 Kosovo TEB Sh.A. FI-2 5,846,400 Kyrgyz Republic CJSC Finca Micro-Credit Company FI — Kompanion Financial Group Microfinance CJSC FI — Macedonia, Former Yugoslav NLB Tutunska banka, A.D. Skopje FI — Republic of Stopanska Banka a.d. Skopje C — Universal Investment Bank AD Skopje C — Moldova Aragvi Holding International Limited B 30,000,000 Bostavan Wineries, Ltd. B — CB Moldova Agroindbank SA FI — Romania Banca Romaneasca S.A. C — Banca Transilvania S.A. FI-2 25,637,000 Bancpost S.A. FI — GE Garanti Bank FI — Patria Credit IFN SA FI-3 10,425,123 UniCredit Tiriac Bank SA FI-1 37,039,781 Russian Federation Almaz Capital Russia Fund II LP FI — Asian-Pacific Bank (Open joint-stock company) FI 30,000,000 Brunswick Rail Finance Limited B 50,000,000 CREDIT BANK OF MOSCOW (OJSC) FI — CapMan Russia Fund II, LP FI-2 — Chuvash Republic B 31,895,237 Elbrus Capital Fund II FI-2 — IFC Russian Bank Capitalization Fund, LP FI — IXcellerate Ltd. C 1,022,076 Joint Stock Company Commercial Bank “Center-Invest” FI-2 29,915,240 OAO Promsvyazbank C — OJSC Bank Saint Petersburg C — OJSC KKS-Group B 8,095,855 RosEvroBank Joint Stock Commercial Bank C — Samara region B 64,423,131 Sanoh Rus limited liability company B — Transcapitalbank FI — ZAO Credit Evropa Bank FI — ZAO Locko Bank FI — ZAO Masterslavl B 4,618,913 Serbia Eurobank EFG a.d. Beograd FI — Grand Prom d.o.o. B 14,689,632 Victoria Group a.d. B 75,143,100 Slovenia Droga Kolinska d.d. Slovenija B 29,825,335 Southern Europe Region European Fund for Southeast Europe FI — Schwarz Group B 10,000,000 Tajikistan Open Joint Stock Company, Bank Eskhata FI — Turkey Acwa Guc Elektrik Isletme ve Yonetim Sanayi A 125,000,000 ve Ticaret Ltd. Sti. Asyaport Liman A.S. B 75,000,000 Denizbank Covered Bond FI-2 69,525,558 Earlybird Digital East Fund 2012 SCA SICAR FI-2 — Project Commitments _ 109 Fiscal Year 2013 IFC Equity & Trade Finance Non-Trade Total Syndications Quasi-Equity Risk Management Guarantee Finance Guarantee Commitments for Commitments Commitments ($) Commitments ($) Commitments ($) Commitments ($) IFC’s Own Account ($) [B-loans only] ($) — — — — 7,000,000 — 4,279,687 — 16,583,460 — 20,863,147 — — — — — 1,500,000 — — — 4,105,032 — 4,105,032 — 20,000,000 — — — 50,000,000 — — 115,000 — — 115,000 — — — 21,885,747 — 91,885,747 — — — 258,450 — 6,104,850 — — 610,000 — — 610,000 — — 250,000 — — 250,000 — — — 3,575,728 — 3,575,728 — — — 2,903,943 — 2,903,943 — — — 287,507 — 287,507 — 1 — — — 30,000,001 20,000,000 252,000 — — — 252,000 — — — 2,000,000 — 2,000,000 — — — 2,155,522 — 2,155,522 — — — 1,830,850 — 27,467,850 — — — 82,296,429 — 82,296,429 — — — 375,016 — 375,016 — — — — — 10,425,123 — — — — — 37,039,781 — 25,000,000 — — — 25,000,000 — — — 26,641,760 — 56,641,760 — — — — — 50,000,000 — 38,442,300 — 128,210,288 — 166,652,588 — 19,507,500 — — — 19,507,500 — — — — — 31,895,237 — 20,000,000 — — — 20,000,000 — 41,747,245 — — — 41,747,245 — 1,126,052 — — — 2,148,128 — — — — — 29,915,240 — — — 117,155,923 — 117,155,923 — — — 2,662,000 — 2,662,000 — 5,592,484 — — — 13,688,339 — — — 14,000,000 — 14,000,000 — — — — — 64,423,131 — 6,000,000 — — — 6,000,000 — 1,598,850 — 28,316,005 — 29,914,855 152,352,875 — — 2,539,102 — 2,539,102 — 2,414,098 — 117,901,940 — 120,316,039 — — — — — 4,618,913 — — — 61,593,625 — 61,593,625 — — — — — 14,689,632 — — — — — 75,143,100 — — — — — 29,825,335 — 20,328,750 — — — 20,328,750 — 105,207,309 — 83,903,752 — 199,111,060 — — — 269,500 — 269,500 — — — — — 125,000,000 — — — — — 75,000,000 — — — — — 69,525,558 — 25,000,000 — — — 25,000,000 — 110 _ IFC Financials and Projects 2013 Environment & IFC Loan & Social Category Quasi-Loan IFC Region Country Name Company Name Code Commitments ($) Europe and Central Asia Fibabanka A.S. FI-2 — Finansbank A.S. FI-2 75,000,000 Is Finansal Kiralama A.S. FI-2 35,000,000 Izmir Buyuksehir Belediyesi C 58,522,500 Izmir Su ve Kanalizasyon Idaresi Genel Mudurlugu B 35,891,800 Kipas Kagit Sanayi Isletmeleri A.S. B 50,000,000 Mediterra Capital Partners I, LP FI — Modern Karton Sanayii ve Ticaret A.S. B 8,000,000 Sanko Tekstil Isletmeleri Sanayi ve Ticaret A.S. B 25,000,000 Sekerbank T.A.S. FI-2 — Super Film Ambalaj Sanayi ve Ticaret A.S. B 45,000,000 T.C Ozyegin Universitesi B 42,500,000 T.C. Plato Meslek Yuksek Okulu B 6,000,000 TURKIYE SINAI KALKINMA BANKASI, A.S. FI-2 75,000,000 Turkiye Sise ve Cam Fabrikalari, A.S. B 40,000,000 Yapi ve Kredi Bankasi, A.S. FI — Ukraine Axzon A/S B — CJSC Myronivsky Hliboproduct B 50,000,000 FE Integrated Agrosystems B 16,000,000 LLC Real Estate F.C.A.U. B 30,000,000 LLC Savservice Center B 10,000,000 LLC “Firm “Astarta-Kyiv” B 40,000,000 Limited Liability Company “Okkoskhidinvest” B 30,000,000 NIBULON AGRICULTURAL LIMITED LIABILITY COMPANY B 30,000,000 PJSC OTP Bank C — Raiffeisen Bank Aval FI — The State Export Import Bank of Ukraine C — Uzbekistan Asaka Bank C — Latin America and the Caribbean Argentina BBVA Frances S.A. C — Banco CMF S.A. C — Banco Itau Argentina S.A. C — Banco Patagonia S.A. FI — Banco Supervielle S.A. C — Banco de Galicia y Buenos Aires, S.A. FI — S.A. San Miguel A.G.I.C.I. y F. B — Belize Atlantic Bank Belize FI — Banco Bisa S.A. C — Banco Ganadero FI-2 — Banco Mercantil S.A. FI — Banco de Credito C — Brazil AEGEA Saneamento S/A B — BHG S.A. – Brazilian Hospitality Group B — Banco ABC BRASIL S.A. FI-2 — Banco Cooperativo Sicredi S/A FI — Banco Daycoval S.A. FI-2 — Banco Fibra S.A. FI — Banco Industrial do Brasil S.A. FI-2 — Banco Industrial e Comercial S.A. FI — Banco Indusval S.A. FI-2 — Banco Itau Unibanco S.A. FI-2 100,000,000 Banco Pine S.A. C — Banco Sofisa S.A. FI — Canopus Holding S.A. B — Centro de Imagem Diagnosticos S.A. B 50,000,000 Companhia Brasileira de Securitizacao C — Project Commitments _ 111 Fiscal Year 2013 IFC Equity & Trade Finance Non-Trade Total Syndications Quasi-Equity Risk Management Guarantee Finance Guarantee Commitments for Commitments Commitments ($) Commitments ($) Commitments ($) Commitments ($) IFC’s Own Account ($) [B-loans only] ($) — — 32,391,400 — 32,391,400 — — — — — 75,000,000 — — — — — 35,000,000 — — — — — 58,522,500 — — — — — 35,891,800 — — — — — 50,000,000 — 19,999,500 — — — 19,999,500 — — — — — 8,000,000 — — — — — 25,000,000 — — — 32,645,496 — 32,645,496 — — — — — 45,000,000 — — — — — 42,500,000 — — — — — 6,000,000 — — — — — 75,000,000 — — — — — 40,000,000 — — — 109,249,592 — 109,249,592 — 21,086,940 — — — 21,086,940 — — — — — 50,000,000 — — — — — 16,000,000 — — — — — 30,000,000 — — — — — 10,000,000 — — — — — 40,000,000 — — — — — 30,000,000 55,000,000 — — — — 30,000,000 — — — 1,297,477 — 1,297,477 — — — 35,537,369 — 35,537,369 — — — 35,976,124 — 35,976,124 — — — 527,588 — 527,588 — — — 10,000,000 — 10,000,000 — — — 5,678,341 — 5,678,341 — — — 29,506,093 — 29,506,093 — — — 4,858,886 — 4,858,886 — — — 3,887,620 — 3,887,620 — — — 66,719,226 — 66,719,226 — — 450,000 — — 450,000 — — — 1,726,825 — 1,726,825 — — — 2,474,781 — 2,474,781 — — — 3,745,610 — 3,745,610 — — — 5,286,851 — 5,286,851 — — — 125,494 — 125,494 — 12,396,182 — — — 12,396,182 — 24,368,902 — — — 24,368,902 — — — 65,049,747 — 65,049,747 — 10,000,000 — — — 10,000,000 — 14,927,972 — 61,000,000 — 75,927,972 — — — 144,884,025 — 144,884,025 — — — 34,480,000 — 34,480,000 — — — 151,256,273 — 151,256,273 — — — 53,681,788 — 53,681,788 — — — — — 100,000,000 300,000,000 — — 167,406,100 — 167,406,100 — — — 25,527,201 — 25,527,201 — 25,000,000 — — — 25,000,000 — — — — — 50,000,000 — 39,182 — — — 39,182 — 112 _ IFC Financials and Projects 2013 Environment & IFC Loan & Social Category Quasi-Loan IFC Region Country Name Company Name Code Commitments ($) Latin America and the Caribbean Equatorial Energia S.A. A — FIRST Brazil Impact Investing Fund, LP FI-2 — Gavea Fundo De Investimento Em Cotas De Fundo De FI-1 — Investimento Em Direitos Creditorios Gávea Crédito Estruturado Fundo De Investimento Em Direitos FI-1 19,032,212 Creditórios Munich Re Surety Facility FI-3 — NBC BANK BRASIL S.A. BANCO MULTIPLO C — Recovery do Brasil Consultoria S.A. FI — Sul America S.A. FI-3 — Caribbean Region Portland Private Equity FI-1 — Chile Banco Bilbao Vizcaya Argentaria (Chile), S.A C — Banco de Credito e Inversiones FI-2 75,000,000 Bco Internacional SA FI-2 — Corpbanca FI-1 — Inversiones Magallanes S.A. FI — Virgin Mobile Chile SPA C 11,000,000 Colombia BBVA Colombia S.A. C — Credivalores - Crediservicios S.A.S FI-3 25,000,000 Energia Integral Andina S.A. B 10,000,000 Grupo Factoring de Occidente S.A.S FI-3 3,000,000 PetroNova Inc. B — Recaudo Bogota SAS C 55,000,000 TRIADA S.A.S. B — Virgin Mobile Colombia S.A.S C 14,000,000 Costa Rica Banco General (Costa Rica) S.A. FI-2 20,000,000 Banco Improsa S.A. FI — Banco LAFISE Costa Rica, S.A C — Banco Promerica de Costa Rica, S.A. FI — Coopealianza R.L. FI-2 9,996,002 Grupo Financiero Coocique R.L FI-3 5,001,000 Dominican Republic Banco Multiple Leon, S.A. C — Indicana Holdings Inc B 20,000,000 InterEnergy Holdings A — Unigold Inc. B — Ecuador Procesadora Nacional de Alimentos C.A. - PRONACA B 25,000,000 El Salvador Banco Agricola S.A. FI — La Hipotecaria C 10,000,000 Guatemala Banco GyT Continental S.A. FI — Banco Industrial S.A. (Guatemala) FI — Banco Internacional S.A. C — Compartamos, S.A. FI-3 7,683,361 Seguros G&T, S.A. FI — Guyana Guyana Goldfields Inc B — Haiti Turgeau Developments S.A. B 13,250,000 Honduras BANCO DEL PAIS S.A. C — Banco Atlantida S.A. FI — Banco Financiera Centroamericana, S.A. FI-2 10,000,000 Banco Financiera Comercial Hondurena S.A. (Banco Ficohsa) FI — Banco LAFISE Honduras ,S.A. C — Jamaica MBJ Airports Limited B 7,500,000 Latin America Region Amerra Latin America Finance LLC FI-2 50,000,000 Grupo Santillana de Ediciones, S.L. C 32,795,000 IFC African, Latin American & Caribbean Fund, LP FI — SAFTPAY, INC. C — Project Commitments _ 113 Fiscal Year 2013 IFC Equity & Trade Finance Non-Trade Total Syndications Quasi-Equity Risk Management Guarantee Finance Guarantee Commitments for Commitments Commitments ($) Commitments ($) Commitments ($) Commitments ($) IFC’s Own Account ($) [B-loans only] ($) 105,207,309 — — — 105,207,309 — 15,000,000 — — — 15,000,000 — 9,516,106 — — — 9,516,106 — — — — — 19,032,212 — — — — 70,000,000 70,000,000 — — — 11,000,000 — 11,000,000 — 100,000,000 — — — 100,000,000 — 197,604,051 — — — 197,604,051 — 20,000,000 — — — 20,000,000 — — — 8,545,485 — 8,545,485 — — — — — 75,000,000 — — — 6,000,000 — 6,000,000 — 22,752,239 — — — 22,752,239 — 259,281 — — — 259,281 — — — — — 11,000,000 — — — 10,415,806 — 10,415,806 — — — — — 25,000,000 — — — — — 10,000,000 — — — — — 3,000,000 — 14,981,273 — — — 14,981,273 — — 7,500,000 — — 62,500,000 — 10,000,000 — — — 10,000,000 — — — — — 14,000,000 — — — — — 20,000,000 — — — 15,190,000 — 15,190,000 — — — 19,984,077 — 19,984,077 — — — 13,422,996 — 13,422,996 — — — — — 9,996,002 — — — — — 5,001,000 — — — 8,740,945 — 8,740,945 — — — — — 20,000,000 10,000,000 50,000,001 — — — 50,000,001 — 4,943,887 — — — 4,943,887 — — — — — 25,000,000 — — — 9,000,000 — 9,000,000 — — — — — 10,000,000 — 830,140 — 65,000,000 — 65,830,140 — — — 71,483,456 — 71,483,456 — — — 23,000,000 — 23,000,000 — — — — — 7,683,361 — 5,250,000 — — — 5,250,000 — 5,539,767 — — — 5,539,767 — — — — — 13,250,000 13,250,000 — — 10,000,000 — 10,000,000 — — — 69,934,882 — 69,934,882 — — — 8,000,000 — 18,000,000 — — — 70,984,931 — 70,984,931 — — — 10,000,000 — 10,000,000 — — — — — 7,500,000 7,500,000 — — — — 50,000,000 — — — — — 32,795,000 — 54,002,521 — — — 54,002,521 — 7,000,000 — — — 7,000,000 — 114 _ IFC Financials and Projects 2013 Environment & IFC Loan & Social Category Quasi-Loan IFC Region Country Name Company Name Code Commitments ($) Latin America and the Caribbean Yellowpepper Holding Corp C — Mexico Agrofinanzas S.A. Institucion de Banca Multiple FI — Banco Mercantil del Norte, S. A. Institucion de Banca Multiple FI 44,563,770 Banco Monex, S.A. Institucion de Banca Multiple C — Banco del Bajio, S.A. FI — Braskem Idesa, S.A.P.I. A 285,000,000 CHG Meridian Mexico, S.A.P.I de C.V. FI 18,412,180 Credit Suisse Mexico Opportunities Trust FI-1 — Desarrolladora Homex S.A.B de C.V. B 141,882,673 Edilar, S.A. de C.V. B 14,711,747 Financiamiento Progresemos, SA de CV, SOFOM ENR FI — Proyectos Adamantine S.A. de C.V. Sociedad Financiera de C 496,295 Objeto Multiple E.N.R. Grupo Calidra, S.A. de C.V. B 50,000,000 Hospitaria Tenedora, S.A.P.I. de C.V. B 10,062,271 Norson Holding, S. de R.L. de C.V. B 40,000,000 Proteak Uno S.A.P.I.B de C.V. B 10,000,000 Servicios Comerciales de Energia, S.A. de C.V. B 25,316,045 Tenedora Nemak, S.A. de C.V. B 101,562,629 Tiendas Comercial Mexicana S.A. de C.V. B 423,323,112 nnope B 47,055,952 Urbi, Desarrollos Urbanos, S.A.B. de C.V. B 50,000,000 Nicaragua Banco de America Central, S.A. C — Banco de Finanzas FI — Banco de la Produccion S.A. C — Consorcio Naviero Nicaraguense S.A. A 15,000,000 LAFISE Bancentro, S.A. C — Panama BBVA Panama S.A. FI — Banco LAFISE Panamá, S.A. C — Desarrollos Urbanos Educativos S.A. B 25,000,000 Multibank C — Paraguay BANCO ITAU PARAGUAY S.A. FI — Banco Bilbao Vizcaya Argentaria Paraguay S.A. FI-3 15,000,000 Banco Continental S.A.E.C.A. FI — Banco Regional S.A. FI 15,000,000 Sudameris Bank FI — Peru APM Terminals Callao S.A. B 46,750,000 BBVA Banco Continental FI-1 75,000,000 Banco Interamericano de Finanzas S.A. FI-2 — Suriname De Surinaamsche Bank N.V. C — Uruguay Cooperativa Nacional de Productores de Leche B 30,000,000 Girocantex S.A. B 74,000,000 Nuevo Banco Comercial S.A. FI — Surinor S.A. B 9,000,000 Middle East and North Africa Afghanistan Afghanistan International Bank CJSC C — Telecom Development Company Afghanistan Limited B 65,000,000 Egypt, Arab Republic of Nile Kordsa Company for Industrial Fabrics SAE B 11,000,000 Ahli United Bank (Egypt) S.A.E. FI — Fawry for Banking and Payment Technology Services SAE C — Petroceltic International PLC B 100,000,000 Transglobe Energy Corporation B 33,333,333 Iraq Commercial Bank of Iraq FI — Gulftainer Company B 30,000,000 Karbala Cement Manufacturing Limited B 70,000,000 Project Commitments _ 115 Fiscal Year 2013 IFC Equity & Trade Finance Non-Trade Total Syndications Quasi-Equity Risk Management Guarantee Finance Guarantee Commitments for Commitments Commitments ($) Commitments ($) Commitments ($) Commitments ($) IFC’s Own Account ($) [B-loans only] ($) 113,441 — — — 113,441 — 1,394,483 — — — 1,394,483 — — — — — 44,563,770 — — — 12,000,000 — 12,000,000 — — — 36,615 — 36,615 — — — — — 285,000,000 350,000,000 — — — — 18,412,180 — 50,000,000 — — — 50,000,000 — — — — — 141,882,673 — — — — — 14,711,747 — 1,789,607 — — — 1,789,607 — — — — — 496,295 — — — — — 50,000,000 40,000,000 — — — — 10,062,271 — — — — — 40,000,000 — — — — — 10,000,000 — — — — — 25,316,045 — — — — — 101,562,629 — — — — — 423,323,112 — — — — — 47,055,952 — — — — — 50,000,000 — — — 20,000,000 — 20,000,000 — — — 13,330,897 — 13,330,897 — — — 500,000 — 500,000 — — — — — 15,000,000 — — — 19,600,000 — 19,600,000 — — — 15,194,689 — 15,194,689 — — — 547,253 — 547,253 — — — — — 25,000,000 — — — 82,840,778 — 82,840,778 — — — 106,000 — 106,000 — — — 24,540,074 — 39,540,074 — — — 15,453,500 — 15,453,500 — — — 14,447,550 — 29,447,550 — — — 31,936,000 — 31,936,000 — — — — — 46,750,000 170,250,000 — — 7,330,785 — 82,330,785 — 50,000,000 — 10,000,000 — 60,000,000 — — — 1,170,310 — 1,170,310 — — — — — 30,000,000 — — — — — 74,000,000 30,000,000 — — 38,011 — 38,011 — — — — — 9,000,000 — — — 1,400,490 — 1,400,490 — — — — — 65,000,000 — — — — — 11,000,000 — — — 56,150,000 — 56,150,000 — 6,000,000 — — — 6,000,000 — — — — — 100,000,000 — 8,000,000 — — — 41,333,333 — 12,128,923 — — — 12,128,923 — — — — — 30,000,000 — — — — — 70,000,000 — 116 _ IFC Financials and Projects 2013 Environment & IFC Loan & Social Category Quasi-Loan IFC Region Country Name Company Name Code Commitments ($) Middle East and North Africa Jordan AL ETIHAD C — Bank of Jordan LTD C — CTI Group Inc. B 2,000,000 Cairo Amman Bank C — Capital Bank of Jordan FI — Middle East Microcredit Company (non-profit) LLC FI-3 2,000,000 Tamweelcom FI-3 2,000,000 Lebanon BLC bank S.A.L. C — Bank of Beirut FI 10,000,000 Bank of Beirut and the Arab Countries S.A.L. C — Banque Libano-Francaise C — Butec Group S.A.L. (Holding) B 8,000,000 Credit Libanais SAL FI — Fransabank SAL (Fransabank) FI — Vitas SAL FI 2,000,000 MENA Region FIMBank P.L.C. FI-3 30,000,000 GC Credit Opportunities GP Limited FI-2 — Metito Holdings Limited B 50,000,000 Renaissance Services SAOG B 30,000,000 Sakr Energy Solutions FZCO B 12,000,000 Morocco Banque Centrale Populaire S.A. FI — Capital North Africa Venture Fund II SICAV-SIF S.C.A. FI — Institut des Hautes Etudes de Management B — Oman Ahli Bank S.A.O.G. FI — BANKMUSCAT SAOG FI-1 — Pakistan Allied Bank Limited FI — Bank Al Habib Limited C — Bank Alfalah Limited C — BankIslami Pakistan Limited C — Habib Bank Limited (HBL) FI — Habib Metropolitan Bank Ltd. C — IMPERIAL DEVELOPERS & BUILDERS (PRIVATE) LIMITED B 11,000,000 Karachi Organic Energy (Private) Limited C 2,500,000 MCB Bank Limited C — Meezan Bank Limited U — NIB Bank Limited C — SilkBank Limited FI — Soneri Bank Limited C — United Bank Limited C — Tunisia Amen Bank S.A. FI-2 — ENDA Inter-Arabe FI 6,292,870 West Bank and Gaza Bank of Palestine FI — National Bank U — South Asia Bangladesh AB Bank Limited FI-3 35,000,000 Ananta Apparels Limited B 6,250,000 BRAC Bank FI-2 — Butterfly Marketing Limited B — Eastern Bank Limited C — GrameenPhone Limited B 150,000,000 Green Delta Insurance Company Ltd. FI — Leopard Bangladesh Fund L.P. FI-2 — Southeast Bank Limited FI — The City Bank Limited FI-2 — bKash Limited FI-3 — Project Commitments _ 117 Fiscal Year 2013 IFC Equity & Trade Finance Non-Trade Total Syndications Quasi-Equity Risk Management Guarantee Finance Guarantee Commitments for Commitments Commitments ($) Commitments ($) Commitments ($) Commitments ($) IFC’s Own Account ($) [B-loans only] ($) — — 4,960,946 — 4,960,946 — — — 2,410,680 — 2,410,680 — — — — — 2,000,000 — — — 6,617,662 — 6,617,662 — — — 38,429,179 — 38,429,179 — — — — — 2,000,000 — — — — — 2,000,000 — — — 6,044,073 — 6,044,073 — 105,207,309 — — — 115,207,309 — — — 6,668,473 — 6,668,473 — — — 125,316,420 — 125,316,420 — — — — — 8,000,000 — — — 83,903,752 — 83,903,752 — — — 114,585,605 — 114,585,605 — — — — — 2,000,000 — — — 52,344,500 — 82,344,500 — 20,000,000 — — — 20,000,000 — 599,154 — — — 50,599,154 — — — — — 30,000,000 — 5,076,984 — — — 17,076,984 — 62,042,172 — — — 62,042,172 — 13,218,500 — — — 13,218,500 — 7,000,000 — — — 7,000,000 — 6,495,980 — — — 6,495,980 — 82,497,857 — — — 82,497,857 — — — 3,053,601 — 3,053,601 — — — 36,400,664 — 36,400,664 — — — 15,564,790 — 15,564,790 — — — 5,680,602 — 5,680,602 — — — 70,351,759 — 70,351,759 — — — 67,179,572 — 67,179,572 — — — — — 11,000,000 — — — — — 2,500,000 — — — 56,661,711 — 56,661,711 — — — 15,550,396 — 15,550,396 — — — 25,138,022 — 25,138,022 — — — 12,965,237 — 12,965,237 — — — 16,340,430 — 16,340,430 — — — 7,036,890 — 7,036,890 — 4,796,212 — — — 4,796,212 — — — — — 6,292,870 — — — 14,524,354 — 14,524,354 — — — 300,000 — 300,000 — — — 2,014,210 — 37,014,210 — — — — — 6,250,000 — — — 142,702,612 — 142,702,612 — 6,294,672 — — — 6,294,672 — — — 123,877,282 — 123,877,282 — — — — — 150,000,000 40,000,000 9,990,848 — — — 9,990,848 — 15,000,000 — — — 15,000,000 — — — 38,330,263 — 38,330,263 — — — 33,598,750 — 33,598,750 — 10,000,000 — — — 10,000,000 — 118 _ IFC Financials and Projects 2013 Environment & IFC Loan & Social Category Quasi-Loan IFC Region Country Name Company Name Code Commitments ($) South Asia Bhutan Bank of Bhutan C — Bhutan National Bank Limited FI-1 — India ATC Tires Private Limited B — Aavishkaar Goodwell India Microfinance Development FI — Company II Avanse Financial Services Pvt. Ltd FI-3 — Azure Power India Private Limited B 1,421,936 Azure Sun Energy Private Limited C 2,939,866 Bhilwara Energy Limited A — CapAleph Indian Millennium Fund FI — DQ Entertainment Plc C — Dewan Housing Finance Corporation Ltd. FI-3 70,000,000 Ecolibrium Energy Private Limited C — Fortis Healthcare Limited B 55,000,000 Green Infra Solar Farms Limited B 8,107,865 Green Infra Solar Projects Limited B 2,103,371 Gujarat Pipavav Port Limited B 60,000,000 Hikal Limited B 8,000,000 IFMR Rural Channels and Services Private Limited FI-3 — Inabensa Bharat Private Limited B 14,000,000 India 2020 Fund II Limited FI-2 — Inox Renewables (Jaisalmer) Limited B 50,000,000 JMT Auto Limited B 9,000,000 Jain Irrigation Systems Ltd B 50,000,000 Kaizen Private Equity FI — Kotak Mahindra Bank Limited FI — LNJ Power Ventures Limited B 7,531,727 Meghmani Finechem Limited B — NSL Renewable Power Pvt Ltd A 5,000,000 NSL Wind Power Company (Satara) Pvt Limited B 18,353,198 National Collateral Management Services Limited B — OCL India Limited A 40,000,000 PTC INDIA FINANCIAL SERVICES LIMITED FI-2 30,000,000 Power Grid Corporation of India Limited A 100,000,000 Ramkrishna Forgings Limited B 14,000,000 Religare Enterprises Limited FI-2 74,994,129 Rhodia Inc. B 85,768,693 SEI Solar Power Pvt. Ltd B 12,291,134 Snowman Logistics Limited B 2,763,194 Suryoday Microfinance Private Limited FI-3 — The Ratnakar Bank Limited FI-2 — Utkarsh Micro Finance Private Limited FI-3 — Value and Budget Housing Corporation Private Limited B — YES BANK LTD FI — Nepal Bank of Kathmandu Limited FI — Buddha Air Private Limited B 6,900,000 Butwal Power Company (BPC) B 2,500,000 Himalayan Bank Limited C — Laxmi Bank Limited C — Nepal Industrial and Commercial Bank Ltd. C — Nepal Investment Bank Ltd C — Southern Asia Region Earthport PLC C — Sri Lanka Cargills Agriculture and Commercial Bank Limited FI-1 — Commercial Bank of Ceylon FI-1 — National Development Bank PLC FI-2 24,000,000 Project Commitments _ 119 Fiscal Year 2013 IFC Equity & Trade Finance Non-Trade Total Syndications Quasi-Equity Risk Management Guarantee Finance Guarantee Commitments for Commitments Commitments ($) Commitments ($) Commitments ($) Commitments ($) IFC’s Own Account ($) [B-loans only] ($) — — 163,975 — 163,975 — 28,932,663 — 490,712 — 29,423,375 — 10,000,000 — — — 10,000,000 — 4,200,000 — — — 4,200,000 — 2,257,236 — — — 2,257,236 — 473,979 — — — 1,895,914 — — — — — 2,939,866 — 1,029,253 — — — 1,029,253 — 15,000,000 — — — 15,000,000 — 1,500,000 — — — 1,500,000 — — — — — 70,000,000 — 750,000 — — — 750,000 — 45,000,000 — — — 100,000,000 — — — — — 8,107,865 — — — — — 2,103,371 — — — — — 60,000,000 92,000,000 — — — — 8,000,000 — 7,081,526 — — — 7,081,526 — — — — — 14,000,000 — 25,000,000 — — — 25,000,000 — — — — — 50,000,000 — — — — — 9,000,000 — 9,971,510 — — — 59,971,510 65,000,000 3,000,000 — — — 3,000,000 — — — 36,098,008 — 36,098,008 — — — — — 7,531,727 — 1,240,340 — — — 1,240,340 — — — — — 5,000,000 — — — — — 18,353,198 — 3,200,000 — — — 3,200,000 — — — — — 40,000,000 — — — — — 30,000,000 — — — — — 100,000,000 120,000,000 4,943,820 — — — 18,943,820 — 5,871 — — — 75,000,000 — — — — — 85,768,693 — — — — — 12,291,134 — — — — — 2,763,194 — 2,783,964 — — — 2,783,964 — 22,068,584 — — — 22,068,584 — 774,336 — — — 774,336 — 11,061,947 — — — 11,061,947 — — — 13,887,266 — 13,887,266 — — — 3,462,156 — 3,462,156 — — — — — 6,900,000 — — — — — 2,500,000 — — — 1,225,033 — 1,225,033 — — — 47,680 — 47,680 — — — 874,107 — 874,107 — — — 6,639,677 — 6,639,677 — 10,000,000 — — — 10,000,000 — 3,876,273 — — — 3,876,273 — — — 7,427,714 — 7,427,714 — — — — — 24,000,000 — 120 _ IFC Financials and Projects 2013 Environment & IFC Loan & Social Category Quasi-Loan IFC Region Country Name Company Name Code Commitments ($) South Asia National Development Bank Plc. FI — Nations Trust Bank LTD. C — Softlogic Holdings PLC B 10,000,000 Uni Walkers (Private) Limited B 15,000,000 Union Bank of Colombo PLC C — Sub-Saharan Africa Africa Region Actis Africa Real Estate Fund 2 LP B — African Development Partners II LP FI-2 — Afrimax Limited B — BNP Paribas (Suisse) SA & BNP Paribas FI-2 250,000,000 Business Partners International (Proprietary) Limited FI — DiViNetworks Ltd. C — ETC Group B 70,000,000 Flexenclosure AB (publ) C — IHS Holding Limited B — IHS Nigeria Plc B 25,000,000 Root Capital, Inc. FI-2 5,000,000 Satya Capital Africa Fund II L.P. FI-2 — Angola Banco de Fomento. S.A.R.L C — Benin Diamond Bank Benin S.A. C — Ecobank Benin C — Botswana Tsodilo Resource Limited B — Burkina Faso Coris Bank International S.A. C — Ecobank-Burkina C — Gryphon Minerals B — Burundi Interbank Burundi S.A. FI — Cameroon Ecobank Cameroun S.A. FI — Societe Commerciale de Banque Cameroun FI-2 — Central African Republic Ecobank Centrafrique S. A. FI — Chad Ecobank Tchad S.A. FI — Congo, Democratic Republic of Advans Banque Congo FI 2,000,000 FINCA DRC S.A.R.L FI-3 4,000,000 Rawbank Commercial Banking FI-2 — Congo, Republic of Credit du Congo C — Côte d’Ivoire Azito Energie, S.A. B 125,000,000 Compagnie Hoteliere de la Lagune S.A. B 7,870,800 Ecobank — Côte d’Ivoire S.A. C — IAS International Aircraft Services Ltd. B 7,000,000 Sama Resources Inc B — Societe Ivoirienne de Banque C — Eastern Africa Region Africa Railways Limited A — Gambia, The Ecobank Gambia Limited C — Ghana Advans Ghana Savings and Loans Company Limited FI — Bank of Africa Ghana Limited FI-2 — EB-ACCION Savings and Loans Company Limited FI — Ecobank Ghana Limited FI — Fidelity Bank Limited C — Guaranty Trust Bank (Ghana) Limited C — HFC Bank Ghana Limited C — Kosmos Energy Finance International A 33,000,000 Takoradi International Company (TICO) B 80,000,000 UT Bank Ltd FI-2 — Guinea Ecobank Guinea C — Kenya Bank of Africa Kenya Ltd FI — Chase Bank (Kenya) Ltd C — Project Commitments _ 121 Fiscal Year 2013 IFC Equity & Trade Finance Non-Trade Total Syndications Quasi-Equity Risk Management Guarantee Finance Guarantee Commitments for Commitments Commitments ($) Commitments ($) Commitments ($) Commitments ($) IFC’s Own Account ($) [B-loans only] ($) — — 165,876 — 165,876 — — — 349,741 — 349,741 — — — — — 10,000,000 — — — — — 15,000,000 — — — 253,192 — 253,192 — 10,000,000 — — — 10,000,000 — 40,000,000 — — — 40,000,000 — 10,000,000 — — — 10,000,000 — — — — — 250,000,000 — 10 — — — 10 — 5,000,000 — — — 5,000,000 — — — — — 70,000,000 — 12,258,619 — — — 12,258,619 — 10,000,000 — — — 10,000,000 — 35,000,000 — — — 60,000,000 60,000,000 — — — — 5,000,000 — 40,000,000 — — — 40,000,000 — — — 74,386,926 — 74,386,926 — — — 38,357,747 — 38,357,747 — — — 24,204,404 — 24,204,404 — 1,997,503 — — — 1,997,503 — — — 142,033 — 142,033 — — — 9,634,919 — 9,634,919 — 1,561,096 — — — 1,561,096 — — — 252,000 — 252,000 — — — 6,834,458 — 6,834,458 — — — 18,332,382 — 18,332,382 — — — 202,015 — 202,015 — — — 1,865,881 — 1,865,881 — — — — — 2,000,000 — — — — — 4,000,000 — — — 2,251,870 — 2,251,870 — — — 13,532,151 — 13,532,151 — — 5,000,000 — — 130,000,000 — — — — — 7,870,800 — — — 2,749,967 — 2,749,967 — — — — — 7,000,000 — 1,265,761 — — — 1,265,761 — — — 6,948,529 — 6,948,529 — 2,079,275 — — — 2,079,275 — — — 2,000,000 — 2,000,000 — 497,822 — — — 497,822 — — — 387,888 — 387,888 — 141,814 — — — 141,814 — — — 68,416,806 — 68,416,806 — — — 5,992,800 — 5,992,800 — — — 55,769,356 — 55,769,356 — — — 9,262,550 — 9,262,550 — — — — — 33,000,000 — — 5,000,000 — — 85,000,000 — — — 76,079,429 — 76,079,429 — — — 15,977,177 — 15,977,177 — — — 5,774,323 — 5,774,323 — — — 105,836 — 105,836 — 122 _ IFC Financials and Projects 2013 Environment & IFC Loan & Social Category Quasi-Loan IFC Region Country Name Company Name Code Commitments ($) Sub-Saharan Africa Cooperative Bank of Kenya Limited FI-2 60,000,000 DTBK RSF FI-2 — Diamond Trust of Kenya Limited FI-2 20,000,000 Ecobank Kenya Limited FI — Electrawinds SE C 3,000,000 Fina Bank Kenya Limited C — Gulf African Bank Limited FI — Gulf Power Limited A 26,922,420 Housing Finance Company of Kenya Limited FI-1 16,000,000 I and M Bank Ltd. FI-2 — Kenya Commercial Bank FI-2 40,000,000 Kenya Power and Lighting Company Limited B 50,000,000 Kenya Tea Development Agency Holdings Limited B 12,000,000 Kipeto Energy Limited C 2,000,000 Prime Bank Limited C — Liberia AccessBank Liberia FI — Ecobank Liberia FI — Guaranty Trust Bank (Liberia) Ltd C — Hummingbird Resources Plc B — Madagascar Bank of Africa Madagascar FI — Malawi First Merchant Bank Ltd., Malawi C — NBS Bank Limited FI — Mali Ecobank Mali FI — Mauritania Attijariwafa Bank Mauritanie S.A C — BB ENERGY (GULF) DMCC B 127,500,000 Generale de Banque de Mauritanie pour l’Investissement et le FI — Commerce Mozambique AFRICAN BANKING CORPORATION MOZAMBIQUE C — Niger Ecobank Niger C — Nigeria AB Nigeria Microfinance Bank FI-3 — Access Bank Plc FI-2 — Access Bank Plc. FI-2 50,000,000 Diamond Bank Plc FI 47,200,000 Ecobank Nigeria Plc FI — Fidelity Bank C — First City Monument Bank FI — Guaranty Trust Bank Plc. FI — Indorama Eleme Fertilizer & Chemicals Limited B 150,000,000 Kaizen Partners Limited FI — LAPO Microfinance Bank FI-3 5,087,440 Natural Prime Resources Nigeria Limited B 19,800,000 RSF Access Bank FI-2 — Zenith Bank Plc C — Rwanda Banque Commerciale du Rwanda (BCR) C — Ecobank Rwanda Limited C — São Tomé and Príncipe Banco Internacional de São Tomé e Príncipe C — Senegal CBAO Groupe Attijariwafa C — Ecobank Senegal C — Matelec S.A.L. A 1,000,000 MicroCred Senegal FI — Sierra Leone Ecobank Sierra Leone Limited C — Guranty Trust Bank Sierra Leone C — Sierra Leone Commercial Bank C — South Africa Amakhala Emoyeni RE Project 1 (RF) Proprietary Ltd B 70,703,691 Country Bird Holdings Limited B 25,000,000 Project Commitments _ 123 Fiscal Year 2013 IFC Equity & Trade Finance Non-Trade Total Syndications Quasi-Equity Risk Management Guarantee Finance Guarantee Commitments for Commitments Commitments ($) Commitments ($) Commitments ($) Commitments ($) IFC’s Own Account ($) [B-loans only] ($) — — — — 60,000,000 — — — — 10,155,317 10,155,317 — — — 6,774,372 — 26,774,372 — — — 4,413,002 — 4,413,002 — — — — — 3,000,000 — — — 21,463 — 21,463 — 4,982,497 — — — 4,982,497 — — — — — 26,922,420 26,922,420 — — — — 16,000,000 — — — 13,118,498 — 13,118,498 — — — 107,994,261 — 147,994,261 — — — — — 50,000,000 — — — — — 12,000,000 — — — — — 2,000,000 — — — 8,422,320 — 8,422,320 — 231,000 — — — 231,000 — — — 12,000,000 — 12,000,000 — — — 8,904,832 — 8,904,832 — 4,751,100 — — — 4,751,100 — — — 40,432,374 — 40,432,374 — — — 7,869,669 — 7,869,669 — — — 1,470,576 — 1,470,576 — — — 18,264,438 — 18,264,438 — — — 8,571,734 — 8,571,734 — — — — — 127,500,000 — — — 11,817,545 — 11,817,545 — — — 19,647,879 — 19,647,879 — — — 4,000,000 — 4,000,000 — 572,337 — — — 572,337 — — — 66,388,917 — 66,388,917 — — — — — 50,000,000 — — — 295,073,539 — 342,273,539 — — — 38,511,386 — 38,511,386 — — — 3,784,041 — 3,784,041 — — — 140,749,282 — 140,749,282 — — — 282,000 — 282,000 — — — — — 150,000,000 75,000,000 20,250,000 — — — 20,250,000 — — — — — 5,087,440 — — — — — 19,800,000 — — — — 11,203,588 11,203,588 — — — 124,607,617 — 124,607,617 — — — 5,672,158 — 5,672,158 — — — 11,415,589 — 11,415,589 — — — 201,590 — 201,590 — — — 7,005,774 — 7,005,774 — — — 12,231,221 — 12,231,221 — — — — — 1,000,000 — 424,934 — — — 424,934 — — — 2,000,000 — 2,000,000 — — — 44,400 — 44,400 — — — 112,495 — 112,495 — — 2,800,000 — — 73,503,691 — — — — — 25,000,000 — 124 _ IFC Financials and Projects 2013 Environment & IFC Loan & Social Category Quasi-Loan IFC Region Country Name Company Name Code Commitments ($) Sub-Saharan Africa CustomCapitalSPV FI-2 26,764,804 Hans Merensky Holdings (Proprietary) Limited B — International Housing Solutions, S.à r.l. FI-2 — Kaxu Solar One (RF) Proprietary Limited B 75,514,769 Khi Solar One (RF) Proprietary Limited B 69,450,224 Petra Diamonds Limited B 25,000,000 SRF Flexipak (South Africa) (Pty) Ltd. B 40,000,000 Sasfin Bank Limited FI — Western Platinum LTD A — Southern Africa Region Business Partners International Southern Africa SME Fund FI — Tanzania AFRICAN BANKING CORPORATION TANZANIA C — AccessBank Tanzania Limited FI-3 — Aldwych International Limited C 4,000,000 Diamond Trust Bank Tanzania Ltd FI-2 — Exim Bank of Tanzania FI — FINCA Tanzania Limited FI-3 3,000,000 National Bank of Commerce (NBC) FI — Togo Ecobank Togo C — Uganda Diamond Trust Bank Uganda Ltd FI-2 — Eaton Towers Uganda Limited B 30,000,000 Orient Bank Limited C — Umeme Ltd. B — Zambia AFRICAN BANKING CORPORATION ZAMBIA C — WORLD World Region APRM-Société Général FI — AllianceBernstein Next 50 Emerging Markets LLC FI-3 — Altobridge Limited C — Citibank, N.A. FI 270,000,000 Columbia Sportswear Company B 3,956,744 Delta Partners Emerging Markets TMT Growth Fund II, L.P. FI-2 — Global Climate Partnership Fund SA FI 30,000,000 Global Health Investment Fund FI-2 — Goodyear Tire & Rubber Company B 50,513,831 IFC Capitalization (Equity) Fund, L.P. FI — IFC Capitalization (Subordinated Debt) Fund, L.P. FI 33,105,829 IFC Catalyst Fund, LP FI — IFC Global Infrastructure Fund L.P. FI — Laureate Education Inc. B — Levi Strauss & Co. B 65,664 MICROENSURE HOLDING LIMITED FI-3 862,500 Perry Ellis International, Inc. B 10,040,989 Société Générale S.A. FI-2 100,000,000 Sunpreme Co. Ltd B 3,000,000 The Bank of Tokyo-Mitsubishi UFJ, Ltd. FI-2 — Eleni LLC FI-3 — Project Commitments _ 125 Fiscal Year 2013 IFC Equity & Trade Finance Non-Trade Total Syndications Quasi-Equity Risk Management Guarantee Finance Guarantee Commitments for Commitments Commitments ($) Commitments ($) Commitments ($) Commitments ($) IFC’s Own Account ($) [B-loans only] ($) — — — — 26,764,804 — 34,586,917 — — — 34,586,917 — 25,000,000 — — — 25,000,000 — — 1,325,000 — — 76,839,769 — — 1,215,000 — — 70,665,224 — 3,007,273 — — — 28,007,273 — — — — — 40,000,000 — — — 2,995,346 — 2,995,346 — 5,011,488 — — — 5,011,488 — 8,000,000 — — — 8,000,000 — — — 2,689,404 — 2,689,404 — 485,258 — — — 485,258 — — — — — 4,000,000 — — — 332,644 — 332,644 — — — 2,598,857 — 2,598,857 — — — — — 3,000,000 — 6,898,955 — — — 6,898,955 — — — 8,930,814 — 8,930,814 — — — 38,875 — 38,875 — — — — — 30,000,000 — — — 1,753,840 — 1,753,840 — 10,000,000 — — — 10,000,000 — — — 1,360,195 — 1,360,195 — — 100,000,000 — — 100,000,000 — 100,000,000 — — — 100,000,000 — 3,125,852 — — — 3,125,852 — — — — — 270,000,000 — — — — — 3,956,744 — 20,000,000 — — — 20,000,000 — — — — — 30,000,000 — 10,000,000 — — — 10,000,000 — — — — — 50,513,831 — 336,277,841 — — — 336,277,841 — 512,241 — — — 33,618,070 — 876,690 — — — 876,690 — 1,030,773 — — — 1,030,773 — 100,000,000 — — — 100,000,000 — — — — — 65,664 — 1,312,500 — — — 2,175,000 — — — — — 10,040,989 — — — — — 100,000,000 — — — — — 3,000,000 — — — — 100,000,000 100,000,000 — 1,000,000 — — — 1,000,000 — 126 _ IFC Financials and Projects 2013 Investment Portfolio Statement of Cumulative Gross Commitments1 (at June 30, 2013) (US$ Thousands) Number of Loan & Guarantee Region Country Enterprises IFC Participations Total Sub-Saharan Africa Angola 7 326,353.0 — 326,353.0 Benin 10 157,645.0 — 157,645.0 Botswana 6 35,451.6 — 35,451.6 Burkina Faso 15 86,750.6 — 86,750.6 Burundi 9 46,512.5 — 46,512.5 Cameroon 37 597,275.5 471,500.0 1,068,775.5 Cape Verde 6 15,901.9 — 15,901.9 Central African Republic 1 5,730.4 — 5,730.4 Chad 7 48,510.1 13,900.0 62,410.1 Congo, Democratic Republic of 21 245,973.1 94,000.0 339,973.1 Congo, Republic of 7 138,442.5 25,000.0 163,442.5 Côte d’Ivoire 49 473,018.8 70,963.8 543,982.6 Djibouti 1 4,000.0 — 4,000.0 Eritrea 1 949.2 — 949.2 Ethiopia 8 98,927.5 1,719.0 100,646.5 Gabon 5 145,588.0 110,000.0 255,588.0 Gambia, The 10 22,192.8 — 22,192.8 Ghana 72 1,819,705.8 432,750.0 2,252,455.8 Guinea 11 235,660.8 — 235,660.8 Guinea-Bissau 4 7,246.0 — 7,246.0 Kenya 97 1,482,458.7 86,217.1 1,568,675.8 Lesotho 2 454.0 — 454.0 Liberia 8 70,957.4 — 70,957.4 Madagascar 21 224,374.5 21,000.0 245,374.5 Malawi 20 158,109.8 9,500.0 167,609.8 Mali 23 179,233.7 40,000.0 219,233.7 Mauritania 14 269,664.4 9,502.6 279,167.0 Mauritius 17 130,794.8 96.0 130,890.8 Mozambique 27 337,103.7 — 337,103.7 Namibia 6 44,969.3 — 44,969.3 Niger 3 22,808.1 — 22,808.1 Nigeria 95 5,910,464.9 312,155.0 6,222,619.9 Rwanda 15 96,341.2 — 96,341.2 São Tomé and Príncipe 1 501.1 — 501.1 Senegal 31 267,871.5 12,398.0 280,269.5 Seychelles 7 39,443.2 2,500.0 41,943.2 Sierra Leone 9 69,007.9 25,000.0 94,007.9 Somalia 2 974.6 — 974.6 South Africa 83 2,211,244.5 15,000.0 2,226,244.5 South Sudan 1 5,000.0 — 5,000.0 Sudan 6 27,267.8 6,488.8 33,756.6 Swaziland 9 47,779.5 — 47,779.5 Tanzania 57 322,728.3 13,040.5 335,768.8 Togo 11 190,327.4 — 190,327.4 Uganda 51 371,982.8 13,088.4 385,071.1 Zambia 37 243,785.7 20,285.8 264,071.5 Zimbabwe 51 284,261.9 99,000.0 383,261.9 Regional Investments: Sub-Saharan Africa 85 2,459,664.2 61,906.0 2,521,570.2 East Asia and the Pacific Cambodia 10 151,727.9 60,000.0 211,727.9 China 233 5,974,551.1 1,308,109.3 7,282,660.4 Fiji 8 47,993.2 2,500.0 50,493.2 Indonesia 118 3,142,475.8 1,768,655.4 4,911,131.1 Kiribati 1 1,798.0 — 1,798.0 Korea, Republic of 51 868,449.2 195,700.0 1,064,149.2 Investment portfolio _ 127 Statement of Cumulative Gross Commitments1 (at June 30, 2013) (US$ Thousands) Number of Loan & Guarantee Region Country Enterprises IFC Participations Total East Asia and the Pacific Lao People’s Democratic Republic 11 49,951.8 — 49,951.8 Malaysia 12 154,868.4 5,389.1 160,257.5 Mongolia 16 304,511.5 — 304,511.5 Myanmar 1 2,000.0 — 2,000.0 Papua New Guinea 10 323,894.8 — 323,894.8 Philippines 101 2,685,757.4 695,879.6 3,381,637.0 Samoa 7 20,096.6 — 20,096.6 Singapore 1 546.8 — 546.8 Solomon Islands 1 35,000.0 — 35,000.0 Thailand 84 2,000,805.1 1,748,419.3 3,749,224.5 Timor-Leste 1 500.0 — 500.0 Tonga 1 6,787.0 — 6,787.0 Vanuatu 3 16,604.0 — 16,604.0 Vietnam 50 3,428,694.6 253,135.0 3,681,829.6 Regional Investments: East Asia and the Pacific 39 1,141,814.0 — 1,141,814.0 South Asia Bangladesh 36 1,607,442.1 92,745.4 1,700,187.5 Bhutan 3 43,245.9 — 43,245.9 India 365 9,540,409.0 1,648,639.8 11,189,048.8 Maldives 7 168,250.0 8,500.0 176,750.0 Nepal 18 172,888.9 36,000.0 208,888.9 Sri Lanka 39 573,143.6 23,615.6 596,759.2 Regional Investments: South Asia 9 221,570.0 — 221,570.0 Europe and Central Asia Albania 19 442,129.3 9,893.0 452,022.3 Armenia 13 271,543.8 — 271,543.8 Azerbaijan 26 533,557.2 197,930.0 731,487.2 Belarus 17 420,158.5 — 420,158.5 Bosnia and Herzegovina 30 333,885.3 10,577.6 344,462.9 Bulgaria 25 674,179.3 183,646.7 857,826.0 Croatia 19 607,865.3 197,096.8 804,962.0 Czech Republic 18 455,175.9 245,587.9 700,763.8 Estonia 11 137,806.1 11,855.0 149,661.1 Georgia 21 646,286.0 11,500.0 657,786.0 Hungary 34 437,985.4 70,334.8 508,320.2 Kazakhstan 33 1,348,545.0 282,916.7 1,631,461.7 Kosovo 3 33,904.4 — 33,904.4 Kyrgyz Republic 15 102,396.2 — 102,396.2 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 15 207,445.2 25,000.0 232,445.2 Moldova 18 233,322.9 45,000.0 278,322.9 Montenegro 6 86,754.2 — 86,754.2 Poland 44 438,121.4 115,316.8 553,438.3 Romania 41 1,637,840.3 478,163.5 2,116,003.8 Russian Federation 191 8,087,572.0 2,448,372.0 10,535,944.0 Serbia 38 1,320,017.3 135,630.3 1,455,647.5 Slovak Republic 7 115,543.7 — 115,543.7 Slovenia 12 241,309.5 47,382.7 288,692.2 Tajikistan 17 76,157.0 — 76,157.0 Turkey 170 6,975,595.8 3,443,543.2 10,419,139.0 Ukraine 49 1,981,937.9 686,700.0 2,668,637.9 Uzbekistan 17 93,974.6 12,900.0 106,874.6 Regional Investments: Europe and Central Asia 56 2,273,450.3 200,880.0 2,474,330.3 128 _ IFC Financials and Projects 2013 Number of Loan & Guarantee Region Country Enterprises IFC Participations Total Latin America and the Caribbean Antigua and Barbuda 1 30,000.0 — 30,000.0 Argentina 191 4,820,481.0 3,654,163.0 8,474,644.0 Barbados 6 128,625.1 — 128,625.1 Belize 4 28,663.7 11,000.0 39,663.7 Bolivia 29 460,894.9 140,500.0 601,394.9 Brazil 244 11,978,013.0 6,037,821.8 18,015,834.8 Chile 56 1,685,509.5 1,160,604.7 2,846,114.1 Colombia 117 2,670,627.6 1,168,631.0 3,839,258.7 Costa Rica 30 463,188.6 99,708.8 562,897.5 Dominica 1 700.0 — 700.0 Dominican Republic 36 635,279.0 241,850.0 877,129.0 Ecuador 23 348,127.5 39,240.1 387,367.6 El Salvador 18 339,883.1 113,500.0 453,383.1 Grenada 2 8,000.0 — 8,000.0 Guatemala 26 966,587.9 210,000.0 1,176,587.9 Guyana 7 31,417.0 — 31,417.0 Haiti 11 94,664.5 25,250.0 119,914.5 Honduras 20 828,560.2 124,400.8 952,961.0 Jamaica 22 426,295.6 194,244.5 620,540.1 Mexico 191 6,294,797.8 2,607,133.5 8,901,931.3 Nicaragua 21 359,942.0 12,428.6 372,370.6 Panama 27 1,554,606.0 153,300.0 1,707,906.0 Paraguay 15 721,596.3 10,000.0 731,596.3 Peru 72 2,013,978.7 923,871.2 2,937,849.9 St. Lucia 3 45,421.9 — 45,421.9 Suriname 1 3,065.9 — 3,065.9 Trinidad and Tobago 15 358,653.7 235,000.0 593,653.7 Uruguay 18 337,853.6 120,000.0 457,853.6 Venezuela, Republica Bolivariana de 39 897,229.5 703,791.4 1,601,021.0 Regional Investments: Latin America and the Caribbean 71 1,516,641.4 350,000.0 1,866,641.4 Middle East and North Africa Afghanistan 8 220,372.8 — 220,372.8 Algeria 14 253,557.3 5,556.9 259,114.2 Bahrain 1 216,274.0 — 216,274.0 Egypt, Arab Republic of 90 2,646,568.7 789,871.3 3,436,440.0 Iran, Islamic Republic of 11 63,342.9 8,199.5 71,542.4 Iraq 7 402,025.0 50,000.0 452,025.0 Jordan 45 1,109,100.5 380,384.0 1,489,484.5 Lebanon 35 2,095,376.5 230,430.0 2,325,806.5 Morocco 41 855,237.8 515,014.1 1,370,251.9 Oman 7 319,853.4 57,000.0 376,853.4 Pakistan 127 4,395,495.3 607,970.1 5,003,465.4 Saudi Arabia 8 261,286.0 — 261,286.0 Syrian Arab Republic 4 24,731.6 — 24,731.6 Tunisia 29 458,686.9 417,227.8 875,914.7 United Arab Emirates 2 30,000.0 — 30,000.0 Yemen, Republic of 14 206,004.2 56,104.7 262,108.9 Regional Investments: Middle East and North Africa 39 1,592,181.2 3,000.0 1,595,181.2 Investment portfolio _ 129 Statement of Cumulative Gross Commitments1 (at June 30, 2013) (US$ Thousands) Number of Loan & Guarantee Region Country Enterprises IFC Participations Total 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 109 6,198,359.9 183,000.0 6,381,359.9 Other2 24 304,853.3 11,400.0 316,253.3 TOTAL 5,260 144,902,712.4 40,425,808.9 185,328,521.3 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, China, and Hong Kong SAR, China. 130 _ IFC Financials and Projects 2013 NOTES AND DEFINITIONS The fiscal year at IFC runs from July 1 to June 30. Thus FY13 began on July 1, 2012, and ended on June 30, 2013. Investment amounts are given in U.S. dollars unless otherwise specified. Rounding of numbers may cause totals to differ from the sum of individual figures in some tables. Loan participants and IFC fully share the commercial credit risks of projects but, because IFC is the lender of record, partic- ipants receive the same tax and country risk benefits that IFC derives from its special status as a multilateral financial 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 finance institutions. The World Bank includes the International Bank of Recon- struction and Development and the International Development Association. The World Bank Group includes IBRD, IDA, IFC, the Multilateral Investment Guarantee Agency, and the International Centre for Settlement of Investment Disputes. 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