Q2 2021 quarterly report: Performing acceptably in an unpredictable environment
Four times a year Oikocredit publishes key facts and figures on the previous quarter. Here we provide our investors and others with additional background context on developments during the second quarter of 2021.
Slow return to growth
Following a positive start to the year in the first quarter, Oikocredit’s portfolio experienced a temporary setback early in Q2 when the Covid-19 pandemic flared up again in India (by far our largest market) and several other countries, slowing demand for development financing. Later in the quarter, demand picked up again, especially in Latin America and the Caribbean, and much lost ground was recovered. This resulted in a balancing of the portfolio of loans and investments to almost the same level as in Q4 2020, with a decrease to € 835.5 million in Q2 from € 856.3 million in Q1.
The cooperative continues to trade at a profit. We closed the quarter with a net result of € 10.3 million, lower than at the end of Q1 (€ 11.9 million) but in financial good health nevertheless. The quality of our lending portfolio, which is spread over several development sectors (inclusive finance, agriculture and renewal energy) and regions (Africa, Asia, and Latin America and the Caribbean), slipped slightly, and some provisions had to be taken. In the equity portfolio some impairments on investments needed to be taken.
Member capital grew to € 1,122.5 million (from € 1,117.3 million in Q1). Net asset value (NAV) per share showed a minor fall from € 213.11 to € 212.82, reflecting the increase in number of shares and slightly lower profitability. As ever, the loyalty of our members and investors motivates us.
Covid-19’s impacts on some partners persisted. While partners with fewer difficulties generally functioned well, others continued to face more serious challenges. Portfolio at risk, represented by the PAR 90 percentage of loans with repayments at least 90 days overdue (excluding partners’ payment holidays), worsened marginally from 5.6% to 5.9%, mainly as a result of portfolio decrease. Partners enjoying a payment holiday reduced during Q2 and now represent € 65 million (down from € 68 million) of the total loan portfolio, in line with the trend in recent quarters whereby partners increasingly resumed repayments.
Net liquidity remains comfortable, rising from 30.8% to 33.4% during Q2.
Pandemic effects and financial conditions
Covid-19 was again the dominant factor affecting our results, depressing demand for loans and limiting equity investment and divestment opportunities. Coronavirus is not yet under control in Asian countries such as Cambodia, India and Indonesia or in much of Latin America, where it hampers economic growth.
In addition, financial markets impacted our performance. Speculation on rising interest rates in the United States weakened the value of our bond portfolio (term investments) by about € 2.0 million in the first 6 months of the year. Maintaining high liquidity either on bank accounts or in the bond portfolio as part of our response to continuing financial uncertainty, including as a buffer in case of redemption requests, is expensive and affects our profitability.
Although the Q2 results have fallen back a little from Q1, overall for the year to date we are satisfied to have maintained continuity. Oikocredit’s financial performance remains positive and on the road to recovery.
The steps that Oikocredit took in 2020 in response to the pandemic and its effects on partners are continuing in 2021. These include allowing partners to delay repayments and providing help through the Oikocredit International Support Foundation (ISUP), whose coronavirus solidarity fund is still available to provide financial support.
We are maintaining close contacts with partners, both to support them through difficult times – and where necessary providing ‘intensive care’ from our special credit unit – and to be able to respond speedily once their business activities pick up again. We are looking forward to future growth with new partners for which we have begun to approve disbursements.
As recently announced, Thos Gieskes stepped down as Managing Director on 1 August, having led the organisation since 2017. We are immensely grateful to Thos for his contribution and wish him every future success. Mirjam ‘t Lam has taken over as Interim Managing Director in addition to her role as Director of Finance & Risk until a new Managing Director is appointed. Within management, a revision of tasks and responsibilities has been undertaken to ensure proper risk governance and to avoid conflicts of interest. In addition, following the departure of Petra Lens, Wilma Straatman has taken on the role of Interim Director of People & Change.
In June, Oikocredit held its 45th Annual General Meeting. This was the second consecutive hybrid AGM, with members and others participating via web-based conferencing and electronic voting and only a small number of participants gathered at the Oikocredit office in Amersfoort, the Netherlands. The meeting agreed to the Managing Board and Supervisory Board’s proposal that there be no dividend for 2020, given the loss incurred last year as a result of the pandemic. It was agreed to hold an Extraordinary General Meeting later in the year to discuss the cooperative’s inflow model and 2022-2026 strategy.
We are confident that the interim management changes we have made will enable Oikocredit to continue to do what is necessary during the coming period.
The impacts of Covid-19 make forecasting the future consistently challenging. For Oikocredit the largest uncertainty is the rate at which we will be able to convert our liquid assets into development finance for partners to support their ambitions and grow returns on our loans and investments. Economic conditions and levels of demand in the countries where we lend and invest remain unpredictable, although we have a promising pipeline of new partnerships where we anticipate generating income and impact as growth resumes.
Next to executing our pipeline, our main focus will be protecting the quality of the current portfolio and work on our new strategy, with partners and members involved in testing concepts, and the reassessment of our inflow model. We also continue to streamline our internal processes to serve our partners, members and investors better.
While staff are still working from home, we are considering options for a more hybrid organisational model combining home and office working for the post-pandemic period. We are alert to the stresses that new waves of the virus place on our people and recognise that during these exceptional times many people are reviewing their levels of job satisfaction and work-life balance.
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