Q2 2022 quarterly report: Mixed outcomes as economic uncertainty persists
Estela Mamani Castillo, client of Oikocredit's partner CRECER in Bolivia
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 2022.
Continuing impacts of market uncertainty
In Q2 2022 uncertainty in the global markets again affected Oikocredit’s financial performance. Key factors included high inflation, rising interest rates, the Ukraine conflict, and Covid-19 spikes and lockdowns in Asia. The main consequences for our cooperative were another decline in the value of the term investments portfolio as global bond markets saw further sell-offs, and, largely as a result, a further net loss for Oikocredit. The quality and size of our development financing portfolio, and the income our credit and equity generated, were at par with the previous quarter.
Term investments losses for the quarter were € 15.4 million (compared with € 9.3 million in Q1), and Oikocredit’s net financial loss overall was € 9.1 million (up from € 6.3 million in Q1). The positive development in our net interest income, lower provisioning and operating costs within budget helped ensure the additional net loss compared with the previous quarter was approximately half of the increased losses from the term investments portfolio.
Development financing and inflow relatively stable
Our development financing portfolio of outstanding loans and investments with partners in Africa, Asia and Latin America & the Caribbean saw a very small decline in Q2, from € 1,015.2 million to € 1,014.7 million. Total member capital also fell slightly, from € 1,129.8 millionto € 1,125.6 million as inflow reduced a little. Our members and investors remained loyal, and we have kept closely in touch with our support associations and members to stay informed about investor sentiment.
The portfolio at risk PAR 90 ratio (the percentage of loans with repayments at least 90 days overdue) stayed above our 6% target threshold, rising to a corrected 6.8% (from 6.3% in Q1) as some partners continued to experience repayment difficulties. However, there was no significant increase in loan loss provisioning on credits or impairments on equity investments, indicating that portfolio quality is still stable. Dividends from our equity portfolio were in line with expectations. One of the equity sales planned for Q2 has been delayed. The total number of partners grew from 508 to 509.
Rising interest rates have increased Oikocredit’s interest income from the credit portfolio. Foreign exchange effects were also positive, resulting from the stronger US dollar. Much of our Latin American portfolio, as well as the vast majority of our exposure to Agri partners, is in dollars and currencies that move in sync with dollar. While hedging costs for local currency credits increased overall, the net interest income is ahead of budget. And although costs have increased with work on the 2022-2026 strategy and the new capital-raising model, these additional costs were anticipated and are within budget.
Due to the net loss, net asset value (NAV) per share fell from € 212.24 to € 211.28.
The second quarter results were not fully in line with expectations as to the negative developments in our fixed-income securities and their heavy impact on our performance. The largest part of the term investments portfolio has been sold to avoid further potential losses caused by the portfolio’s devaluation.
Liquidity levels remain adequate at 18.6% (Q1: 20.3%), sufficient to meet member and investor redemptions and to finance new credit and equity projects in the coming months
Social performance and client survey
Oikocredit’s work with partners on social performance and capacity building is progressing well. Twenty inclusive finance partners have confirmed participation in our second digital client self-perception survey: seven in Africa, eight in Latin America and five in Asia including India. The survey questions are available in English, Hindi, Khmer, Kiswahili, Portuguese and Spanish. Seven partners have completed roll-out of the survey to their clients, and 9,000 clients out of the target of at least 15,000 have already responded.
The survey asks partners’ clients to assess significant changes in their lives over the past 12 months. This will give our partners and Oikocredit a better understanding of how clients perceive access to financial services as contributing to improvements in their livelihood.
The cooperative held a successful Annual General Meeting (AGM) in June, following a productive members’ meeting. With Covid-19 restrictions still in force in some countries, the AGM was held as an online meeting, combining a minimum gathering at the Oikocredit office in Amersfoort, the Netherlands, with web-based participation from members and other invitees.
The AGM approved the annual accounts for 2021 and agreed on a 0.5% dividend pay-out in line with the cooperative’s dividend policy. The meeting welcomed updates on the new 2022-2026 strategy and the new capital-raising model. There was agreement to formalise the Members’ Council’s governance role through amendments to the Articles of Association. Two Supervisory Board members were appointed for a second term, and five new members were appointed to fill vacancies resulting from the departure of several Supervisory Board members in 2021.
At the end of Q2 we announced a strengthening of the cooperative’s leadership model, with the establishment of an Executive Committee consisting of previous Managing Board members and additional directors. In Q2, we continued to experience an increase in staff turnover, and some vacancies are taking a while to fill.
Oikocredit remains hopeful about the future and excited about the new strategy’s amplified dedication to social impact through building resilience and empowering and connecting communities in our outflow and inflow countries.
The cooperative will stay alert to external events and market signals, and cautious in our approach to opportunities and costs amid current financial unpredictability. Supporting our partners and their clients through difficult periods will remain our priority, with close monitoring of our partners’ performance and wellbeing.
Regulatory changes have recently taken effect in Germany and put on hold our capital raising from new investors there until we implement the new capital-raising model. We expect our members to approve this new model at the October Extraordinary General Meeting. As a consequence, we expect capital inflow to temporarily decrease further. By maintaining both ample liquidity and prudent balance sheet management when it comes to the growth and quality of the development financing portfolio, we anticipate being able to navigate through this period.
In Q3 we plan to complete the sell-off of our term investments and will look after our costs while we focus on resilient growth of the development financing portfolio and take further steps to serve our partners and work with our investor base.
We are confident our new Executive Committee will lead the organisation effectively in the coming period.
More information is available at Oikocredit Facts&Figures Q2-2022.
|Oikocredit in Q2-2022 (PDF)||3.0 MB||application/pdf|
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