Quarterly report: Withstanding the crisis
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.
Oikocredit’s work in the first quarter of the year was impacted by the onset of the coronavirus (Covid-19) pandemic. This has meant adapting our plans and forecasts. In March we postponed the planned growth of our development finance portfolio, reduced refinancing and suspended the disbursement of loans to new partner organisations. Our focus now lies on supporting our current partners through the crisis. This support means that we may allow partners to repay us later, or that we even provide additional liquidity despite the increased risks. While portfolio growth tends to be relatively slow at the start of each calendar year, we can see the first effects of the coronavirus crisis in a marginal decrease of 4.4% in loans and investments to € 1,017.4 million.
We are assessing the potential impact of the crisis on the value of the development financing portfolio to protect our members’ and investors’ investments. However, it is still too soon to measure the expected impact, because in many countries where we work it is unclear what the macroeconomic effects will be in the medium term. Together with our support associations we are in regular contact with our investors to explain our activities and to discuss concerns.
Overall Oikocredit’s Q1 2020 financial results were lower than what we had projected at the beginning of the year. We saw an increase in the portfolio at risk, measured by PAR 90 (the percentage of the credit portfolio with payments more than 90 days overdue): this grew from 5.4% in Q4 2019 to 6.8%, mainly with partners that were already struggling to repay on time. While member capital showed an important increase (up 2.0% to € 1,152.8 million), inflow has slowed, and redemption requests have increased slightly. The value of our term investments (bonds) portfolio – the portion of total assets used for liquidity management purposes – declined as Eurobond markets reacted to the financial uncertainty caused by the pandemic. While the effect of these unrealised losses on our bond portfolio was far less severe than what we saw on the stock markets, a few percentage points’ decline in this portfolio is still significant for Oikocredit. We received equity dividend income but experienced revaluation losses on our equity holdings. Net asset value per share decreased marginally from € 214.41 to € 213.30.
On a positive note, net liquidity has increased from 19.6% of assets at end-2019 to 21.1%. And our operating costs have reduced, with the postponement of new staff hirings and fewer expenses arising from travel. We have incurred some costs in adjusting the office space and to support staff working from home and may see further costs for investments in IT or legal costs in the remainder of the year. We are carefully monitoring developments and preparing to respond to more severe economic challenges that our partners will almost certainly face before long.
Support for partners
Oikocredit recognises that many of the low-income people our partners serve will be hard hit by the adverse effects of Covid-19. Our staff across the world are working closely with our 600-plus partners to assess the situation and offer support where we can, for example with business continuity and liquidity planning, bringing partners together online to share experience and setting up a solidarity fund. Together with other impact investors we have agreed on principles to align our crisis response and support for partners and the low-income communities they serve.
Following Oikocredit’s restructuring at end-2019 we are a leaner and more efficient organisation and started the first quarter from a position of strength. However, as the coronavirus crisis continues to have repercussions around the world, and because of the time lag involved, we anticipate that the coming months’ economic slowdown will cause serious financial difficulties for some of our partners. More vulnerable partners are likely to default on and/or need to restructure their repayments. We expect further impairments on equity and reduced income as we make greater provision for loan losses. Portfolio at risk (PAR) is likely to increase further.
Because of these medium-term economic effects, the financial and growth targets we previously set for 2020 are now unlikely to be reached. Our aim is therefore to maintain continuity and to keep monitoring and responding to developments. We will engage closely and often with our investors and partners to ensure that we manage the crisis as effectively as possible. And we will work hard to offer our partners the sustainable support they need to continue their work of helping people on low incomes.
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