Overall Financial Results

C. Overall Financial Results

Net income. Table 2 presents the overall financial results for 2017 and 2016. Net income after allocation 4 was $774 million, compared with $7 million for 2016. The increased net income from 2016 is mainly attributed to the net unrealized gains of $9 million in 2017 compared to the net unrealized losses of $520 million recognized in 2016 primarily from fair value adjustment of ADB’s

Table 2: Overall Financial Results for the Year Ended 31 December

Revenue from loans — operations, net a 1,882 1,043 839 Sovereign – Regular 1,251 871 380

433 Nonsovereign

Sovereign – Concessional 433 –

233 183 50 Provision for loan losses

Revenue from investments for liquidity purpose, net b 610 452 158

Interest 597 399 198 Realized gains

Revenue from equity investments — operations, net c (12)

Dividends and other EI-related income and expenses (7) 9 (16) Realized (losses) gains

(5) 107 (112) Revenue from guarantees — operations 21 18 3

Revenue from other debt securities — operations 22 (2)

Revenue from other sources

Borrowings and related expenses (1,246) (751) (495)

Interest and other expenses (1,247) (751) (496) Realized gains

Administrative expenses — OCR

Other expenses

Operating income

Net unrealized gains (losses) 9 (520) 529 Proportionate share of income from EI accounted for

under the equity method — unrealized

One-time income from ADF assets transfer

Net income

31,522 7 31,515 Allocation of one-time income from ADF assets transfer

to ordinary reserve

Net income after allocation d

774 7 767 ( ) = negative, ADF = Asian Development Fund, EI = equity investments, OCR = ordinary capital resources. Note: 0 = amount less than $0.5 million. Numbers may not sum precisely because of rounding.

a Includes interest revenue, commitment charges, amortization of front-end fees and loan origination cost, interest on asset swaps and provision for loan losses. Excludes cost of fundings.

b Includes interest revenue, net of realized gains or losses on sale of investments. c Includes dividend revenue, proportionate share on revenue from equity investments under equity method — realized,

net of realized gains or losses on sale of equity investments and impairment losses. d Net income after allocation of one-time income from ADF assets transfer to ordinary reserve.

1) and increase in outstanding balances (Figure 2) as detailed below:  Revenue from loans – operations increased by $839 million due to the 7% increase in

the average outstanding regular OCR loans, rising interest rate trend (Figure 1) and incremental revenue from concessional loans;

 Revenue from investments for liquidity purpose increased by $158 million due to the increase in average outstanding investment portfolio, higher return on investments,

and revenue from investments that were transferred from ADF;  Revenue from equity investments – operations decreased by $128 million mainly due to recognition of large divestment gains in 2016;  Revenue from other debt securities – operations in 2017 of $22 million pertains to interest revenue from debt securities financed in the latter part of 2016 and in 2017;

while loss of $2 million in 2016 pertains to impairment of a debt security;  Borrowings and related expenses increased by $495 million largely because of the

10% increase in average outstanding borrowings as well as higher market interest rates; and

 Administrative expenses increased by $188 million due to increased allocation to OCR

resulting from the transfer of concessional lending operations from ADF.

Net unrealized gains (losses). During 2017, ADB reported net unrealized gains of $9 million ($520 million net unrealized losses – 2016), which primarily consisted of fair value adjustments on certain borrowings and derivatives used for hedging borrowings, investments and loans. A large portion of the change was from the favorable shift in the fair value of borrowings and related derivatives ($24 million unrealized gains – 2017; $523 million unrealized losses – 2016) due to movements in ADB’s credit spreads, interest rates and yield basis spreads. Table 3 shows details of unrealized gains and losses for the year ended 31 December 2017 and 2016.

5 Operating income is defined as statutory net income before unrealized gains (losses) and ADB’s proportionate share

Unrealized gains (losses) on: Borrowings and related swaps

547 Investments related swaps

28 2 26 Loans related swaps

(45) 7 (52) Equity investments

3 Translation adjustments of non-functional currencies

( ) = negative Source: Asian Development Bank Controller’s Department.