Exhibit 2

Asian Infrastructure Investment Bank

Auditor’s Reports and Financial Statements

for the Year Ended Dec. 31, 2020

Contents

Management’s Report Regarding the Effectiveness of Internal Controls over Financial Reporting

Auditor’s Report Regarding the Management’s Assessment of Effectiveness of Internal Controls over Financial Reporting

Auditor’s Report Regarding the Financial Statements

Financial Statements

 

Statement of Comprehensive Income					1
Statement of Financial Position					2
Statement of Changes in Equity					3
Statement of Cash Flows					4
Notes to the Financial Statements					5-73
A.		General Information			5
B.		Accounting Policies			5-16
C.		Disclosure Notes			17-37
D.		Financial Risk Management			38-69
E.		Fair Value Disclosure			70-73

Asian Infrastructure Investment Bank

Management’s Report Regarding the Effectiveness of Internal Controls over Financial Reporting for the year ended Dec. 31, 2020

Responsibility for Financial Reporting

Management’s responsibility

Management’s report regarding the effectiveness of internal controls over financial reporting

The Management of the Asian Infrastructure Investment Bank (the Bank) is responsible for the preparation, integrity, and fair presentation of its published financial statements and associated disclosures for the year ended Dec. 31, 2020. The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board.

The financial statements have been audited by an independent audit firm, which has been given unrestricted access to all financial records and related data, including minutes of all meetings of the Board of Directors and committees of the Board. Management believes that all representations made to the external auditor during its audit were valid and appropriate. The external auditor’s report accompanies the audited financial statements.

Management is responsible for establishing, implementing and maintaining effective internal control over financial reporting for financial presentation and measurement in conformity with IFRS. The system of internal control contains monitoring mechanisms, and actions are taken to correct deficiencies identified. Management believes that internal controls over financial reporting – which are subject to scrutiny and testing by Management and are revised, as considered necessary, taking account of any related internal audit recommendations – support the integrity and reliability of the financial statements.

However, even an effective internal control system, has inherent limitations, including the possibility of human error and the circumvention of overriding controls. Therefore it can only provide reasonable assurance with respect to the preparation of financial statements. Furthermore, the effectiveness of an internal control system can change with circumstances, such as changes in business and operating environment, including the increased relevance of technology and considerations on outsourcing of functions/systems/platforms.

The Bank’s Board of Directors has appointed an Audit and Risk Committee, which assists the Board in its responsibility to ensure the soundness of the Bank’s accounting practices and the effective implementation of the internal controls that Management has established relating to finance and accounting matters. The Audit and Risk Committee comprises members of the Board of Directors and external members. The Audit and Risk Committee meets periodically with Management to review and monitor the financial, accounting and auditing procedures of the Bank and its financial reports, and reviews the scope of work and the effectiveness of the internal audit function and internal control system. The external auditor and the internal auditor regularly meet with the Audit and Risk Committee, to discuss the adequacy of internal controls over financial reporting and any other matters that they believe should be brought to the attention of the Audit and Risk Committee.

The Bank’s assessment of the effectiveness of internal controls over financial reporting as at Dec. 31, 2020 was based on the criteria established in the Internal Control Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, Management asserts as at Dec. 31, 2020, the Bank maintained effective internal controls over its financial reporting as set out in the financial statements for the year ended Dec. 31, 2020.

 

I

Asian Infrastructure Investment Bank

Management’s Report Regarding the Effectiveness of Internal Controls over Financial Reporting for the year ended Dec. 31, 2020

The Bank’s external auditor has provided an audit opinion on the fair presentation of the financial statements for the year ended Dec. 31 , 2020. In addition, it has issued an attestation report on Management’s assessment of the Bank’s internal control over financial reporting as at Dec. 31 , 2020.

 

Asian Infrastructure Investment Bank

Beijing

March 24, 2021

 

/s/ Jin Liqun				/s/ Andrew Cross
Mr. Jin Liqun				Mr. Andrew Cross
President				Chief Financial Officer
				/s/ Hui Fong Lee
				Ms. Hui Fong Lee
				Controller

 

II

Independent Auditor’s Report

To the Board of Governors of the Asian Infrastructure Investment Bank:

We have been engaged to perform a reasonable assurance engagement on the accompanying management’s assessment that Asian Infrastructure Investment Bank (the “Bank” or “AIIB”) maintained effective internal controls over financial reporting as at December 31, 2020.

Responsibilities of AIIB

AIIB is responsible for the preparation of the management’s assessment that the Bank maintained effective internal controls over financial reporting as at December 31, 2020 based on the criteria established in the “Internal Control - Integrated Framework” (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). This responsibility includes designing, implementing and maintaining internal controls as AIIB determines are necessary to enable the preparation of management’s assessment that the Bank maintained effective internal controls over financial reporting as at December 31, 2020.

Our Independence and Quality Control

We have complied with the independence and other ethical requirements of the International Code of Ethics for Professional Accountants (including International Independence Standards) issued by the International Ethics Standards Board for Accountants, which is founded on fundamental principles of integrity, objectivity, professional competence and due care, confidentiality and professional behaviour.

Our firm applies International Standard on Quality Control 1 and accordingly maintains a comprehensive system of quality control including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements.

Auditor’s Responsibilities

It is our responsibility to express an opinion on the management’s assessment that the Bank maintained effective internal controls over financial reporting as at December 31, 2020 based on our work performed.

We conducted our work in accordance with International Standard on Assurance Engagements 3000 (Revised) “Assurance Engagements Other Than Audits or Reviews of Historical Financial Information”. This standard requires that we plan and perform our work to form the opinion.

 

PricewaterhouseCoopers, 22/F Prince’s Building, Central Hong Kong SAR, China
T: +852 2289 8888, F: +852 2810 9888, www.pwchk.com

A reasonable assurance engagement involves performing procedures to obtain sufficient appropriate evidence whether the management’s assessment that the Bank maintained effective internal controls over financial reporting as at December 31, 2020 is prepared, in all material respects, in accordance with “Internal Control—Integrated Framework” (2013) issued by COSO. The extent of procedures selected depends on the auditor’s judgment and our assessment of the engagement risk.

We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Opinion

In our opinion, management’s assessment that the Bank maintained effective internal controls over financial reporting as at December 31, 2020, in all material respects, based on the criteria established in the “Internal Control – Integrated Framework” (2013) issued by COSO.

/s/ PricewaterhouseCoopers

PricewaterhouseCoopers

Certified Public Accountants

Hong Kong, China, March 24, 2021

 

- II -

Independent Auditor’s Report

To the Board of Governors of the Asian Infrastructure Investment Bank:

Opinion

What we have audited

The financial statements of Asian Infrastructure Investment Bank (the “Bank”) set out on pages 1 to 73, which comprise:

•

the statement of comprehensive income for the year ended December 31, 2020;

•

the statement of financial position as at December 31, 2020;

•

the statement of changes in equity for the year ended December 31, 2020;

•

the statement of cash flows for the year ended December 31, 2020; and

•

the notes to the financial statements, which include a summary of significant accounting policies.

Our opinion

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Bank as at December 31, 2020, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards (“IFRSs”) issued by the International Accounting Standards Board.

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (“ISAs”). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence

We are independent of the Bank in accordance with the International Code of Ethics for Professional Accountants (including International Independence Standards) issued by the International Ethics Standards Board for Accountants (“IESBA Code”), and we have fulfilled our other ethical responsibilities in accordance with the IESBA Code.

 

PricewaterhouseCoopers, 22/F Prince’s Building, Central Hong Kong SAR, China
T: +852 2289 8888, F: +852 2810 9888, www.pwchk.com

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Key audit matters identified in our audit are summarised as follows:

 

•

Measurement of expected credit losses (“ECL”) for loan and bond investments measured at amortized cost and loan commitments

 

Key Audit Matter		How our audit addressed the Key Audit Matter
Measurement of expected credit losses (“ECL”) for loan and bond investments measured at amortized cost and loan commitments
Refer to Note B3.3.5 to the financial statements “Impairment of financial instruments” in the accounting policies, Note B4.1 “Impairment losses on financial instruments” in the critical accounting estimates and judgments in applying accounting policies, Note C4 “Impairment provision”, Note C8 “Loan investments, loan commitments and related ECL allowance”, Note C9 “Bond investments at amortized cost”, and Note D3 “Credit risk management”.   As at December 31, 2020, the gross amount of loan investments, loan commitments and bond investments of the Bank was USD8,397.92 million, USD8,006.31 million, and USD472.83 million, respectively. An expected credit loss (ECL) allowance of USD160.29 million was recognized resulting in a net recorded amount of loan investments and loan commitments of USD8,275.93 million and USD7,968.01 million, respectively. Expected credit loss allowance of USD3.80 million was recognized resulting in a net carrying amount of bond investments of USD469.03 million. For the year ended December 31, 2020, the impairment losses on loan investments measured at amortized cost and loan commitments were USD93.36 million, the impairment losses on bond investments measured at amortized cost was USD0.07 million. The allowance of ECLs for loan and bond investments measured at amortized cost and loan commitments represent management’s best estimates at the balance sheet date applying the ECL models under International Financial Reporting Standard 9: Financial Instruments (IFRS 9).		We evaluated and tested the design and operational effectiveness of the internal controls relating to the measurement of ECLs for loan investments and bond investments measured at amortized cost and loan commitments. These internal controls primarily included:   •   Governance over ECL models, including the selection, approval and application of modelling methodology; and the internal controls relating to the ongoing monitoring and updates to the model;   •   Internal controls relating to significant management judgments and assumptions including the review and approval of portfolio segmentation, parameter determination and any subsequent changes, identification of significant increases in credit risk or credit-impaired loans and bonds, and forward-looking measurement;   •   Internal controls over operational aspects of ECL models, including access controls, accuracy and completeness of key inputs and review and approval of ECL outcomes.   The substantive procedures we performed, with the assistance of our specialists, primarily included:   •   We reviewed the modelling methodologies, and assessed the reasonableness of the portfolio segmentation, parameter determination, and significant judgments and assumptions in relation to the models.

 

- II -

 

Key Audit Matter		How our audit addressed the Key Audit Matter
Measurement of expected credit losses (“ECL”) for loan investments measured at amortized cost and loan commitments (Cont’d)
The Bank assesses whether the credit risk of loan investments and bond investments measured at amortized cost and loan commitments have increased significantly since their initial recognition, and applies a three-stage impairment model to calculate their ECL. Management assesses loss allowances using the risk parameter modelling approach which incorporates key parameters, including the probability of default, loss given default, exposure at default, and discount rates.   The estimation of ECL involves significant management judgments and assumptions, mainly comprising the following:   (1) Segmentation of loan investments and bond investments measured at amortized cost and loan commitments sharing similar credit risk characteristics and determination of relevant key measurement parameters; and;   (2) Selection of criteria for determining whether or not there was a significant increase in credit risk, and whether credit impairment was incurred; and   (3) Use of economic variables for forward-looking measurements, and the application of economic scenarios and weightings.   The Bank has established governance processes and controls for the measurement of ECL.   For measuring ECL, the Bank has adopted complex models, employed numerous parameters and data inputs, and applied significant management judgments and assumptions. There is greater uncertainty over forward looking information used by management as a result of COVID-19. In addition, the amount of loan investments and bond investments measured at amortized cost and loan commitments are material to the Bank, and the loss allowance and associated impairment loss are important to users of the financial statements. In view of these reasons, we identified this as a key audit matter.		•   We selected samples, in consideration of the financial information and non-financial information of the borrowers, relevant external evidence and other factors, to assess the appropriateness of management’s assessment of significant increases in credit risk and credit-impaired loans and bonds.   •   For forward-looking measurements, we tested management’s selection of economic variables, economic scenarios and weightings; assessed the reasonableness of the economic indicators used, and performed sensitivity analyses in economic indicators, economic scenarios and weightings.   •   We tested data inputs to the ECL models on a sample basis, including historical data and data at the measurement date, to assess their accuracy and completeness.   •   We independently recalculated the ECL outputs on a sample basis.   Our audit work also included assessing the appropriateness of disclosures relevant to ECL provided in the related notes to the financial statements.   Based on our procedures performed, the models, key parameters, significant judgments and assumptions adopted by management, the measurement results and the relevant disclosures were considered acceptable.

 

- III -

 

Other Information

Management is responsible for the other information. The other information comprises the information included in the 2020 Annual Report of the Bank (but does not include the financial statements and our auditor’s report thereon), which is expected to be made available to us after the date of this auditor’s report.

Our opinion on the financial statements does not cover the other information and we will not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information identified when it becomes available and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

When we read the 2020 Annual Report of the Bank, if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance and take appropriate action considering our legal rights and obligations.

Responsibilities of Management and Those Charged with Governance for the Financial Statements

Management is responsible for the preparation of the financial statements that give a true and fair view in accordance with IFRSs, and for such internal control as management determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Bank’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intend to liquidate the Bank or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Bank’s financial reporting process.

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:

 

•

Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and

 

- IV -

 

obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

 

•

Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Bank’s internal control.

 

•

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

 

•

Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Bank’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Bank to cease to continue as a going concern.

 

•

Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosures about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partner on the audit resulting in this independent auditor’s report is Yip Siu Foon, Linda.

/s/ PricewaterhouseCoopers

PricewaterhouseCoopers

Certified Public Accountants

Hong Kong, China, March 24, 2021

 

- V -

Asian Infrastructure Investment Bank

Statement of Comprehensive Income

For the year ended Dec. 31, 2020

 

In thousands of US Dollars		Note				For the year ended Dec. 31, 2020				For the year ended Dec. 31, 2019
Interest income			C1				343,148				435,550
Interest expense			C1				(92,186	)			(35,156	)
Net interest income							250,962				400,394
Net fee and commission income			C2				14,775				11,911
Net gain on financial instruments measured at fair value through profit or loss			C3				139,478				78,642
Net loss on financial instruments measured at amortized cost			C9				(17,738	)			-
Share of loss on investment in associate			C10				(441	)			-
Impairment provision			C4				(93,438	)			(21,677	)
General and administrative expenses			C5				(162,789	)			(125,695	)
Net foreign exchange gain/(loss)							36,890				(315	)
Operating profit for the year							167,699				343,260
Accretion of paid-in capital receivables			C11				7,556				57,617
Net profit for the year							175,255				400,877
Other comprehensive income
Items will not be reclassified to profit or loss
Unrealized loss on fair-valued borrowings arising from changes in own credit risk			C13				(23,703	)			-
Total comprehensive income							151,552				400,877
Attributable to:
Equity holders of the Bank							151,552				400,877

The accompanying notes are an integral part of these financial statements.

 

1

Asian Infrastructure Investment Bank

Statement of Financial Position

As at Dec. 31, 2020

 

In thousands of US Dollars		Note				Dec. 31, 2020				Dec. 31, 2019
Assets
Cash and cash equivalents			C6				2,702,461				3,113,763
Term deposits and certificates of deposit			C6				13,208,020				11,864,578
Investments at fair value through profit or loss			C7				6,652,155				4,096,263
Loan investments, at amortized cost			C8				8,275,932				2,272,950
Bond investments, at amortized cost			C9				469,027				479,767
Investment in associate			C10				26,559				-
Paid-in capital receivables			C11				436,074				748,267
Derivative assets			C14				271,870				49,987
Funds deposited for cofinancing arrangements							3,891				787
Property, plant and equipment							4,875				789
Intangible assets							2,773				1,934
Other assets			C12				27,943				2,559
Total assets							32,081,580				22,631,644
Liabilities
Borrowings			C13				11,595,193				2,557,324
Derivative liabilities			C14				37,690				-
Prepaid paid-in capital							1,440				600
Other liabilities			C15				303,500				87,549
Total liabilities							11,937,823				2,645,473
Members’ equity
Paid-in capital			C16				19,349,800				19,343,700
Reserves
Accretion of paid-in capital receivables							(8,198	)			(15,688	)
Unrealized loss on fair-valued borrowings arising from changes in own credit risk			C13				(23,703	)			-
Retained earnings							825,858				658,159
Total members’ equity							20,143,757				19,986,171
Total liabilities and members’ equity							32,081,580				22,631,644

The accompanying notes are an integral part of these financial statements.

 

2

Asian Infrastructure Investment Bank

Statement of Changes in Equity

For the year ended Dec. 31, 2020

 

																		Reserves
In thousands of US Dollars		Note				Subscribed capital				Less: callable capital				Paid-in capital				Accretion of paid-in capital receivables				Unrealized loss on fair-valued borrowings arising from changes in own credit risk				Retained earnings				Total members’ equity
Jan. 1, 2019							96,339,700				(77,071,700	)			19,268,000				(70,481	)			-				314,899				19,512,418
Capital subscription and contribution							378,700				(303,000	)			75,700				-				-				-				75,700
Net profit for the year							-				-				-				-				-				400,877				400,877
Paid-in capital receivables - accretion effect							-				-				-				(2,824	)			-				-				(2,824	)
Transfer of accretion			C11				-				-				-				57,617				-				(57,617	)			-
Dec. 31, 2019			C16				96,718,400				(77,374,700	)			19,343,700				(15,688	)			-				658,159				19,986,171
Jan. 1, 2020							96,718,400				(77,374,700	)			19,343,700				(15,688	)			-				658,159				19,986,171
Capital subscription and contribution							30,500				(24,400	)			6,100				-				-				-				6,100
Net profit for the year							-				-				-				-				-				175,255				175,255
Other comprehensive income							-				-				-				-				(23,703	)			-				(23,703	)
Paid-in capital receivables - accretion effect							-				-				-				(66	)			-				-				(66	)
Transfer of accretion			C11				-				-				-				7,556				-				(7,556	)			-
Dec. 31, 2020			C16				96,748,900				(77,399,100	)			19,349,800				(8,198	)			(23,703	)			825,858				20,143,757

The accompanying notes are an integral part of these financial statements.

 

3

Asian Infrastructure Investment Bank

Statement of Cash Flows

For the year ended Dec. 31, 2020

 

In thousands of US Dollars		Note				For the year ended Dec. 31, 2020				For the year ended Dec. 31, 2019
Cash flows from operating activities
Net profit for the year							175,255				400,877
Adjustments for:
Interest income from term deposits and certificates of deposit							(211,040	)			(328,478	)
Interest expense for borrowings							93,001				35,156
Issuance cost for borrowings			C5				8,688				3,125
Accretion of paid-in capital receivables			C11				(7,556	)			(57,617	)
Net gain on financial instruments measured at fair value through profit or loss							(128,073	)			(27,314	)
Share of loss on investment in associate							441				-
Impairment provision			C4				93,438				21,677
Depreciation and amortization							1,371				851
Increase in loan investments			C8				(6,077,560	)			(938,980	)
Decrease/(Increase) in bond investments			C9				10,666				(483,492	)
(Increase)/Decrease in funds deposited for cofinancing arrangements							(3,104	)			5,205
Net cash received from derivatives							57,118				6,902
Increase in other assets							(26,873	)			(1,290	)
Increase in other liabilities							197,165				53,523
Net cash used in operating activities							(5,817,063	)			(1,309,855	)
Cash flows from investing activities
Investment purchases, net			C7				(2,452,554	)			(4,053,286	)
Termination of Trust Fund			C7				-				3,295,167
Return of capital contributions			C7				6,045				15,108
Increase in term deposits and certificates of deposit							(1,421,454	)			(3,646,079	)
Investment in associate			C10				(27,000	)			-
Interest received from term deposits and certificates of deposit							289,052				333,278
Property improvements							(2,146	)			(68	)
Increase in intangible assets and equipment							(2,661	)			(2,193	)
Net cash used in investing activities							(3,610,718	)			(4,058,073	)
Cash flows from financing activities
Proceeds from borrowings, net			C13				8,753,445				2,489,825
Interest payments on borrowings			C13				(63,589	)			(28,125	)
Capital contributions received			C11				325,383				3,766,650
Prepaid paid-in capital received							1,240				600
Net cash from financing activities							9,016,479				6,228,950
Net (decrease)/increase in cash and cash equivalents							(411,302	)			861,022
Cash and cash equivalents at beginning of year							3,113,763				2,252,741
Cash and cash equivalents at end of year			C6				2,702,461				3,113,763

The accompanying notes are an integral part of these financial statements.

 

4

Asian Infrastructure Investment Bank

Notes to the Financial Statements

For the year ended Dec. 31, 2020

(All amounts in thousands of US Dollars unless otherwise stated)

 

 

A	General Information

The Asian Infrastructure Investment Bank (the “Bank” or “AIIB”) is a multilateral development bank. By the end of year 2015, representatives from 57 countries signed AIIB’s Articles of Agreement (the “AOA”) which entered into force on Dec. 25, 2015. The Bank commenced operations on Jan. 16, 2016. AIIB’s principal office is in Beijing, the People’s Republic of China (the “PRC”).

For the year ended Dec. 31, 2020, AIIB approved one new membership application. As at Dec. 31, 2020, the Bank’s total approved membership is 103, of which 83 have completed the membership process and have become members of AIIB in accordance with the AOA.

AIIB’s purpose is to (i) foster sustainable economic development, create wealth and improve infrastructure connectivity in Asia by investing in infrastructure and other productive sectors; and (ii) promote regional cooperation and partnership in addressing development challenges by working in close collaboration with other multilateral and bilateral development institutions.

The legal status, privileges and immunities for the operation and functioning of AIIB in the PRC are agreed in the AOA and further defined in the Headquarters Agreement between the government of the People’s Republic of China (the “Government”) and the Bank on Jan. 16, 2016.

These financial statements were signed by the President, the Chief Financial Officer, and the Controller on March 24, 2021.

 

B	Accounting Policies

 

B1	Basis of preparation

These financial statements for the Bank have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). According to the By-Laws of AIIB, the financial year of the Bank begins on Jan.1 and ends on Dec. 31 of each year.

The Bank has adopted all of the IFRS standards and interpretations effective for annual periods beginning on Jan. 1, 2020.

The financial statements have been prepared under the historical cost convention, except for those financial instruments measured at fair value.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise judgment in its process of applying the Bank’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where judgments or estimates are significant to the financial statements are disclosed in Note B4. The financial statements have been prepared on a going concern basis.

 

5

Asian Infrastructure Investment Bank

Notes to the Financial Statements

For the year ended Dec. 31, 2020

(All amounts in thousands of US Dollars unless otherwise stated)

 

B	Accounting Policies

 

B2	New accounting pronouncements

The new accounting pronouncements, amendments and interpretations issued in 2020 and that are effective in future periods do not have any significant impact on the operating results, financial position and comprehensive income of the Bank, based on the assessment of the Bank.

The IASB issued “Interest Rate Benchmark Reform – Phase 2 (Amendments to IFRS 9, IAS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16) in response to the potential effects that the interbank offer rate (IBOR) reform could have on financial reporting. The amendments have a mandatory adoption date for annual reporting periods beginning on Jan. 1, 2021 (Note D4 IBOR reform).

 

B3	Summary of significant accounting policies

 

B3.1	Functional currency and foreign currency transactions

The functional currency of the Bank and the presentation currency of the Bank are United States Dollar (“USD” or “US Dollar”).

Foreign currency transactions are initially translated into USD using exchange rates prevailing at the dates of the related transactions. At the end of the reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are recognized in profit or loss during the period in which they arise.

 

B3.2	Cash and cash equivalents

Cash and cash equivalents are items which are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Deposits with initial maturity of three months or less, certain certificates of deposit, money market funds, commercial papers and other short-term investments which are considered highly liquid and with high credit quality, are classified as cash and cash equivalents.

 

B3.3	Financial instruments

 

B3.3.1

Financial assets

The Bank’s financial assets are classified into three categories:

(a) Amortized cost,

(b) Fair value through other comprehensive income (“FVOCI”), or

(c) Fair value through profit or loss (“FVPL”).

 

6

Asian Infrastructure Investment Bank

Notes to the Financial Statements

For the year ended Dec. 31, 2020

(All amounts in thousands of US Dollars unless otherwise stated)

 

B	Accounting Policies

 

B3.3	Financial instruments (Continued)

 

B3.3.1

Financial assets (Continued)

The basis of classification depends on the relevant business model and the contractual cash flow characteristics of the underlying financial asset.

 

(a)	Classification of financial assets at amortized cost

The Bank classifies its financial assets at amortized cost only if both of the following criteria are met:

 

(i)

The financial asset is held within a business model having the objective of collecting the contractual cash flows; and

(ii)

The contractual terms give rise, on specified dates, to cash flows that are solely payments of principal or interest on the principal outstanding.

The Bank applies the effective interest method to the amortized cost of a financial asset.

 

(b)	Classification of financial assets at FVOCI

Financial assets at FVOCI comprise:

 

(i)

Financial assets having contractual cash flows which reflect solely payments of principal and interest on outstanding principal, and for which the objective of the related business model is achieved both by collecting contractual cash flows and selling financial assets, and

(ii)

Investments in equity instruments which are neither held for trading nor contingent consideration, and for which the Bank has made an irrevocable election at initial recognition to recognize changes in fair value through other comprehensive income (“OCI”) rather than profit or loss.

For (i) above, interest is calculated using the effective interest method and recognized in profit or loss. Except for gains or losses from impairment and foreign exchange, the financial asset is measured at FVOCI. When the financial asset is derecognized, the cumulative gain or loss previously recognized in OCI is reclassified to profit or loss.

For (ii) above, the accumulated fair value changes in OCI will not be reclassified to profit or loss in the future. Dividends on such investments are recognized in profit or loss, unless the dividend clearly represents a recovery of part of the cost of the investment.

 

7

Asian Infrastructure Investment Bank

Notes to the Financial Statements

For the year ended Dec. 31, 2020

(All amounts in thousands of US Dollars unless otherwise stated)

 

B	Accounting Policies

 

B3.3	Financial instruments (Continued)

 

B3.3.1

Financial assets (Continued)

 

(c)	Classification of financial assets at FVPL

The Bank classifies the following financial assets at FVPL:

 

(i)

Financial assets that do not qualify for measurement at either amortized cost or FVOCI;

(ii)

Financial assets that are designated at initial recognition at FVPL irrevocably, when such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise;

(iii)

Investments in equity instruments that are held for trading; and

(iv)

Investments in equity instruments for which the Bank has not elected to recognize fair value gains or losses through OCI.

 

B3.3.2

Financial liabilities

The Bank’s financial liabilities are classified as either financial liabilities through FVPL or other financial liabilities, carried at amortized cost.

 

(a)	Classification of financial liabilities at FVPL

Financial liabilities at FVPL have two subcategories, financial liabilities held for trading and those designated as FVPL on initial recognition.

Financial liabilities can be designated at FVPL when one of the following criteria is met:

(i)

Eliminates or significantly reduces an accounting mismatch which would otherwise arise;

(ii)

A group of financial liabilities are managed, and their performance is evaluated on fair value basis, in accordance with a documented risk management strategy; or

(iii)

The financial liability contains one or more embedded derivatives which significantly modify the cash flows otherwise required.

The amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of that liability shall be presented in OCI. The remaining amount of change in the fair value of the liability shall be presented in profit or loss.

 

(b)	Other financial liabilities

Other financial liabilities are measured at amortized cost, using the effective interest method. The related interest expenses are recognized in profit or loss.

 

8

Asian Infrastructure Investment Bank

Notes to the Financial Statements

For the year ended Dec. 31, 2020

(All amounts in thousands of US Dollars unless otherwise stated)

 

B	Accounting Policies

 

B3.3	Financial instruments (Continued)

 

B3.3.3

Derivatives

The Bank measures derivatives at fair value, with all changes in fair value recognized in the Statement of Comprehensive Income. The Bank recognizes all of its contractual rights and obligations under derivatives in the Statement of Financial Position as assets and liabilities, respectively.

The Bank uses derivative instruments primarily for asset and liability management. The Bank has elected not to designate any hedging relationships for accounting purposes.

 

B3.3.4

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.

A puttable financial instrument includes a contractual obligation for the issuer to repurchase or redeem that instrument for cash or another financial asset on exercise of the put. The puttable instrument that includes such an obligation is classified as an equity instrument when meeting all the generally required features being most subordinate class of shares with identical features and all have the same rights on liquidation.

 

B3.3.5

Impairment of financial instruments

Financial assets of the Bank that are measured at amortized cost (Note B3.3.1(a)), FVOCI (Note B3.3.1 (b) (i)) and certain unrecognized financial instruments such as loan commitments are subject to credit loss estimated through an expected credit loss (“ECL”) model, assessed on a forward-looking basis.

At each reporting date, the Bank assesses whether the credit risk of a financial instrument has increased significantly since initial recognition. When making this assessment, the Bank considers the change in the risk of a default occurring over the expected life of the financial instrument. To make this assessment, the Bank compares the risk of a default occurring as at the reporting date with the risk of a default occurring as at the date of initial recognition, based on reasonable and supportable information that is available without undue cost or effort and is indicative of significant increases in credit risk since initial recognition.

At each reporting date, the Bank measures the loss allowance for a financial instrument at either:

 

(i)

An amount equal to the lifetime ECL if the credit risk related to that financial instrument has increased significantly since initial recognition; or

(ii)

An amount equal to a 12-month ECL if the credit risk related to that financial instrument has not increased significantly since initial recognition.

 

9

Asian Infrastructure Investment Bank

Notes to the Financial Statements

For the year ended Dec. 31, 2020

(All amounts in thousands of US Dollars unless otherwise stated)

 

B	Accounting Policies

 

B3.3	Financial instruments (Continued)

 

B3.3.5

Impairment of financial instruments (Continued)

 

The Bank measures ECL related to a financial instrument in a way that reflects:

 

(i)

An unbiased and probability-weighted amount determined by evaluating a range of possible outcomes;

(ii)

The time value of money; and

(iii)

Reasonable and supportable information that is available without undue cost or effort at the reporting date regarding relevant past events, current circumstances, and forecasts of future economic conditions.

The Bank identifies financial assets as having credit impairment when one or more events that could have a detrimental impact on the estimated future cash flows of that financial asset have occurred.

The Bank recognizes the loss allowance of loan commitments as a provision. However, if a financial instrument includes both a loan (i.e. financial asset) and an undrawn commitment (i.e. loan commitment) component and the Bank cannot separately identify the ECL on the loan commitment component from those on the financial asset component, the ECL on the loan commitment is recognized together with the loss allowance for the financial asset. To the extent that the combined ECL exceeds the gross carrying amount of the financial asset, the ECL is recognized as a provision.

 

B3.3.6

Determination of fair value

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal (or most advantageous) market at the measurement date under current market conditions (i.e. an exit price) regardless of whether that price is directly observable or estimated using another valuation technique.

For financial instruments traded in active markets, the determination of fair values of financial assets and financial liabilities is based on quoted market prices.

A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, pricing service, or regulatory agency; and those prices represent actual and regularly occurring market transactions on an arm’s length basis. If the above criteria are not met, the market is regarded as being inactive.

For financial instruments not traded in active markets, fair value is determined using appropriate valuation techniques. Valuation techniques include the use of recent transaction prices, discounted cash flow analysis, option pricing models and others commonly used by market participants. These valuation techniques include the use of observable and/or unobservable inputs.

 

10

Asian Infrastructure Investment Bank

Notes to the Financial Statements

For the year ended Dec. 31, 2020

(All amounts in thousands of US Dollars unless otherwise stated)

 

B	Accounting Policies

 

B3.3	Financial instruments (Continued)

 

B3.3.7

Offsetting of financial instruments

A financial asset and a financial liability are offset and the net amount presented in the statement of financial position when the Bank currently has a legally enforceable right to set off the recognized amounts, and intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously.

 

B3.3.8

Day one profit or loss

The best evidence of fair value of a financial instrument at initial recognition is the transaction price, which is the fair value of the payment given or received, unless the fair value of that instrument is evidenced by comparison with other observable current market transactions in the same instrument (without modification or repackaging) or based on a valuation technique whose variables include only data from observable markets.

Sovereign loans are measured at fair value at initial recognition, using the assumptions market participants with similar objectives as the Bank would use when pricing the sovereign-backed loan assets. The market where the Bank enters into such transactions is considered to be the principal market.

In situations where the fair value cannot be determined by observable market inputs, the difference between the transaction price and the fair value, commonly referred to as “day one profit or loss”, is either amortized over the life of the transaction, deferred until the instrument’s fair value can be measured using market observable data, or realized through settlement. The financial instrument is subsequently measured at fair value, adjusted for the deferred day one profit or loss. Subsequent changes in fair value are recognized immediately in the income statement without reversal of deferred day one profits or losses.

 

B3.3.9

Recognition and derecognition

The Bank recognizes a financial asset or a financial liability in its Statement of Financial Position when, and only when, the Bank becomes a party to the contractual provisions of the instrument.

A regular way purchase or sale of financial assets shall be recognized and derecognized as applicable using trade date accounting. Loans are recognized when cash is advanced to the borrowers.

At initial recognition, the Bank measures a financial asset or financial liability at its fair value plus or minus, in the case of a financial asset or financial liability not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issuance of the financial asset or financial liability.

 

11

Asian Infrastructure Investment Bank

Notes to the Financial Statements

For the year ended Dec. 31, 2020

(All amounts in thousands of US Dollars unless otherwise stated)

 

B	Accounting Policies

 

B3.3	Financial Instruments (Continued)

 

B3.3.9

Recognition and derecognition (Continued)

Before evaluating whether, and to what extent, derecognition is appropriate, the Bank determines whether the derecognition analysis should be applied to a part of a financial asset or a financial asset in its entirety. The Bank derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Bank neither transfers nor retains substantially all the risks and rewards of ownership and has not retained control of the transferred asset, the Bank derecognizes the financial asset and recognizes separately as assets or liabilities any rights and obligations created or retained in the transfer.

Upon derecognition of a financial asset in its entirety, the difference between the carrying amount of the asset and the sum of the consideration received and receivable and, where applicable, the cumulative gain or loss that had been recognized in other comprehensive income is reclassified to profit or loss, except for those investments in equity instruments designated as FVOCI.

Financial liabilities are derecognized when the related obligation is discharged, cancelled or expired. The difference between the carrying amount of the financial liability derecognized and the sum of the consideration paid and payable is recognized in the profit or loss.

 

B3.4	Investment in associate

Associates are those entities in which the Bank has significant influence over, but does not control or jointly control, the financial and operating policy decisions. Investment in an associate is accounted for under the equity method and is initially recognized at cost, including attributable goodwill, and is adjusted thereafter for the post-acquisition change in the Bank’s share of net assets less any impairment losses.

The Bank’s share of its associate’s profit or loss is recognized in the Bank’s Statement of Comprehensive Income. When the Bank’s share of losses in the associate equals or exceeds its interest in the associate, the Bank does not recognize further losses, unless the Bank has incurred obligations or made payments on behalf of the associate. The investment is assessed for impairment where indicators of impairment are present.

 

B3.5	Property, plant and equipment

Property, plant and equipment (“PPE”) are tangible assets held for use and expected to be used during more than one period. The Bank adopts the cost model for measuring PPE. PPE is stated at cost less accumulated depreciation. Depreciation is calculated on a straight line basis to write down the cost of each asset to its residual value over its estimated useful economic life, which is generally less than ten years.

 

12

Asian Infrastructure Investment Bank

Notes to the Financial Statements

For the year ended Dec. 31, 2020

(All amounts in thousands of US Dollars unless otherwise stated)

 

B	Accounting Policies

 

B3.6	Intangible assets

Intangible assets are stated at cost less accumulated amortization. Amortization is calculated on a straight-line basis to write down the cost of each asset to its residual value over its estimated useful economic life. Intangible assets comprise computer software which is amortized over a useful economic life, which is generally less than five years.

 

B3.7

Revenue

 

B3.7.1

Interest income

Interest income is calculated using the effective interest method. In this regard, the effective interest rate is applied to the gross carrying amount of a financial asset except for:

 

(i)

Purchased or originated credit-impaired financial assets, for which the credit adjusted effective interest rate is applied to the amortized cost of the financial assets from initial recognition; and

(ii)

Credit-impaired financial assets that have been recognized subsequent to initial recognition, for which the original effective interest rate is applied to the net carrying value in subsequent reporting periods.

With respect to (ii) above, in subsequent reporting periods, interest income is calculated by applying the effective interest rate to the gross carrying amount if the credit risk of the financial asset improves so that it is no longer credit impaired.

 

B3.7.2

Front-end and commitment fees

Front-end fees received by the Bank relating to the origination or acquisition of a financial asset are an integral part of generating involvement with the resulting financial instrument and, accordingly, are an integral part of the effective interest rate of that financial instrument.

Commitment fees received by the Bank to originate a loan when the loan commitment is not measured at FVPL are treated as follows:

 

(i)

If it is probable that the Bank will enter into a specific lending arrangement, it is an integral part of the effective interest rate of a financial instrument. If the commitment expires without the Bank making the loan, the fee is recognized as income at expiration of the commitment.

(ii)

If it is likely that a specific lending arrangement will not be entered into, or the loan commitment fee is directly related to the undrawn portion of the loan commitment and it changes based on the portion of the unused commitment at that time, it is not an integral part of the effective interest rate of the financial instrument and the fee is accounted for as income over the commitment period.

 

13

Asian Infrastructure Investment Bank

Notes to the Financial Statements

For the year ended Dec. 31, 2020

(All amounts in thousands of US Dollars unless otherwise stated)

 

 

B	Accounting Policies

 

B3.7	Revenue (Continued)

 

B3.7.3

Administration fees

Administration fees are recognized as revenue throughout the period that the services are rendered.

 

B3.8	Employee benefits

Employee benefits represent considerations given, and are expenditures incurred by the Bank, in exchange for services rendered by employees or for termination of employment contracts. These benefits include short-term employee benefits and contributions to defined contribution plans.

Short-term employee benefits

During the reporting period in which an employee has rendered services, the Bank recognizes the short-term employee benefits payable for those services as a liability with a corresponding increase in the related expense. Short-term employee benefits include base salary and location premiums, pre-retirement medical insurance, life insurance, accidental death and disability provision, death grant, leave, travel accident coverage, long-term disability, multipurpose loans to staff as well as flexible allowance and resettlement allowance which are special allowances for staff recruited globally.

Defined contribution plans

A defined contribution plan is a retirement plan under which the Bank pays fixed contributions into a separate entity. When an employee has rendered service to the Bank during a period, the Bank recognizes a contribution payable to a defined contribution plan in exchange for that service, along with the related expense. Defined contribution plans include defined contribution retirement plans and post-retirement medical benefit plans.

 

B3.9

Leases

A lease contract is one which conveys the right to control the use of an asset for a specified period of time. The lease liability is measured as the present value of the payments that are not paid at the date of recognition discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, the incremental borrowing rate is used. The right of use asset is measured at cost, consisting of the lease liability plus any payments made before the commencement of lease and less any lease incentives. Right of use assets are generally depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis.

 

B3.10

Dividends

Dividend distributions to the Bank’s members are recognized as a liability in the period in which the dividends are approved by the Board of Governors.

 

14

Asian Infrastructure Investment Bank

Notes to the Financial Statements

For the year ended Dec. 31, 2020

(All amounts in thousands of US Dollars unless otherwise stated)

 

B	Accounting Policies

 

B3.11

Current and noncurrent presentation

The Bank presents its assets and liabilities in the order of liquidity as this provides more relevant information.

 

B3.12

Taxation

In accordance with Article 51 of the AOA, within the scope of its official activities, the Bank, its assets, property, income, and its operations and transactions, shall be exempt from all taxation and from all custom duties in its member countries. Article 51 also exempts the Bank from any obligation for the payment, withholding, or collection of any tax or duty.

 

B4	Critical accounting estimates and judgments in applying accounting policies

The Bank makes estimates and assumptions that affect the amounts recognized in the financial statements, and the carrying amounts of assets and liabilities within the next financial year. Estimates and judgments are continually evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Management also makes certain judgments, apart from those involving estimations, in the process of applying the accounting policies. Judgments that have the most significant effect on the amounts recognized in the financial statements and estimates that can cause a significant adjustment to the carrying amount of assets and liabilities within the next financial year include:

 

B4.1	Impairment losses on financial instruments

The measurement of the ECL allowance for financial assets measured at amortized cost requires extensive financial modelling and significant assumptions about future economic conditions and credit behavior (e.g. the likelihood of customers defaulting and the resulting losses).

A number of significant judgments are also required in measuring ECL, which include:

 

•

Determining criteria for significant increase in credit risk and credit impairment;

•

Choosing appropriate models and assumptions for the measurement of ECL;

•

Establishing the number and probability of forward-looking scenarios for each type of product; and

•

Assigning exposures through an internal credit rating process.

Details of the inputs, assumptions, and estimation techniques used in measuring ECL are further disclosed in Note D3, which also presents sensitivities of the ECL.

 

15

Asian Infrastructure Investment Bank

Notes to the Financial Statements

For the year ended Dec. 31, 2020

(All amounts in thousands of US Dollars unless otherwise stated)

 

B	Accounting Policies

 

B4	Critical accounting estimates and judgments in applying accounting policies (Continued)

 

B4.2	Measurement of fair value

Paid-in capital receivables are initially measured at fair value. The Bank is required to use valuation techniques to determine the fair value. The Bank made judgments about the expected timing of future cash flows and the appropriate discount rate to apply. Detailed information is further disclosed in Note E.

 

B4.3	Structured entities consolidation

The Bank manages two special funds, i.e. the Project Preparation Special Fund and the Special Fund Window under COVID-19 Crisis Recovery Facility (Special Fund Window) (together, the “Special Funds”). The Bank has made a judgment on whether or not, for accounting purposes, it is the principal or an agent, to assess whether the Bank controls the Special Funds and should consolidate them. The Bank identified the Special Funds assets as a “silo” when conducting its consolidation assessment. When performing this assessment, the Bank considered several factors including, among other things, the scope of its decision-making authority over the structured entities, the rights held by other parties, the remuneration to which it is entitled in accordance with the related agreements for the administration services and the Bank’s exposure to variability of returns from other interests that it holds in the structured entities. The Bank is not exposed to any significant variability in its returns and as such is deemed to not control the Special Funds. The Bank performs re-assessment periodically.

Detailed information about the unconsolidated structured entities is set out in Note C19.

 

16

Asian Infrastructure Investment Bank

Notes to the Financial Statements

For the year ended Dec. 31, 2020

(All amounts in thousands of US Dollars unless otherwise stated)

 

C	Disclosure Notes

 

C1	Interest income and expense

 

		For the year ended Dec. 31, 2020				For the year ended Dec. 31, 2019
Interest income
Loan investments (1)			102,868				73,017
Cash, cash equivalents, and deposits			219,849				358,071
Bond investments			20,431				4,462
Total interest income			343,148				435,550
Interest expense
Borrowings			(92,186	)			(35,156	)
Total interest expense			(92,186	)			(35,156	)
Net interest income			250,962				400,394

 

(1)

Interest income for loan investments includes amortization of front-end fees, and other incremental and directly related costs in relation to loan origination that are an integral part of the effective interest rate of those loans.

 

C2	Net fee and commission income

 

		For the year ended Dec. 31, 2020				For the year ended Dec. 31, 2019
Loan commitment fee and service fee			16,090				13,029
Special Funds administration fee (Note C20)			70				70
MCDF administration fee (1)			1,630				-
Others			19				-
Total fee and commission income			17,809				13,099
Cofinancing service fee			(3,034	)			(1,188	)
Total fee and commission expense			(3,034	)			(1,188	)
Net fee and commission income			14,775				11,911

 

(1)

According to the Cooperation Agreement between the Ministry of Finance of China and AIIB and the agreement on the terms and conditions of service as the Administrator of the Finance Facility of the Multilateral Cooperation Center for Development Finance (“MCDF Finance Facility”), the Bank provides services regarding the preparation and administration of the MCDF Finance Facility, respectively. Therefore, the Bank charges an administration fee for costs associated with the work carried out in relation to MCDF Finance Facility. The Multilateral Cooperation Center for Development Finance serves as a platform to foster high-quality infrastructure and connectivity investments for developing countries.

 

17

Asian Infrastructure Investment Bank

Notes to the Financial Statements

For the year ended Dec. 31, 2020

(All amounts in thousands of US Dollars unless otherwise stated)

 

 

C	Disclosure Notes

 

C3	Net gain on financial instruments measured at fair value through profit or loss

 

		For the year ended Dec. 31, 2020				For the year ended Dec. 31, 2019
Money Market Funds (Note C6)			11,405				51,328
Investments at fair value through profit or loss (Note C7)			109,383				27,768
Borrowings (Note C13)			(222,621	)			(57,343	)
Derivatives			241,311				56,889
Total			139,478				78,642

 

C4	Impairment provision

 

		For the year ended Dec. 31, 2020				For the year ended Dec. 31, 2019
Impairment provision for
-     Loan investments (Note C8)			93,364				17,952
-     Bond investments (Note C9)			74				3,725
Total impairment provision			93,438				21,677

 

C5	General and administrative expenses

 

		For the year ended				For the year ended
		Dec. 31, 2020				Dec. 31, 2019
Staff costs (1)			77,157				56,150
Professional service expenses			29,673				22,015
Facilities and administration expenses			18,344				10,927
IT services			18,085				14,923
Issuance cost for borrowings			8,688				3,125
Travelling expenses			3,313				11,022
Annual audit fee			1,000				1,000
Others			6,529				6,533
Total general and administrative expenses			162,789				125,695

 

(1)

Staff costs

 

		For the year ended				For the year ended
		Dec. 31, 2020				Dec. 31, 2019
Short-term employee benefits			65,600				48,160
Defined contribution plans			10,753				7,324
Others			804				666
Total			77,157				56,150

Refer to Note C20 for details of key management remuneration.

 

18

Asian Infrastructure Investment Bank

Notes to the Financial Statements

For the year ended Dec. 31, 2020

(All amounts in thousands of US Dollars unless otherwise stated)

 

C	Disclosure Notes

 

C6	Cash, cash equivalents, and deposits with banks

 

		Dec. 31, 2020				Dec. 31, 2019
Cash			-				-
Deposits with banks
-     Demand deposits (1)			252,132				311,351
-     Term deposits and certificates of deposit with initial maturity of three months or less			550,238				950,813
Money Market Funds (2)			1,900,091				1,851,599
Total cash and cash equivalents			2,702,461				3,113,763
Add: term deposits and certificates of deposit with initial maturity more than three months (3)			13,208,020				11,864,578
Total cash, cash equivalents, and deposits with banks			15,910,481				14,978,341

 

(1)

USD34.33 million of demand deposits is segregated for the purpose of investing in Asian infrastructure related bonds (Dec. 31, 2019: USD22.14 million). USD5.02 million of demand deposits is segregated for the External Managers Program purpose (Dec. 31, 2019: USD7.85 million).

(2)

Money Market Funds

 

		For the year ended Dec. 31, 2020				For the year ended Dec. 31, 2019
As at beginning of year			1,851,599				1,473,408
Additions			15,830,000				12,664,513
Disposals			(15,792,913	)			(12,337,650	)
Fair value gain, net			11,405				51,328
Total Money Market Funds			1,900,091				1,851,599

Money Market Funds (“MMFs”) are rated triple-A equivalent and invest in a diversified portfolio of short-term high-quality assets. The objective of the investment is only to meet short-term cash commitments. The MMFs are subject to an insignificant risk of changes in value, with daily liquidity and an investment return comparable to normal USD denominated money market interest rates. The MMFs are exposed to credit, market and liquidity risks, and are measured at fair value.

 

(3)

Term deposits and certificates of deposit with initial maturity more than three months have maturities up to 24 months. As at Dec. 31, 2020, USD13.21 billion of term deposits and certificates of deposit has remaining maturity within 12 months (Dec. 31, 2019: USD11.66 billion).

 

19

Asian Infrastructure Investment Bank

Notes to the Financial Statements

For the year ended Dec. 31, 2020

(All amounts in thousands of US Dollars unless otherwise stated)

 

C	Disclosure Notes

 

C7	Investments at fair value through profit or loss

 

		For the year ended Dec. 31, 2020				For the year ended Dec. 31, 2019
As at beginning of year			4,096,263				3,325,484
Additions			2,452,554				4,058,278
Termination of Trust Fund (a)			-				(3,295,167	)
Return of capital contributions			(6,045	)			(15,108	)
Disposals			-				(4,992	)
Net gain of investments			109,383				27,768
Total investments at fair value through profit or loss			6,652,155				4,096,263

Analysis of investments at fair value through profit or loss:

 

		Dec. 31, 2020				Dec. 31, 2019
External Managers Program (b)			4,121,093				4,018,439
Certificates of deposit (c)			1,946,406				-
LP Funds and others (d)			107,561				29,664
Bond investments (e)			422,236				-
Investment in Trust (f)			54,859				48,160
Total investments at fair value through profit or loss			6,652,155				4,096,263

The Bank has the following investments in certain unconsolidated structured entities:

 

(a)

In prior years, the Bank placed funds with an external counterparty in a trust fund account, which reinvested the funds in a larger collective pool of investments in accordance with the investment mandate. The Bank classified this investment as a single unit of account measured at fair value through profit or loss.

The Trust Fund was terminated in Jan. 2019 and funds were returned to the general treasury portfolio.

 

20

Asian Infrastructure Investment Bank

Notes to the Financial Statements

For the year ended Dec. 31, 2020

(All amounts in thousands of US Dollars unless otherwise stated)

 

C	Disclosure Notes

 

C7	Investments at fair value through profit or loss (Continued)

 

(b)

The Bank has engaged external asset managers to invest in portfolios of high credit quality securities. The portfolios are held for trading purposes and the securities are eligible for sale at any time. The following table sets out the amounts of the investment portfolio by asset categories.

 

 

(c)

The Bank invests in certificates of deposit which are actively managed within treasury portfolio and measured at fair value through profit or loss. The certificates of deposit are of high credit quality.

 

(d)

The Bank invests in limited partnership funds (“LP Funds”), which are managed by the general partners, who make all investment decision on behalf of the limited partners. The Bank, along with other investors, has entered into the LP Funds as a limited partner with a capital commitment which will be drawn down over the commitment period of the LP Funds, based on drawdown notices issued by the general partners. The LP Funds do not have an expected maturity date within twelve months.

 

(e)

The Bank invests in bond securities which are actively managed. Therefore, the bond investments are measured at fair value through profit or loss. The bonds invested are of high credit quality.

 

(f)

The Bank has invested in the units of a Trust (the “Trust”) which holds a portfolio of five operating roads and highways assets in India. The units of the Trust are listed on the National Stock Exchange of India Limited as of June 27, 2019. The Trust is managed by an investment manager who make investment decisions on behalf of the Trust as per the Trust Deed and the Investment Management Agreement. The Trust does not have an expected maturity date within twelve months.

 

21

Asian Infrastructure Investment Bank

Notes to the Financial Statements

For the year ended Dec. 31, 2020

(All amounts in thousands of US Dollars unless otherwise stated)

 

C	Disclosure Notes

 

C8	Loan investments, loan commitments and related ECL allowance

 

Loan investments		Dec. 31, 2020				Dec. 31, 2019
Gross carrying amount			8,397,922				2,320,362
ECL allowance			(121,990	)			(47,412	)
Net carrying amount			8,275,932				2,272,950

Loan investments are carried at amortized cost. At initial recognition, loan investments are measured at fair value using the assumptions market participants of either sovereign-backed or nonsovereign-backed projects would use when pricing the loan assets. The market where the Bank enters into such transactions is considered to be the principal market. The transaction price normally represents the fair value of loans at their initial recognition.

All sovereign-backed loans to eligible members are subject to the same pricing, taking into account the “preferred creditor” and other terms giving the Bank rights more favorable than those available to commercial creditors. The Bank applies commercial pricing practices to nonsovereign-backed loans. The Bank has no intention to sell sovereign-backed loans, nor does it believe there is a secondary market for such loans.

The Bank began offering variable spread loans in 2019 where the lending rate consists of a variable reference rate and a variable spread. The variable spread consists of a fixed contractual lending spread and maturity premium along with a variable borrowing cost margin. The reference rate and the borrowing cost margin are determined at each interest rate reset date and are applicable for the following six months. The borrowing cost margin is based on the cost of the underlying funding for these loans at the time of the reset. As at Dec. 31, 2020, USD4,183.87 million of the total carrying amount of the

Bank’s loans are variable spread loans (Dec. 31, 2019: nil).

As at Dec. 31, 2020, USD162.89 million of the total carrying amount matures within 12 months (Dec. 31, 2019: USD26.88 million).

The following table sets out overall information about the credit quality of loan investments and loan commitments issued for effective contracts as at Dec. 31, 2020. The gross amounts of loans are net of the transaction costs and fees that are capitalized through the effective interest method, or EIR method.

 

			Dec. 31, 2020				Dec. 31, 2019
Loan investments, gross carrying amount			8,397,922				2,320,362
Loan commitments			8,006,312				4,576,460
			16,404,234				6,896,822
Total ECL allowance (a)			(160,289	)			(66,925	)
			16,243,945				6,829,897

 

22

Asian Infrastructure Investment Bank

Notes to the Financial Statements

For the year ended Dec. 31, 2020

(All amounts in thousands of US Dollars unless otherwise stated)

 

C	Disclosure Notes

 

C8	Loan investments, loan commitments and related ECL allowance (Continued)

During the year ended Dec. 31, 2020, new loan investments and loan commitments with an amount of USD9,497 million, including sovereign-backed loans of USD8,703 million, with ratings ranging from 1 to 10 (Note D3), and nonsovereign-backed loans of USD794 million, with ratings ranging from 4 to 9 have become effective and are included in the assessment of ECL at Dec. 31, 2020 (Dec. 31, 2019: USD2,197 million, including sovereign-backed loans of USD2,056 million, rating ranged from 3 to 9, and nonsovereign-backed loans of USD141 million, rating ranged from 8 to 9).

 

(a)

As at Dec. 31, 2020, the total ECL related to loan commitments is USD38.30 million (Dec. 31, 2019: USD19.51 million), and is presented as a provision in Note C15. Consequential to the disbursements, USD0.1 million of the ECL for the loan commitments that was presented as a provision at Dec. 31, 2019 has been included in the ECL allowance at Dec. 31, 2020.

For the year ended Dec. 31, 2020, the impairment losses on loan investments and loan commitments were USD93.36 million (2019: USD17.95 million), as disclosed in Note C4.

 

C9	Bond investments at amortized cost

 

Bond investments		Dec. 31, 2020				Dec. 31, 2019
Gross carrying amount			472,826				483,492
ECL allowance (Note C4)			(3,799	)			(3,725	)
Net carrying amount			469,027				479,767

The Bank has invested in a fixed income portfolio which comprises primarily Asian infrastructure-related bonds. The bonds are initially recognized at fair value and subsequently measured at amortized cost. As at Dec. 31, 2020, the gross carrying amount of investment grade bonds with credit ratings ranging from 1 to 4 is USD221.75 million (Dec. 31, 2019: USD169.08 million) and noninvestment grade bonds with credit ratings ranging from 5 to 9 is USD251.08 million (Dec. 31, 2019: USD314.41 million).

For the year ended Dec. 31, 2020, USD17.74 million investment loss was recognized as a result of disposal of certain bonds in the portfolio (for the year ended Dec. 31, 2019: nil).

Bond investments at amortized cost are subject to credit losses estimated by applying an ECL model, assessed on a forward-looking basis.

As at Dec. 31, 2020, USD39.58 million of the gross carrying amount matures within 12 months (Dec. 31, 2019: USD47.24 million).

 

23

Asian Infrastructure Investment Bank

Notes to the Financial Statements

For the year ended Dec. 31, 2020

(All amounts in thousands of US Dollars unless otherwise stated)

 

C	Disclosure Notes

 

C10	Investment in associate

On April 2, 2020, the Bank subscribed for a 30% economic interest in a private company incorporated in Singapore and limited by shares. The purpose of the investee is to acquire and securitize infrastructure loans. As at Dec. 31, 2020, the undrawn capital commitment is USD27 million.

For the period from the date of subscription to Dec. 31, 2020, the associate recognized a loss of USD1.47 million. The Bank has recorded a net loss of USD0.44 million following the equity method.

 

		For the year ended
		Dec. 31, 2020
As at beginning of period			-
Additions			27,000
Share of loss for the period			(441	)
Total investment in associate			26,559

 

24

Asian Infrastructure Investment Bank

Notes to the Financial Statements

For the year ended Dec. 31, 2020

(All amounts in thousands of US Dollars unless otherwise stated)

 

C	Disclosure Notes

 

C11	Paid-in capital receivables

According to the AOA, payments for paid-in capital (refer to Note C16) are due in five installments, with the exception of members designated as less developed countries, who may pay in ten installments. Paid-in capital receivables represent amounts due from members in respect of paid-in capital. These amounts are initially recognized at fair value and subsequently measured at amortized cost. The fair value discount is accreted through income using the effective interest method. For the year ended Dec. 31, 2020, a total discount of USD0.07 million (2019: USD2.82 million) has been debited to the reserve. An amount of USD7.56 million (2019: USD57.62 million) has been accreted through income in the current year.

As at Dec. 31, 2020, overdue contractual undiscounted paid-in capital receivables amounting to USD151.27 million (Dec. 31, 2019: USD335.95 million) (Note C16) are not considered impaired. Of this amount, USD0.78 million (Dec. 31, 2019: USD161.22 million) has been collected by the date of signing of the 2020 financial statements.

As at Dec. 31, 2020, USD287.82 million (Dec. 31, 2019: USD469.10 million) of the paid-in capital balance is due within 12 months.

 

 

C12	Other assets

 

 

C13	Borrowings

 

 

25

Asian Infrastructure Investment Bank

Notes to the Financial Statements

For the year ended Dec. 31, 2020

(All amounts in thousands of US Dollars unless otherwise stated)

 

C	Disclosure Notes

 

C13	Borrowings (Continued)

 

(a)

As of Dec. 31, 2020, the Bank has issued a total of USD8.5 billion SEC-registered fixed rate global notes in the capital markets. These notes are listed on the London Stock Exchange’s main market. The following table sets out the details of the SEC- registered notes.

 

 

(b)

On June 15, 2020, the Bank issued Renminbi denominated bonds on China’s interbank bond market (“RMB Denominated Panda Bond”) in the aggregate amount of CNY3 billion, at a fixed interest rate of 2.4% p.a., payable annually, and a maturity date of June 15, 2023.

 

(c)

For the year ended Dec. 31, 2020, the Bank issued a total of USD2,380 million equivalent fixed rate notes under its Global Medium-Term Note (“GMTN”) program through a combination of private and public placements.

The Bank has entered into interest rate swaps and cross currency swaps to economically hedge its interest rate and currency exposures. The borrowings have been designated as financial liabilities at fair value through profit or loss, in order to significantly reduce accounting mismatches that would have otherwise arisen if the borrowings were carried at amortized cost while the related swaps are carried at fair value. Interest from borrowings was calculated based on outstanding balances of the borrowings and coupon rates and presented as interest expense in the Statement of Comprehensive Income.

The fair value changes for financial liabilities that are designated as at fair value through profit or loss, that is attributable to changes in the Bank’s own credit risk, are recognized in other comprehensive income in accordance with the requirements of IFRS 9. Fair value movements attributable to changes in the Bank’s own credit risk are determined using the mark-to-market approach by applying an observable own credit spread curve to the Bank’s exposure at the reporting date.

For the year ended Dec. 31, 2020, the fair value movements attributable to changes in the Bank’s own credit risk included in the other comprehensive income amounted to USD23.70 million.

 

26

Asian Infrastructure Investment Bank

Notes to the Financial Statements

For the year ended Dec. 31, 2020

(All amounts in thousands of US Dollars unless otherwise stated)

 

C	Disclosure Notes

 

C13	Borrowings (Continued)

The following table sets out information about changes in liabilities arising from borrowing activities, including changes arising from cash flows and non-cash changes for the year ended Dec. 31, 2020.

 

 

C14	Derivatives

As at Dec. 31, 2020, the Bank has entered into several interest rate swap and cross currency swap contracts. Swap contracts are derivative instruments and valued at each reporting date using valuation techniques that consider observable market data such as yield curves, interest rates, and foreign currency rates. Net interest paid or received on these swap contracts is included within the net gain on financial instruments.

The following table sets out the contractual notional amounts and fair values of the derivatives as at Dec. 31, 2020. The payments under each of the swap contracts are subject to enforceable master netting arrangements.

 

 

27

Asian Infrastructure Investment Bank

Notes to the Financial Statements

For the year ended Dec. 31, 2020

(All amounts in thousands of US Dollars unless otherwise stated)

 

C	Disclosure Notes

 

C14	Derivatives (Continued)

The table below presents the undiscounted cash flows in/(out) of the swaps the Bank has entered into as at Dec. 31, 2020 and Dec. 31, 2019.

 

The Bank requires collateral in the form of cash against the exposures to derivative counterparties. The Bank records cash collateral in respect of the interest rate swaps and cross currency swaps based on the fair value of the swaps. This amount is presented separately in the Bank’s Statement of Financial Position as the cash flows are not applied towards the settlement of net interest payments. The collateral would only be applied against amounts due in the event that some or all the corresponding swaps are terminated early, including, but not limited to, as a result of a default by the relevant counterparty. As at Dec. 31, 2020, the Bank has received cash collateral of USD232.23 million (Note C15) (Dec. 31, 2019: USD49.71 million) from the swap counterparties, and has paid cash collateral of USD24.5 million (Note C12) (Dec. 31, 2019: nil) to the swap counterparties.

Due to the collateral arrangements in the Bank’s derivatives contracts, the counterparty valuation adjustment (“CVA”) and debt valuation adjustment (“DVA”) do not have a material impact on the derivative valuations as at Dec. 31, 2020 and Dec. 31, 2019.

 

28