KfW Annual review 2020: strong operating result – negative impacts of coronavirus weigh on consolidated profit

• Promotional business volume at historical high of EUR 135.3 billion
• Consolidated profit at EUR 525 million due to coronavirus
• Coronavirus pandemic negatively impacts consolidated profit with around EUR 800 million
• One year of coronavirus aid: EUR 54.3 billion to support the economy
• Coronavirus aid results in an increase in total assets to EUR 546.4 billion

KfW’s promotional business reached a historical high of EUR 135.3 billion (+75%) in 2020. The main drivers of the strong growth were the measures to mitigate the economic impacts of the coronavirus pandemic in Germany and abroad, which totalled EUR 50.9 billion (after deducting cancellations and waivers of commitments amounting to EUR 10.8 billion) and thus 38% of the total business volume. In Germany alone, KfW committed around one million loans, grants and other financing totalling EUR 106.4 billion last year. The promotional programmes in the area of energy-efficient construction and refurbishment also contributed to the growth of the promotional business volume (EUR 26.8 billion). Commitments by KfW Capital amounted to a total of EUR 871 million in 2020.

The business sector Developing countries and emerging economies increased its business volume by 16% to EUR 12.4 billion. Some EUR 11 billion of this amount was accounted for by KfW Development Bank and EUR 1.4 billion by DEG.

At EUR 16.6 billion, the commitment volume in the Export and project finance business sector, which provides financing in the interests of the German and European economy, came in significantly below the 2019 record level of EUR 22.1 billion but remained within the range of the preceding years despite the impact of the coronavirus crisis on global trade.

Around one year ago, in an unprecedented show of strength and in close cooperation with the German Federal Government, financing partners, associations and supervisory authorities, KfW launched the largest assistance programme in its history -the KfW Special Programme for coronavirus aid. The programme offers liquidity support to entrepreneurs of all sizes and to date 127,000 companies have submitted applications for a volume of EUR 61.5 billion. The programme has been continuously expanded to include additional target groups in Germany and abroad, including students, start-ups, non-profit organisations, as well as the partner countries of Financial Cooperation. The total commitment volume currently amounts to EUR 54.3 billion (as of 18 March 2021). The continuous expansion and further development of the promotional infrastructure to which all of KfW’s financing partners were digitally connected over time has proven its value. This stable structure enabled a record number of one million commitments to be transacted last year. Concurrent with the high number of coronavirus aid loans, a very high number of grants were committed through the KfW grant portal, including more than 100,000 applications each for charging stations and the Baukindergeld grant to support the purchase of owner-occupied housing for families with children.

KfW’s earnings position in the 2020 financial year was dominated by the effects of the coronavirus pandemic, which negatively impacted KfW's valuation result, particularly in the first half of 2020. In the second half of 2020, KfW succeeded in reversing its earnings trend based on a good operating result and a decline in negative effects from valuation and reported a consolidated profit for the year as a whole. At EUR 525 million, this is significantly below the previous year (EUR 1,367 million) due to increased risk provisions for the lending business and the negative investment result.

“The earnings position shows two sides. We were able, on the one hand, to continue the positive development of operating results, which even exceeded the previous year, but, on the other hand, the negative effects of the coronavirus crisis on the valuation result reduced the consolidated profit to EUR 525 million,” said Dr Günther Bräunig, Chief Executive Officer of KfW Group. “The solid capital base has been fortified and reached a tier 1 capital ratio of 24.1%.”

At EUR 1,855 million, the operating result before valuation (before promotional expense) exceeded the prior-year figure (EUR 1,677 million). At EUR 2,601 million, net interest income (before promotional expense), as a key earnings pillar, increased by 5% compared to the previous year (EUR 2,484 million). A positive development was seen in net commission income, which contributed EUR 584 million (2019: EUR 512 million) to the increase in the operating result. This also includes remuneration for processing the highly sought-after coronavirus special programmes as well as processing margins for their large-volume loans. Administrative expense, at EUR 1,330 million, was only slightly higher than the previous year (EUR 1,320 million) thanks to extensive measures.

The economic impact of the coronavirus pandemic left a significant mark on risk provisions for lending business totalling EUR 777 million (EUR -174 million). The purely pandemic-related adverse effects on the result amount to EUR 499 million for latent and imminent credit risks and relate in particular to the international business with provisioning in the Export and project finance and Promotion of developing countries and emerging economies business sectors. In the first half of the year, negative effects in the general risk provisions (stages 1+2) resulted primarily from the changed macroeconomic environment and due to rating downgrades, which cumulatively accounted for more than half of the total risk provision result.

In the investment portfolio, the valuation losses produced a negative result totalling EUR 281 million after a positive contribution to earnings of EUR 95 million in the previous year. The valuation losses related to coronavirus totalling EUR -348 million resulted in particular from the business sector Promotion of developing countries and emerging economies. The domestic investment business, especially of KfW Capital, and the performance of the equity companies contributed positively to the result.

Promotional expense – mainly interest rate reductions in new business – fell again in the 2020 financial year to EUR 88 million, which is still below expectations and below the prior-year level (EUR 159 million) due to the limited scope for reductions in the persistently low interest rate environment.

The purely IFRS-induced effects from the valuation of derivatives used exclusively for hedging purposes in economically closed risk positions had a negative impact of EUR -109 million (2019: EUR -80 million) on the valuation result.

Total assets increased by EUR 40.4 billion to EUR 546.4 billion compared to 31 December 2019 (EUR 506.0 billion), mainly due to disbursements in the KfW special programmes. KfW raised EUR 66.4 billion in the capital markets to fund its business activities. As part of the coronavirus special programmes, new funding sources were tapped with earmarked access to federal auctions via the government-owned Economic Stabilisation Fund (WSF) and participation in the targeted longer-term funding of the Eurosystem via TLTRO III. In this context, KfW raised funds of EUR 39.0 billion and EUR 13.4 billion respectively.

The regulatory capital ratios remained at a very good level at year-end 2020, with a total capital ratio of 24.3% and a (common equity) tier 1 capital ratio of 24.1%, and improved further year-on-year despite adverse effects related to coronavirus (31 December 2019: 21.3% in each case).

1) The capital ratios stated do consider the results of the first half of the respective years.

All documents for the Press Conference on Annual Results 2020 can be found in the Digital Press Portfolio