KfW Annual Review 2021: An extraordinary year with high demand for promotional instruments and reversals of impairment losses

• Promotional business volume of EUR 107 billion
• A positive start to the promotional year 2022, albeit severely clouded by war in Ukraine
• A high consolidated profit of EUR 2.2 billion – average for 2020/2021 on a par with previous years
• Total assets stable at EUR 551 billion
• “KfWplus+” transformation agenda combines existing and new strategic initiatives

KfW’s new business reached EUR 107.0 billion in 2021 (2020: EUR 135.3 billion; 2019: EUR 77.3 billion). This puts it below the level of the crisis year 2020, but nevertheless significantly above the average of the years preceding the coronavirus pandemic. The reason for the downturn in new business is the significantly reduced demand for coronavirus aid, both in Germany and in the international business areas. The largest share of new commitments was attributable to business in Germany with a volume totalling EUR 82.9 billion (2020: EUR 106.4 billion; 2019: EUR 43.4 billion). There was strong demand for the promotion of energy-efficient residential buildings, commercial energy efficiency and renewable energies. KfW Capital’s commitments reached a total of EUR 0.5 billion in 2021.

As expected, the Export and project finance business sector closed the year with a significant downturn in new commitments, totalling EUR 13.6 billion (2020: EUR 16.6 billion; 2019: EUR 22.1 billion), returning to the level of previous years.

Commitments in the Promotion of developing countries and emerging economies business sector developed tentatively, reaching a volume of EUR 10.1 billion (2020: EUR 12.4 billion; 2019: EUR 10.6 billion). DEG recorded new business of EUR 1.5 billion (2020: EUR 1.4 billion; 2019: EUR 1.8 billion), which is encouraging.

Positive start to the promotional year 2022 despite significant burdens in face of the war in Ukraine

KfW kicked off the year well with new business totalling EUR 22.3 billion (2021: EUR 15.0 billion) as of 28 February. At EUR 19.4 billion, new commitments for domestic promotional business in particular were significantly higher than in the previous year (EUR 12.2 billion). More commitments than in the same period of the previous year were made in almost all promotional areas, most notably in the Federal Funding for Efficient Buildings (BEG). Due to the flood of applications in January, which led to the utilisation of federal funds, the BEG programme was temporarily suspended. Applications for energy-efficient refurbishment works were opened again from 22 February, and applications for newbuild promotion will be open again from 20 April 2022. Financing on behalf of the German Federal Government with a view to securing Germany’s energy supply in face of the war in Ukraine also contributed to the increase in new domestic business.

Export and project finance also started the year well with a commitment volume of EUR 2.3 billion (EUR 2.0 billion). Promotion of developing countries and emerging economies stood at EUR 0.6 billion (EUR 0.6 billion). New commitments in this business segment usually only increase later over the course of the year.

Stefan Wintels, Chief Executive Officer of KfW, said: "2021 was an exceptional promotional year at KfW. The unpredictable development of the pandemic, persistent supply chain bottlenecks, rising energy costs, soaring inflation and growing international political tension created great uncertainty. In this very challenging environment, KfW provided active support to the economy and society in Germany as well as to its partners worldwide.”

Looking ahead to the new year, Wintels added: "The demand for KfW promotion is once again very high at the start of 2022. This year will be no less challenging. The ongoing pandemic and the terrible war in Ukraine are expected to place a considerable strain on the economy and on society. KfW will therefore continue to assume its responsibilities as a transformative and promotional bank through its programmes and financing."

Financial year 2021 – consolidated profit extraordinarily high, but average for 2020/2021 on a par with previous years

The earnings position improved substantially in financial year 2021 after the effects of the COVID-19 pandemic the year before, recording a consolidated profit of EUR 2,215 million (2020: EUR 525 million).

On the back of the economic recovery, KfW’s earnings position developed much better in the 2021 financial year than in the previous year (EUR 525 million), with consolidated profit standing at EUR 2,215 million. This was due in particular to a very good valuation result, which is characterised by the reversal of risk provisions for lending and significant increases in value in the investment portfolio. In the previous year, the valuation result was significantly impacted by the economic effects of the coronavirus crisis on KfW’s lending and investment business.

"The extraordinarily high consolidated profit is characterised by reversal effects related to provisions made in the previous year in the context of the coronavirus crisis and valuation discounts for loans and investments. If we consider the two coronavirus years 2020 and 2021, KfW achieved an average result that is at the same excellent level as in preceding years," said Stefan Wintels.

At EUR 1,712 million (EUR 1,855 million), the operating result before valuation (before promotional expense) came in below the previous year's figure. Net interest income (before promotional expense) based on continued excellent funding conditions for KfW remained the main source of income, but recorded a slight decline to EUR 2,531 million (EUR 2,601 million) due to the low interest rate environment. Net commission income of EUR 634 million (before promotional expense) exceeded the prior-year figure of EUR 584 million. This is mainly due to the increased demand for promotional programmes from the Federal Government in the areas of energy efficiency and renewable energy sources, including charging infrastructure. Administrative expense (before promotional expense) includes, in particular, increased expenses for domestic promotional programmes and Financial Cooperation, as well as for ensuring compliance with regulatory requirements, and amounted to EUR 1,452 million (EUR 1,330 million) for the entire year.

Promotional expense – primarily interest rate reductions in new business – totalled EUR 188 million, up significantly on the previous year (EUR 88 million). This was due to the expansion of interest rate reductions from EUR 54 million in 2020 to EUR 144 million in the reporting year after the negative funding rates were passed on to the financing partners from the second half of 2021.

Risk provisions for lending business totalling EUR 196 million (EUR -777 million) is characterised by reversals of risk provisions for latent risks made in 2020 due to the coronavirus situation, small additions of specific valuation allowances and income from recoveries of receivables that had been written off.

The valuation result from the investment portfolio of EUR 766 million (EUR -281 million) benefited from the global economic recovery following the previous year, which had been strained by the coronavirus crisis. This results in growth, particularly in the Promotion of developing countries and emerging economies (EUR 454 million, of which EUR 424 million was from DEG) and KfW Capital (EUR 211 million) business sectors.

Purely IFRS-induced effects from the valuation of derivatives used for hedging purposes placed a strain on the earnings position with EUR 139 million (EUR -109 million).

At EUR 551.0 billion, total assets were above the level of 31 December 2020 (EUR 546.4 billion), primarily due to a rise in net lending.

At the end of 2021, the regulatory capital ratios remained at a very healthy level with a total capital ratio and a (common equity) tier 1 capital ratio of 23.9% each, decreasing only moderately year-on-year despite more stringent regulatory requirements (31 December 2020: 24.3% or 24.1%).

“KfWplus+” transformation agenda combines existing and new strategic initiatives

In the coming years, KfW will make an increased contribution to accelerating the sustainable transformation of the economy and society, while at the same time strengthening Germany's position as a place for industry and technology. Moreover, as a consequence of the war in Ukraine, resilience in many key economic areas will have to be significantly shored up.

"The decade ahead will determine what consequences our actions will have for the generations to come. At KfW, we want to make an effective contribution to ensuring that the necessary transformation of the economy and society is successful," emphasises Stefan Wintels.

As an organisation, KfW faces major challenges in further strengthening its own ability to deliver: Rapid technological progress, changing expectations of customers, new requirements from politics, changed forms of cooperation and increased competition for the best employees – while continuing to meet stringent regulatory requirements.

In order to meet these extensive requirements, KfW is bundling a series of ongoing and new initiatives into a strategic transformation agenda entitled “KfWplus+”. "Our goal is to further develop KfW into a digital and transformative promotional bank. Overall, we want to become more adaptable, efficient and effective," says Stefan Wintels.

In a longer-term, dynamic change process, KfW’s promotional offering will be focused on the megatrends of “climate & environment” and “digitalisation & innovation” in order to support the economy and shore up its resilience. The effectiveness of government funds will be scrutinised more intensively, and private capital will be mobilised more readily. To achieve these goals, KfW will foster digitisation and the use of new technologies in implementing its promotion business. A high-performance organisational structure is also essential for this. For this reason, central organisational units for loan processing will be merged into a new operational area and integrated into the COO division. Stefan Wintels adds: "With this decision, we are adhering to a market benchmark in the banking industry and creating the conditions to further improve our processes. Furthermore, there will be a more precise separation between front-office departments and the operations area for the lending business.”

In addition, Ms Herrmann was appointed General Manager at the meeting of the KfW Board of Supervisory Directors on 6 April. Ms Herrmann is to be appointed Member of the Executive Board responsible for domestic business in one year’s time.

¹⁾ The comparative figure was adjusted by EUR 332 million.

²⁾ The capital ratios stated take into account the eligible interim results according to Art. 26 (2) of the Capital Requirements Regulation, which deviate from the respective annual results according to IFRS.

All documents for the Press Conference on Annual Results 2021 can be found in the Digital Press Portfolio