2022: Exceptional first half of KfW promotion year

• Very strong increase in KfW promotional business volume to EUR 95.1 billion (H1 2021: EUR 49.8 billion)
• Doubling of domestic promotion and financing to EUR 87.0 billion (H1 2021: EUR 41.1 billion) – due in part to support measures for securing the energy supply amounting to EUR 33.4 billion
• Positive consolidated earnings of EUR 949 million due to favourable development of operative business and moderate risk provisions, as well as revaluations in the investment portfolio during second quarter
• Very robust risk-bearing capacity with equity increased to EUR 35.9 billion and a tier 1 ratio of 24.6%

In the first half of 2022, KfW Group recorded a very sharp increase in new business to EUR 95.1 billion (H1 2021: EUR 49.8 billion, +91%).
Domestic promotion and financing more than doubled due to non-recurring effects with a commitment volume of EUR 87.0 billion (H1 2021: EUR 41.1 billion, +112%). Within a generally high level of promotional demand, the German Federal Funding for Efficient Buildings (BEG) programmes, in particular, were in high demand at EUR 30.2 billion. In addition, support measures for energy supply companies on behalf of the German government contributed EUR 33.4 billion to this result due to the war in Ukraine.

“So far, the 2022 promotion year has been a very special year. In particular, KfW is supporting the German economy in overcoming the effects of the war in Ukraine. By the middle of the year, we have issued loans of more than EUR 30 billion on behalf of the German government to secure the energy supply in Germany. We are also ready to support small and medium-sized enterprises affected by the war. But this is not the only reason Germany and Europe are facing major transformation challenges. KfW will make its contribution here,” said Stefan Wintels, Chief Executive Officer of KfW.

The commitment volume of the KfW Capital business sector increased significantly to approximately EUR 307 million (H1 2021: EUR 112 million, +174%). The increase is mainly due to commitments in the components of the German Future Fund introduced last year.
In export and project finance, despite the ongoing effects of the coronavirus crisis and the upheavals in new business caused by the war, the commitment volume was only slightly below the previous year’s level at EUR 6.0 billion (H1 2021: EUR 6.5 billion).

At EUR 1.4 billion (H1 2021: EUR 1.5 billion), KfW Development Bank’s commitments were similar to the previous year’s level, as were DEG’s financing commitments of EUR 0.4 billion (H1 2021: EUR 0.4 billion).

KfW Group generated consolidated profit of EUR 949 million in the first half of 2022 (H1 2021: EUR 1,396 million). Following a first quarter negatively impacted by the Ukraine war, consolidated earnings recovered due to positive effects in the loan and investment portfolio, and a strong operating result.

The operating result before valuation (before promotional expense) at EUR 889 million was slightly down on the previous year (H1 2021: EUR 915 million), but above expectations. Net interest income (before promotional expense) of EUR 1,232 million (H1 2021: EUR 1,303 million) remain the group’s main source of income. Net commission income of EUR 357 million (before promotional expense) exceeded the prior-year amount of EUR 304 million. The main reason for this was the increase in remuneration in connection with agency business for the Federal Government. Administrative expense (before promotional expense) was just above the previous year’s level at EUR 700 million (H1 2021: EUR 692 million).
Promotional expense totalled EUR 120 million, up significantly on the previous year (H1 2021: EUR 44 million). This was due, in particular, to the increased possibilities for KfW to use interest rate reductions on a programme-specific basis.
Risk provisions in lending at EUR -52 million (H1 2021: EUR +277 million) improved significantly compared to the first quarter of 2022. The net expenses of individual loan loss provisions in the Russia-Ukraine exposure were partially reduced through successful restructuring measures.
The valuation result from the investment portfolio of EUR 128 million (H1 2021: EUR 358 million) is marked by the DEG business sector. In this context, valuation adjustments as a result of the Ukraine war are more than offset by the effects of the translation of foreign currency commitments due to the strong USD. Investments relating directly and indirectly to Russia and Ukraine were assessed using a conservative approach.
Purely IFRS-induced effects from the valuation of derivatives used for hedging purposes contributed EUR 142 million (H1 2021: EUR -70 million) to the result.
At EUR 551.2 billion, total assets equal the level as of 31 December 2021 (EUR 551.0 billion).

With a total capital ratio of 24.7% and a (common equity) tier 1 capital ratio of 24.6% (31/12/2021: both 23.9%), the regulatory capital ratios remained at a very good level.

“Consolidated earnings in the second quarter are very pleasing. The effects of the Ukraine war have been moderate so far. However, the outlook is characterised by continued high risks from the Ukraine war, the energy supply and supply bottlenecks around the world. The associated uncertainties for the German and global economy may affect the valuation result in the group in future. Specific charges are currently not foreseeable. The pleasing performance of the first half of the year forms a solid basis for a satisfactory development of earnings in 2022,” said Stefan Wintels, Chief Executive Officer of KfW.

Details on the business sectors’ promotional activities

1. SME Bank and Private Clients

As of 30 June 2022, the SME Bank and Private Clients business sector achieved a promotional business volume of EUR 47.3 billion, which was significantly above the previous year’s level (H1 2021: EUR 36.6 billion).
Of this, EUR 23.6 billion was attributable to the SME Bank commercial segment (H1 2021: EUR 12.2 billion).

SME Bank: Start-ups and corporate investment
Commitments totalling EUR 7.8 billion were made in the priority area of start-ups and corporate investments in the first half of the year. These are almost the same as the previous year (H1 2021: EUR 7.9 billion). Demand for the coronavirus aid programmes increased significantly again before the end of the application period on 30 April 2022, resulting in total commitments of EUR 3.6 billion (H1 2021: EUR 5.9 billion). The UBR Special Programme launched at the beginning of May, which will provide short-term liquidity to German companies affected by the Ukraine war, has so far been in low demand with a commitment volume of EUR 14 million. Apart from the coronavirus aid programmes, the promotional business volume rose compared with the same period in the previous year, particularly in the area of general start-up and corporate finance.

SME Bank: Climate change and the environment
In the priority area of climate change and the environment, new commitments rose to EUR 14.7 billion and were therefore considerably higher than the previous year (H1 2021: EUR 3.9 billion). The main drivers here were the very high demand for the Federal Funding for Efficient Buildings (BEG), which accounted for EUR 9.1 billion of the promotional business volume, and the KfW Renewable Energies Programme at EUR 4.5 billion (H1 2021: EUR 1.8 billion).

SME Bank: Innovation
At EUR 1.0 billion, new commitments in the priority area of innovation were considerably higher than in the same period in the previous year (H1 2021: EUR 0.5 billion). The commitments are largely attributable to the ERP Digitalisation and Innovation Loan.

The Private Clients segment achieved a promotional business volume of EUR 23.7 billion in the first half of 2022, almost equalling the good result of the previous year (H1 2021: EUR 24.4 billion). Here too, the volume was mainly driven by the high level of commitments in the German Federal Funding for Efficient Buildings (BEG), which totalled EUR 20.3 billion.

Private Clients: Energy efficiency and renewables
With a commitment volume of EUR 20.3 billion, the priority area of energy efficiency and renewables made up the majority of the Private Clients segment (H1 2021: EUR 19.6 billion). The commitments in this priority area are also mainly attributable to the Federal Funding for Efficient Buildings.

Private Clients: Residential & Housing
A total of EUR 2.5 billion was committed in the priority area of Residential & Housing (H1 2021: EUR 3.7 billion). The biggest driver was the KfW Home Ownership Programme (EUR 2.0 billion).

Private Clients: Education
The promotional business volume in the area of Education decreased compared with the same period in the previous year to EUR 0.9 billion (H1 2021: EUR 1.1 billion). The slight decline was due in particular to lower commitments in the KfW Student Loan (H1 2022: EUR 0.25 billion, H1 2021: EUR 0.40 billion), which was claimed by significantly more students in the previous year due to the coronavirus crisis.

2. Customised Finance and Public Clients

The Customised Finance and Public Clients business sector generated a commitment volume of EUR 39.4 billion in the second quarter of 2022. The volume of new business, which is heavily influenced by non-recurring effects, was therefore considerably higher than the previous year’s figure of EUR 4.3 billion.

In Customised finance corporates, an extraordinarily high commitment volume of EUR 33.6 billion (H1 2021: EUR 0.2 billion) was recorded. This is due to loans to companies from the energy sector on behalf of the Federal Government to secure gas supply. Overall, loans with a total volume of close to EUR 33.4 billion were granted in particular for short-term liquidity requirements within the scope of margining (collateral that is mandatory when trading in energy) and to finance the procurement of gas for the statutory achievement of certain levels in gas storage systems in Germany.

The volume of business for municipal and social infrastructure was significantly higher than in the previous year, with new commitments of over EUR 3.5 billion (H1 2021: EUR 1.8 billion). The increase is due in particular to the brisk recourse to special funding for refugee accomodation. In addition, there is a very high level of demand for the Federal Funding for Efficient Buildings (BEG) and the investment loan for digital infrastructure.

With a business volume of EUR 2.3 billion, individual financing of banks & promotional institutions of the federal states achieved the previous year’s figure. Very strong demand for general funding of promotional institutions of the federal states is offset by reduced commitments for global loans for leasing investments and the refinancing of export credits.

3. KfW Capital

Commitments in the KfW Capital business sector amounted to approximately EUR 307 million in the first half of 2022. This represents an increase of 174% compared to the same period of the previous year (H1 2021: EUR 112 million). The increase is mainly due to commitments in the components of the Future Fund introduced last year. In the first half of the year, KfW Capital committed around EUR 190 million via the “ERP/Future Fund Growth Facility”, while the EIF committed around EUR 57 million via the “GFF/EIF Growth Facility” under the Future Fund coordinated by KfW Capital. In the “ERP VC Fund Investments” programme, KfW Capital also made investment commitments of EUR 59 million (H1 2021: EUR 92 million). With the support of the ERP Special Fund and the Future Fund, KfW Capital invests in European VC funds, which in turn invest in start-ups and innovative technology companies in Germany with at least the capital contributed by KfW Capital.

4. KfW IPEX-Bank

KfW IPEX-Bank, which is responsible for the Export and project finance business sector and provides financing to support German and European businesses in global markets, is also feeling the ongoing effects of the coronavirus crisis and the upheavals in its new business brought about by the Ukraine war. New commitments of EUR 6.0 billion were still below the previous year’s level already suffering from the coronavirus crisis (H1 2021: EUR 6.5 billion). All sector departments contributed to new business, most notably the Financial Institutions, Trade & Commodity sector department at EUR 1.4 billion (H1 2021: EUR 1.2 billion) and Industry & Services at EUR 1.0 billion (H1 2021: EUR 0.9 billion). This includes more and more financing of fibre-optic projects in Europe, underlining the bank’s commitment to the expansion of digital infrastructure.

5. Promotion of developing countries and emerging economies

KfW Development Bank
In the first half of 2022, KfW Development Bank committed EUR 1.4 billion for projects in developing countries and emerging economies (H1 2021: EUR 1.5 billion). Of these commitments, EUR 935 million (65%) are KfW funds, i.e. promotional loans and promotional equity investments that are 100% refinanced on the capital market. Two loans totalling EUR 300 million were committed to Ukraine. These are aimed at promoting small and medium-sized enterprises and providing liquidity for the Ukrainian government to secure social spending and enable reforms.

DEG
As of 30 June 2022, DEG’s newly committed finance for investments by private companies in developing countries and emerging economies amounted to EUR 356 million (H1 2021: EUR 409 million). A large part of this, EUR 138 million (H1 2021: EUR 98 million) went to Africa/MENA, including for private infrastructure projects. A further EUR 100 million is earmarked for investments in Asia, for example for the expansion of water supply in Vietnam and PET recycling in India. In light of the ongoing war against Ukraine, DEG’s business environment remains challenging. With its promotional and advisory programmes, it also supports its Ukrainian customers in local humanitarian aid operations.

6. Financial markets

KfW continues to act as an investor in green bonds with an announced green bond portfolio of EUR 2.0 to 2.5 billion. In the first half of 2022, KfW invested EUR 331 million in green bonds. The total volume of the portfolio was around EUR 2.4 billion as of 30 June 2022.
KfW raised EUR 56.6 billion on the international capital markets in 12 different currencies to fund its promotional business in the first half of the year (H1 2021: EUR 50.5 billion). The euro share of the total funding volume amounted to 58%, meaning that the euro continues to be the most important currency in KfW’s funding mix. The dollar accounted for 24%, while the pound sterling accounted for 10%.
KfW has been active in the green bond market since 2014 and is one of the largest issuers in the world. With the issue of its EUR 3 billion Green Bond in April 2022, KfW has exceeded the threshold of EUR 50 billion in total issue volume of green bonds and achieved a significant milestone in its funding programme. The volume of “Green Bonds – made by KfW” issued up to 30 June 2022 was EUR 3.8 billion. As of 31 July 2022, the green bond issue volume amounted to EUR 7.9 billion, and the total capital market funding volume was EUR 64.8 billion.

Due to its commitment to various initiatives aimed at mitigating the economic and societal consequences of the war in Ukraine and the high level of demand for promotional funds within Germany, KfW raised its capital market funding target for 2022 to EUR 90 billion in mid-July (previously EUR 80 to 85 billion). Since the Federal Government’s mandated transactions are mainly short-term bridging measures for energy companies, KfW plans to make greater use of its money market activities in funding in the second half of 2022.

¹⁾ 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 in accordance with IFRS.

An overview of the business and promotional figures is available in table form at:
www.kfw.de/geschaeftszahlen

KfW Annual Report online:
www.kfw.de/berichtsportal