First quarter of 2023: good start to the new promotional year – KfW continues to provide support during the crisis

• KfW promotional business volume and new business at last year’s high level of EUR 40.0 billion
• Commitment volume in original domestic business normalises
• Export and project finance doubles to EUR 6.7 billion
• Positive consolidated earnings of EUR 394 million
• Risk-bearing capacity is high with a tier 1 capital ratio of 27%

With promotional business volume and new business of EUR 40.0 billion (03/2022: EUR 41 billion, -2%), which is at the very high level of the previous year, KfW Group enjoyed a good start to the new year. General promotional business, prolongation of mandated transactions in the energy sector and the rise in international financing contributed to this, in particular.

With a commitment volume of EUR 32.8 billion, domestic promotion and financing were slightly below the high level of the previous year (03/2022: EUR 36.8 billion; -11%). While Federal Funding for Efficient Buildings declined significantly due to changes in funding conditions as part of the change from broad-based promotion to focused promotion of top performers, prolongations and associated restructuring of existing energy transactions amounting to EUR 16.9 billion contributed to a further high volume of promotional and new business. Overall, there was also a significant normalisation of the original business activity compared to the previous year. For example, the priority areas of corporate investment, environment and sustainability, and public infrastructure experienced significant demand.

Stefan Wintels, Chief Executive Officer of KfW, stated: “In the year of our 75th anniversary, we have had a good start to the new promotional year. We continue to provide support during the crisis. Fortunately, promotional business is also normalising. With its programmes and financing, KfW supports companies, municipalities and private individuals in tackling Germany’s transformation. These financed projects are now paving the way for a sustainable, digital and gradually more energy-independent Germany. Despite numerous challenges, I am looking forward to the current year with confidence.”

KfW Capital’s commitments increased significantly year-on-year to around EUR 878 million (03/2022: EUR 43 million). The substantial increase is mainly due to the commitment of EUR 800 million for the venture capital fund ETCI (European Tech Champion Initiative), which was set up as a component of the Future Fund.

At EUR 6.7 billion, the Export and Project Finance business sector achieved a commitment volume twice as high as in the previous year’s quarter (03/2022: EUR 3.3 billion). This continued the upwards trend to which all lines of business contributed.

Commitments at KfW Development Bank amounted to EUR 506 million (03/2022: EUR 608 million; -17%), slightly below the previous year’s quarter. DEG’s financing amounted to EUR 110 million (03/2022: EUR 139 million; - 21%), which was also moderately below the previous year’s level.

KfW recorded a consolidated profit of EUR 394 million in the first quarter of 2023 (03/2022: EUR 60 million), after the previous year’s period was very negatively impacted by the Russia-Ukraine war. The first quarter is characterised by a stable operating result and a good valuation result.

The operating result before valuations (before promotional expense) was slightly below the previous year at EUR 385 million (03/2022: EUR 442 million). The downturn in net interest income (before promotional expense) was due to the sustained trend towards interest rate hikes in conjunction with the bank’s high liquidity holding. However, net interest income of EUR 596 million

(03/2022: EUR 616 million) remains the group’s main source of income. The stabilisation of an increased interest rate is expected to bring about an increase in net interest income. Net commission income (before promotional expense) amounted to EUR 147 million (03/2022: EUR 174 million), proving to be stable after a very strong first quarter of 2022. Administrative expense (before promotional expense) came in at EUR 358 million (03/2022: EUR 348 million), falling short of expectations, as is typical for this year.

Promotional expense amounted to EUR 82 million and was thus below the same period of the previous year, which was characterised by non-recurring effects (03/2022: EUR 100 million).

The positive risk provision result in the loan business totalling EUR 5 million (03/2022: EUR -188 million) stemmed in particular from the general improvement in the economic outlook, the positive effects of which compensated for rating deteriorations of individual companies.

Similarly, the positive valuation result from the investment portfolio in the amount of EUR 20 million (03/2022: EUR -134 million) reflected the recovery of the markets after the negative effects of the Russia-Ukraine war in the first quarter of 2022. Income was generated in particular in the KfW Development Bank and KfW Capital business sectors.

Purely IFRS-induced valuation effects of derivatives used for hedging purposes contributed EUR 87 million (03/2022: EUR 88 million) to the result.

At EUR 550.8 billion, total assets were slightly below the level of 31 December 2022 (EUR 554.6 billion), mainly due to a downturn in the volume of net lending.

With a total capital ratio of 27.2% and a (core) tier 1 capital ratio of 27.0% (31 December 2022: 25.2% and 25.0%), the regulatory capital ratios remain at a very good level. The increase in capital ratios is due, among other things, to the result for the second half of 2022.

Details on the business sectors’ promotional activities

1. SME Bank and Private Clients

As at 31 March 2023, the SME Bank and Private Clients business sector achieved a promotional volume of EUR 10.3 billion (03/2022: EUR 26.2 billion). Of this, EUR 6.0 billion was attributable to the SME Bank commercial segment (03/2022: EUR 12.8 billion) and EUR 4.3 billion to the Private Clients segment (03/2022: EUR 13.4 billion).

SME Bank: Start-ups and corporate investment

New commitments amounting to EUR 2.2 billion were made in the priority area of start-ups and corporate investment by 31 March 2023(03/2022: EUR 4.6 billion). The downturn compared to the same period in the previous year is due in particular to the end of the coronavirus special programmes in the middle of last year and to normalisation in original business. There was high demand for the ERP promotional loan for small and medium-sized enterprises. Loans amounting to EUR 1.9 billion were committed here (03/2022: EUR 1.3 billion).

SME Bank: Climate change and the environment

New commitments of EUR 3.4 billion were made in the priority area of climate change and the environment (03/2022: EUR 7.5 billion). Due to the exceptional situation in the previous year’s period, there were mainly fewer new commitments in Federal Funding for Efficient Buildings (BEG). The changed promotional conditions meant there were anticipatory effects in the first quarter of 2022. In the meantime, demand has normalised in view of the higher construction standards.

SME Bank: Innovation

At EUR 0.5 billion, the volume of new commitments in the priority area of innovation is at the previous year’s level (03/2022: EUR 0.6 billion).

Private Clients: Energy efficiency and renewables

At EUR 3.0 billion, the majority of the promotional business volume in the Private Clients segment can be attributed to the priority area of energy efficiency and renewables (03/2022: EUR 11.4 billion). Commitments in this priority area were mainly made in Federal Funding for Efficient Buildings (BEG). The downturn compared to the same period in the previous year is also due to the stricter promotional conditions in the context of the switch from broad-based promotion to focused promotion of top performers.

Private Clients: Residential & Housing

The promotional business volume in the residential and housing sector declined slightly to EUR 0.8 billion (03/2022: EUR 1.5 billion). The downturn is largely due to lower new commitments in the KfW Home Ownership Programme amounting to EUR 0.7 billion (03/2022: EUR 1.1 billion), which reflects the overall decline in demand for real estate financing due to the rise in interest rates.

Private Clients: Education

In the area of education, new commitments as of 31 March 2023 were at around EUR 0.5 billion, the same level as the previous year (03/2022: EUR 0.5 billion).

2. Customised finance and public clients

In the first quarter of 2023, the Customised Finance & Public-Sector Clients business sector achieved a commitment volume of around EUR 21.6 billion and thus an exceptionally strong start to 2023, in particular through mandated transactions for energy, gas and heat suppliers. The priority area of climate change and energy also experienced increased demand again. New business was therefore significantly above the previous year’s figure, which was already high (03/2022: EUR 10.6 billion).

Customised Finance: Corporates

In customised finance corporates, an exceptional commitment volume of EUR 16.9 billion (03/2022: EUR 7.5 billion) was achieved. Prolongations and the associated restructuring of existing energy allocation transactions were decisive here.

Customised Finance: Municipal and social infrastructure

The volume of business for municipal and social infrastructure was significantly higher than in the previous year, with new commitments of over EUR 3.6 billion (03/2022: EUR 1.4 billion). The increase resulted in particular from disbursements of EUR 2.4 billion from the Federal Government’s emergency aid/price brake for gas and heat. However, the traditional promotional business for municipal and social infrastructure also got off to a strong start. Programmes in the priority area of climate change and the environment in particular showed high demand again with commitments totalling EUR 433 million (03/2022: EUR 500 million).

Customised Finance: Banks & Promotional institutions With a business volume of close to EUR 1.1 billion, customised financing for banks and promotional institutions of the federal states was not able to exceed the previous year’s unusually high figure (03/2022: EUR 1.7 billion). However, with commitments of EUR 954 million, there was pleasingly high demand from the promotional institutions of the federal states for general refinancing, which also exceeded the previous year (03/2022: EUR 822 million).

3. KfW Capital

In the first quarter of 2023, commitments in the KfW Capital business area amounted to around EUR 878 million (03/2022: EUR 43 million). The significant increase is mainly due to the commitment of EUR 800 million for the venture capital umbrella fund ETCI (European Tech Champion Initiative), which was set up as a building block of the Future Fund and managed by the European Investment Fund (EIF). In addition, KfW Capital, with support from the ERP Special Fund and the Future Fund via their programmes “ERP VC Fund Investments” and “ERP/Future Fund Growth Facility” made commitments of around EUR 52 million (03/2022: EUR 42 million). Using the building block of the Future Fund managed by the European Investment Fund, the “GFF/EIF Growth Facility”, the funds of which KfW is providing on a trust basis, a further EUR 26 million (03/2022: EUR 0 million) were committed.

4. KfW IPEX-Bank

At KfW IPEX-Bank, which is responsible for the export and project finance business sector and provides financing to support German and European businesses on the global markets, the upwards trend continued. At EUR 6.7 billion, new commitments were twice as high as in the previous year’s quarter (03/2022: EUR 3.3 billion). All sector departments contributed to new business, most notably the Maritime Industries sector department at EUR 1.4 billion (03/2022: EUR 0.1 billion) and the Industry and Services, and Energy and Environment sector departments with EUR 1.1 billion each (03/2022: Industry and Services EUR 0.9 billion, Energy and Environment EUR 0.3 billion). In particular, these departments offer financing for fibre-optic projects as well as wind farms and photovoltaic systems, which KfW IPEX-Bank uses to support its customers in the transformation process.

5. Promotion of developing countries and emerging economies

KfW Development Bank

At EUR 506 million, commitments in the KfW Development Bank business sector in the first three months were slightly below the same quarter of the previous year (03/2022: EUR 608 million). Commitments in the Federal Ministry of Economic Cooperation and Development’s (BMZ) core area of “Sustainable economic development, training and employment” accounted for a high share with EUR 245 million. EUR 107 million was committed for projects in the core area of “Climate and energy, just transition”.

DEG

In the first quarter of 2023, DEG provided EUR 110 million from its own funds for business investments in emerging and developing countries under conditions that remain challenging throughout the world

(03/2022: EUR 139 million). From a regional perspective, commitments made for Asia were ahead, which enabled investments in infrastructure projects and the local production of medicines, among other things. In view of the available financing requests, DEG anticipates that momentum will increase further over the course of the year. In line with its focused business strategy, DEG advises and supports its customers specifically in the transformation process in order to reinforce the resilience of companies and further enhance developmental impacts.

6. Financial markets

For the green bond portfolio, the financial markets business sector invested in securities to promote climate action and environmental protection projects with a volume of around EUR 188 million in the first quarter of 2023 (03/2022: EUR 126 million). As a result, the promotional portfolio volume was EUR 2.3 billion on the reporting date.

Funding

KfW raised EUR 28.1 billion on the international capital markets to fund its promotional business in the first quarter of 2023 (03/2022: EUR 37.5 billion). That corresponds to around 34% of its planned funding costs of EUR 80 to 85 billion for the whole of 2023. The first quarter usually has the largest funding volume. It was characterised by great tension and high volatility on the bond markets, especially in March. Demand for KfW bonds, which are generally regarded by investors as a “safe haven”, remained stable. KfW bonds are among the most liquid in their market segment and showed stable performance in the secondary market. The majority (68%) of the funding took place in euros. KfW also issued bonds in six other currencies, including USD (13%) and GBP (11%). In addition to its regular capital and money market activities, KfW received new loans in the amount of around EUR 5 billion from the German Federal Economic Stabilisation Fund (WSF) in the first quarter to fund the transactions mandated by the German Federal Government with regard to the energy sector and supply. The funding option for these transactions via the Economic Stabilisation Fund was newly established in November 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