KfW Annual Review 2023: Encouraging consolidated earnings strengthen KfW for future tasks

• Consolidated profit above the previous year’s figure at EUR 1.56 billion
• Increased risk-bearing capacity – tier 1 capital ratio increased to 27.9%
• KfW promotional business volume at EUR 111.3 billion continues at a high level in 2023 – KfW IPEX-Bank, DEG and KfW Capital subsidiaries with record volumes
• Very good operating result due to higher interest rates
• Positive valuation result due to robust risk situation within the group
• Total assets moderately increased to EUR 560.7 billion

Despite the uncertainties in the geopolitical and macroeconomic environment, KfW Group achieved encouraging consolidated earnings. At EUR 1.56 billion, consolidated profit was slightly above the average for the last five years and significantly above the previous year. This is due in particular to a strong operating result and a positive valuation result.

Stefan Wintels, Chief Executive Officer of KfW, stated:

“This annual result shows that KfW has performed very well and maintained its profitability, even under challenging underlying conditions. At the same time, it has further improved its capitalisation and risk-bearing capacity. KfW is thus in a strong position as it enters 2024. This positive result is important and necessary; it enables us to continue to support transformation effectively in the future.”

Strengthened risk-bearing capacity

The regulatory equity ratios remained at a very high level at the end of 2023, with a total capital ratio and a (common equity) tier 1 capital ratio of 27.9% each. They increased significantly year-on-year as a result of the postponed recognition of earnings for the second half of 2022 and the first half of 2023 as well as the decline in the total risk exposure amount (31 December 2022: 25.2% or 25.0%).

2023 was once again a very strong promotional year with a promotional business volume (new business) of EUR 111.3 billion (2022: EUR 166.9 billion). Domestic promotion normalised to EUR 77.1 billion in 2023 (2022: EUR 136.1 billion). The reasons for this downturn are strongly declining volumes of mandated transactions for energy companies in the amount of EUR 11.5 billion (2022: EUR 54.2 billion) and the significantly lower commitments for Federal Funding for Efficient Buildings. For the latter, the switch from broad-based promotion to focused promotion with more demanding promotional conditions led to a downturn to EUR 16.1 billion (2022: EUR 37.4 billion).

KfW Capital’s commitments to start-ups and young, innovative technology companies in Germany increased significantly by 69% in 2023 to around EUR 2.1 billion (2022: EUR 1.3 billion).

The Export and project finance business sector set a new record with new commitments amounting to EUR 24.2 billion (2022: EUR 18.1 billion).

Despite ongoing global crises, commitments in the promotion of developing countries and emerging economies reached a commitment level of EUR 10.9 billion (2022: EUR 12.6 billion). KfW Development Bank accounted for around EUR 9.0 billion (2022: EUR 10.9 billion). DEG achieved a record volume of EUR 1.9 billion from its own funds (2022: EUR 1.6 billion). Moreover, it was able to mobilise another EUR 613 million from investors.

“On behalf of the German Federal Government, we are also contributing internationally to protecting our planet and improving the living conditions of people in those countries that are particularly affected by the consequences of climate change and the unequal distribution of wealth. Financial Cooperation is an important instrument for representing German and European interests and strengthening partnerships, including in the field of energy,”

said Stefan Wintels.

A cautious start to 2024: new business as of 29 February 2024 at EUR 10.9 billion

KfW kicked off the year with new business totalling EUR 10.9 billion (February 2023: EUR 30.0 billion) as at the end of February 2024. The downturn in new business volume in the first two months of the year is mainly due to a one-off effect in the previous year. In the 2023 comparison period, extensions of mandated transactions for energy companies directly on behalf of the German Federal Government reached a volume of EUR 16.5 billion in domestic new business. Domestic promotional business (February 2023: EUR 26.1 billion) normalised again in the first two months and reached a volume of EUR 6.9 billion.

Export and project finance saw a strong start to the year with a commitment volume of EUR 3.8 billion (February 2023: EUR 3.7 billion) and is thus actively supporting the economy in its transformation.

Promotion of developing countries and emerging economies stood at EUR 0.3 billion (February 2023: EUR 0.4 billion). New commitments in this business segment usually only increase later over the course of the year.

Bernd Loewen, Chief Financial Officer of KfW, emphasised:

“In 2023, KfW Group recorded a normalisation of promotional activities after the previous year, which was characterised by multiple crises. The equity, strengthened by good earnings development, continues to enable KfW Group to support the economy and society in times of change.”

Consolidated earnings in detail:

Operating result before valuation (before promotional expense) benefited from the increased interest rate level and stood at EUR 1,797 million (2022: EUR 1,536 million), significantly above the previous year’s figure. The higher interest income (before promotional expense) of EUR 2,738 million (2022: EUR 2,416 million) resulted, in particular, from increased interest margins and higher returns on equity. In conjunction with KfW’s continued excellent funding opportunities, net interest income continues to be the main source of income. At EUR 606 million, net commission income (before promotional expense) was only slightly below the previous year’s strong figure of EUR 629 million. Net commission income is largely influenced by income from the implementation of the Federal Government’s promotional programmes, particularly in the area of energy efficiency and renewables, as well as Financial Cooperation transactions. The moderate increase in administrative expense (before promotional expense) to EUR 1,547 million was due to the higher non-personnel expense. The cost-to-income ratio (before promotional expense) fell to 46.3% (2022: 49.6%) due to the significant increase in operating income largely offsetting the moderate growth in administrative expense.

Promotional expense recorded the highest figure in the past ten years in 2023 and at EUR 371 million came in significantly higher than the previous year (2022: EUR 305 million). This was due to the higher interest rate level since 2022 and the associated renewed increase in demand for low-interest loans, which led to an increase in interest rate reductions of EUR 282 million to EUR 267 million in the previous year. In addition, promotional expense includes an amount of EUR 62 million for investment grants in the ERP environment, which have been contractually agreed between KfW and the German Federal Government.

The positive valuation result was characterised by KfW Group’s robust risk position and the resulting positive income from risk provisions for lending business, which offset the burdens from the investment portfolio.

Risk provisions in the lending business totalling EUR +165 million (2022: EUR -122 million) resulted in particular from the reversal of general risk provisions for lending business due to the persistently good risk situation in KfW Group’s loan portfolio, while the previous year reflected the risks from the economic effects of the Russian war of aggression against Ukraine. The low net expenses for non-performing loans were almost entirely offset by recoveries of receivables that had been written off.

At EUR -101 million, the valuation result from the investment portfolio had a negative impact on consolidated profit (2022: EUR +89 million). This was mainly due to the worsening underlying conditions for the venture capital market as a result of the war, high inflation and rising interest rates. At DEG, exchange-rate-induced effects also had a negative impact on the private equity result.

Purely IFRS-related valuation effects from derivatives used for hedging purposes contributed positively to earnings at EUR 203 million, thus matching the previous year’s level (2022: EUR 202 million).

Total assets rose moderately by EUR 6.1 billion to EUR 560.7 billion (2022: EUR 554.6 billion). This development is due, among other things, to an increase in liquid funds, against a downturn in the volume of net lending.

Publication of Green Bond Allocation Report 2023

Yesterday, KfW published its allocation report for Green Bonds – Made by KfW issued in the 2023 financial year. An amount equal to the total net proceeds of the Green Bonds issued in 2023 (EUR 12.9 billion) was used in full for disbursements in climate change mitigation projects in the categories of renewable energies, energy efficiency and sustainable mobility. In this context, 71.5% of all disbursement applications were for energy efficiency, 27.1% for renewable energies and 1.5% for sustainable mobility. The geographical analysis shows that 95.7% of the issue proceeds were allocated to projects within Germany. The rest is attributed to other OECD countries. Deloitte reconfirms the proper allocation of the Green Bond proceeds in the form of a limited assurance for 2023.

KfW Annual Report online: kfw.de/berichtsportal

Information about the press conference: Digital press portfolio for the 2024 press conference on annual results

The Allocation Report is available for download here.

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.