Report of the Board of Supervisory Directors
Meetings of the Board of Supervisory Directors
The Board of Supervisory Directors and its committees constantly monitored the conduct of KfW’s business activities and the management of its assets. It has taken the necessary decisions on the provision of financing and the conduct of other business in accordance with the conditions set forth in the KfW Law and Bylaws. The Board of Supervisory Directors and the Audit Committee each met three times in 2017 for this purpose; the Presidial and Nomination Committee five times, the Remuneration Committee four times and the Risk and Credit Committee seven times.
At the meetings, the Board of Supervisory Directors acknowledged the information provided by the Executive Board on
- KfW’s 2016 annual and consolidated financial statements,
- the business activities and current developments in each of KfW’s business sectors, including KFW IPEX-Bank GmbH and DEG,
- the group’s net assets, earnings position and risk situation in general, particularly sensitive areas such as the ship portfolio, as well as political risks, including any implications of the United Kingdom’s decision to leave the EU,
- the significance of digitalisation for KfW and its activities to harness the arising opportunities,
- banking supervisory issues relating to KfW, current consultations with the banking supervisory authorities, in particular on compliance with regulatory capital requirements, audits completed and ongoing, the resulting measures, as well as potential effects of future regulatory changes,
- the current status of the major projects portfolio, particularly concerning the progress in renewing the financial architecture (including the “SAPFin project”),
- the modernisation and reorientation of the IT landscape, as well as improvement measures relating to payment transactions given the deficits identified in these areas,
- business and risk strategies, the group IT strategy, and KfW’s IT strategy for 2018.
The Board of Supervisory Directors approved the establishment of a subsidiary for the purpose of stepping up KfW’s activities in the area of venture capital and equity financing. By expanding domestic equity financing, KfW is supposed to make a substantial contribution to reducing the shortage in supply of follow-on and growth financing in the start-up and growth phases using funds from the ERP Special Fund.
In addition, the Board of Supervisory Directors addressed the following key issues at its meetings based on the reports submitted by the Executive Board on the individual business sectors:
- With regard to domestic promotional business, the Board of Supervisory Directors discussed the reorganisation of the promotional area, taking a detailed look at the expansion of equity financing, the commitment in environmental and climate protection, as well as energy efficiency, and continued development of innovation promotion relating to digitalisation.
- With regard to the business sector Promotion of developing countries and emerging economies, the Board of Supervisory Directors discussed key issues of Financial Cooperation, the planned expansion of German development cooperation using additional federal budget funds, crisis and refugee aid, the implementation of the Federal Government’s Africa initiatives, the initiatives relating to climate protection, as well as DEG’s business orientation and results.
- As for KfW IPEX-Bank GmbH, i.e. the Export and project finance business sector, the focus was on the support the bank provides to German and European investors and exporters. The future strategic focus, capital resources and business results of KfW IPEX-Bank GmbH were also discussed.
- The Board of Supervisory Directors received regular reports on capital market development and KfW’s funding status. KfW is still playing a leading role in the rapidly-growing green bond market, and making a key contribution to the development of the “sustainable finance” market segment.
- The Board of Supervisory Directors also monitored KfW Group’s environmental and sustainability commitment.
The Board of Supervisory Directors was informed at the meetings as well as quarterly, in writing, of the group’s net assets, earnings position and risk situation, the development of its promotional business, and Internal Auditing’s activity. The Executive Board also kept the Chair of the Board of Supervisory Directors/ his deputy informed of key developments at the bank between meetings.
The Board of Supervisory Directors discussed the focus areas of the business strategy – particularly in the fields of climate change and the environment, globalisation, innovation and SMEs – including KfW’s activities in Europe. The Board of Supervisory Directors approved the planning for 2018, and acknowledged the multi-year business strategy, the risk strategy and the IT strategies for the group and the individual group companies.
Each member of the Board of Supervisory Directors is obliged to inform the Chair of the Board of Supervisory Directors or of the relevant committee about potential conflicts of interest before a resolution is made. Consequently, on some occasions during the reporting year, members of the Risk and Credit Committee abstained from voting or refrained from participating in resolutions.
Ten members of the Board of Supervisory Directors attended fewer than half of the board meetings in the reporting year. One member attended fewer than half of the meetings of the Presidial and Nomination Committee. The same applies to the Remuneration Committee and the Audit Committee. Two members attended fewer than half of the meetings of the Risk and Credit Committee.
Members of the Board of Supervisory Directors attended three training events and three individual training sessions in 2017 to gain and maintain the expertise required in accordance with the German Banking Act. A training session was also conducted for employees reporting to members of the Board of Supervisory Directors.
Committees of the Board of Supervisory Directors
In exercising its responsibilities prescribed in the Bylaws, the Presidial and Nomination Committee discussed Executive Board matters and made recommendations to the Board of Supervisory Directors on the appointment/reappointment of Prof. Dr Joachim Nagel and Dr Hengster, and on the appointment of Dr Günther Bräunig as Deputy Chief Executive Officer/Chief Executive Officer of KfW. The decision to have an Executive Board position responsible exclusively for IT in the future was also discussed. It was also informed of banking supervisory issues and about KfW Stiftung. It discussed the status of major projects and the optimisation of KfW’s payment transaction systems with the Executive Board. The committee made a recommendation to the Board of Supervisory Directors on the establishment of a subsidiary for the purpose of stepping up KfW’s activities in the area of venture capital and equity financing. It conducted an evaluation of KfW’s executive bodies, making relevant recommendations to the Board of Supervisory Directors. It was also informed about legal disputes and construction projects.
The Risk and Credit Committee reviewed the commitments, equity investments, and loans to members of senior management that must be presented to it under the KfW Law and KfW Bylaws, as well as the scope for funding required by KfW for its funding, and the related swap transactions necessary for hedging, and addressed the risk situation and the effectiveness of the risk management system. It also dealt with KfW’s exposure in different countries and regions, the development and assessment of political risks, including the United Kingdom’s decision to leave the EU, the ODA recognition system, the reorganisation of equity finance, the potential effects of regulatory measures currently under discussion, as well as the risk profile of the business sector Export and project finance. The results of Bundesbank assessments, along with the resulting measures and projects, the talks with the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – “BaFin”) and the regulatory capital requirements on KfW were also reported and discussed. And lastly, the committee discussed the initial risk-relevant results of the 2017 annual audit and the risk strategy, including the capital planning for the next few financial years.
The Audit Committee addressed the accounting process, KfW’s net assets and earnings position, the reports by Internal Auditing and Compliance and the annual financial statements of KfW Group 2016. It made corresponding recommendations to the Board of Supervisory Directors for the approval of the annual financial statements 2016 and the appointment of the auditor for 2018. Based on information supplied by the Executive Board, it evaluated the efficiency of the risk management system, the internal control system (ICS) and the internal audit system. In addition, it addressed auditor independence, set focal points for the 2017 annual audit and discussed the initial results of the 2017 annual audit (audit report part I). The Committee approved the audit plan of the Internal Auditing department for 2018. It was informed of banking supervisory issues, in particular the Bundesbank assessments, along with the resulting measures and projects, as well as the ongoing major projects and used several meetings to take a close look at a payment transaction incident, therefore commissioned a special investigation to be conducted by an auditor, and discussed the plan of action developed by KfW and the auditor for KfW’s payment transaction systems and their optimisation in detail.
The Remuneration Committee discussed compensation issues and the implementation of the Remuneration Regulation for Institutions (Institutsvergütungsverordnung – “IVV”) as of 2018. It was informed, among other matters, about the remuneration system for KfW employees and its future structure, including the new target agreement and assessment system, as well as the risk analysis to identify risk takers. As part of this risk analysis, KfW, both as an individual institution and at group level, has to identify staff members whose work could have a material impact on the risk profile of the institution/of the group. The group-wide remuneration strategy was also discussed.
The committee chairpersons reported to the Board of Supervisory Directors regularly on the work of the committees.
Changes on the boards
During the reporting period, the Board of Supervisory Directors appointed Prof. Dr Joachim Nagel as a new member of the Executive Board with effect from 1 November 2017, and reappointed Dr Ingrid Hengster to the Executive Board with effect from 1 April 2018. Dr Norbert Kloppenburg retired on 31 October 2017 and Dr Ulrich Schröder retired at his own request on 31 December 2017; both have therefore stepped down from the Executive Board. Dr Günther Bräunig was appointed Deputy Chief Executive Officer with effect from 1 September 2017 and Chief Executive Officer of KfW with effect from 1 January 2018. The Board of Supervisory Directors would like to thank Dr Kloppenburg for 28 years of committed service to KfW. Dr Schröder died on 25 March 2018 at the age of 66, following a serious illness. Dr Schröder always applied a great deal of energy, discipline and care in his work for the good of KfW. The Board of Supervisory Directors is grateful for his almost nine years of commitment as Chief Executive Officer.
In accordance with Article 7 (1) no. 1 of the KfW Law, the Federal Minister for Economic Affairs and Energy at the time, Brigitte Zypries, as of 1 January 2018 assumed the position of Chair of the Board of Supervisory Directors from me in my former capacity as Federal Minister of Finance.
New members of the Board of Supervisory Directors in 2017 were Dr Holger Bingmann, Volker Bouffier, Dr Louis Hagen, Andreas Ibel, Dr Joachim Lang, Lutz Lienenkämper, Edith Sitzmann and Brigitte Zypries. Kerstin Andreae, Anton F. Börner, Hans-Dieter Brenner, Alexander Dobrindt, Georg Fahrenschon, Dr Markus Kerber, Dr Gesine Lötzsch, Dr Wolfgang Schäuble, Andreas Schmitz, Peter-Jürgen Schneider, Dr Frank-Walter Steinmeier, Prof. Dr Georg Unland and Dr Norbert Walter-Borjans stepped down from the Board of Supervisory Directors in 2017. Robert Feiger, Reiner Hoffmann, Stefan Körzell and Dr Joachim Lang stepped down with effect from 31 December 2017 and were reappointed according to schedule with effect from 1 January 2018.
New members of the Board of Supervisory Directors with effect from 1 January 2018 are Dr Hans-Walter Peters, Dr Johannes-Jörg Riegler and Helmut Schleweis, with Reinhold Hilbers joining with effect from 2 February 2018, Dr Bruno Hollnagel and Dr Florion Toncar with effect from 1 March 2018, Dr Matthias Haß with effect from 2 March 2018, as well as Julia Klöckner, Heiko Maas, Andreas Scheuer, Olaf Scholz and Svenja Schulze with effect from 14 March 2018. Sigmar Gabriel, Hubertus Heil, Dr Barbara Hendricks, Christian Schmidt and Brigitte Zypries stepped down from the Board of Supervisory Directors effective 14 March 2018. The Board of Supervisory Directors would like to thank the members who stepped down in 2017 and 2018 for their work.
Annual financial statements
Ernst & Young GmbH, which was appointed auditor for the 2017 financial year, has audited the annual financial statements and the management report of KfW as well as the consolidated financial statements and the group management report of KfW Group, all of which were prepared as of 31 December 2017 by the Executive Board, and issued an unqualified auditor’s report thereon. The financial statements and the management report were prepared in accordance with the provisions of the German Commercial Code (HGB) and the consolidated financial statements and the group management report were prepared in accordance with International Financial Reporting Standards (IFRS) as applicable within the European Union.
At its meeting on 11 April 2018, the Board of Supervisory Directors approved the financial statements and the consolidated financial statements, both of which were prepared by the Executive Board, as stipulated in Article 9 (2) of the KfW Law, following a recommendation by the Audit Committee
Frankfurt am Main, 11 April 2018
THE BOARD OF SUPERVISORY DIRECTORS
The information contained in this online Annual Report 2017 is based on KfW’s Financial Report 2017, which you can download Should this online Annual Report 2017, despite the great care taken in preparation of its content, contain any contradictions or errors compared to the Financial Report, the KfW Financial Report 2017 takes priority.