Successful financial year 2017 boosts KfW promotion
Press Release from 2018-04-12 / Group
- KfW promotional volume reaches EUR 76.5 billion
- Consolidated profit of EUR 1.4 billion
- Slight decline in total assets to EUR 472.3 billion
KfW Group slightly scaled back its 2017 promotional business as planned, recording a total volume of EUR 76.5 billion (2016: EUR 81.0 billion, -6%). Given the strong economic performance and the sustained positive financing environment for commercial and private investors, KfW decreased its domestic promotional business to EUR 51.8 billion (2016: EUR 55.1 billion, -6%). Activities focused on innovation, start-ups and business energy efficiency, all of which recorded a significant increase. International financing with a total business volume of EUR 23.5 billion (2016: EUR 24.9 billion, -6%) was marked by a considerable increase in commitments for Financial Cooperation with developing countries and emerging economies (EUR 8.2 billion; 2016: EUR 7.3 billion, +12%). Export and project finance achieved a business volume of EUR 13.8 billion (2016: EUR 16.1 billion, -14%) in a highly competitive environment. Financial year 2017 was a successful one for DEG. As in 2016, it committed around EUR 1.6 billion for financing investments by private companies in developing countries and emerging economies (2016: EUR 1.6 billion).
KfW achieved a very satisfactory result in financial year 2017, generating a consolidated profit of EUR 1,427 million (2016: EUR 2,002 million). As expected, consolidated profit came in below the high prior-year figure, which had been boosted by non-recurring effects. This performance was primarily due to a decrease in net interest income and a lower valuation result year on year. Moreover, the purely IFRS-related effects from the valuation of derivatives used for hedging purposes overstated the earnings position by EUR 235 million (2016: EUR 233 million). At EUR 1,192 million consolidated profit before IFRS effects from hedging – which is relevant to the management of KfW – was considerably below that of the previous year (EUR 1,769 million).
“This year's consolidated profit remains above long-term earnings potential despite having decreased,” commented Dr Günther Bräunig, Chief Executive Officer of KfW Group. “With this result, KfW is improving its important capital base amid what is still a difficult interest environment and against the backdrop of increased regulatory requirements.”
At EUR 1,661 million (EUR 1,898 million), the operating result before valuation (before promotional expense) was slightly below expectations. Net interest income (before promotional expense) based on continued very favourable funding conditions for KfW remained the main source of income. At EUR 2,579 million (EUR 2,802 million), it recorded a slight decline. Administrative expense was in line with targets despite more stringent regulatory requirements and investments in modernisation.
Promotional expense – largely interest rate reductions in new business in 2017 – of EUR 213 million is again slightly below the prior-year level (EUR 230 million) due to the limited scope for reductions in the persistent low interest rate environment.
The effects on earnings from risk provisions for lending business were moderate at EUR 209 million. This figure was significantly below the standard risk costs but above the level of the previous year (EUR -150 million). Both the need for valuation adjustments of the Export and project finance business sector and income from recoveries of loans previously written off decreased.
The equity investment and securities portfolio yielded a negative result of EUR 12 million (EUR +107 million). This result is due to DEG's equity investment result, in which the equity investment portfolio's positive performance did not fully offset negative effects induced by exchange rates.
The purely IFRS-induced effects from the valuation of derivatives which are used exclusively for hedging purposes in risk positions of EUR 235 million (EUR +233 million), made a positive contribution to the valuation result.
Total assets of EUR 472.3 billion are considerably below the level of 31 December 2016 (EUR 507.0 billion), primarily due to interest-rate and exchange-rate-induced fair value changes.
The regulatory capital ratios of 20.6% at year-end 2017 remain healthy, despite the slight year-on-year decline (31 December 2016: 22.3%). As planned, KfW received an initial partial approval as of 30 June 2017 to calculate the regulatory capital ratios in accordance with the advanced IRBA. The aim is to obtain additional approval for other portfolio segments by 2022. The decline in capital ratios was largely due to the transition to the regulator-approved IRBA application. The temporary application of the more capital-intensive credit risk standard approach to the portfolio segments not yet approved for IRBA application, in addition to changes in valuation methods in the domestic promotional business, were factors in the decrease in capital ratios.
|Key figures of the income statement|
(EUR in millions)
|01/01/2017 - 31/12/2017||01/01/2016 - 31/12/2016|
|Operating result before valuation |
(before promotional expense)
|Consolidated profit before IFRS effects from hedging||1,192||1,769|
|Key figures of the statement of financial position |
(EUR in billions)
|Volume of business||572.2||609.2|
|Key regulatory figures |
|(Core) tier 1 capital ratio||20.6%||22.3%|
|Total capital ratio||20.6%||22.3%|
1) The IRBA ratios listed as of 31 December 2017 were calculated based on the IRBA approval granted and take into account the annual results until 30 September 2017. The IRBA ratios listed as of 31 December 2016 were calculated voluntarily for internal purposes on the basis of the relevant legal provisions and taking the annual results 2016 into consideration. KfW has no tier 2 capital in its equity, meaning that the respective (core) tier 1 capital ratio and the total capital ratio are the same.