First quarter of 2018: good start to KfW’s new promotional year
Press Release from 2018-05-09 / Group
- Total promotional business volume of EUR 18.9 billion
- Domestic promotion up to EUR 14.9 billion
- High level of interest in SME financing continues
- Commitments at KfW IPEX-Bank increase to EUR 3.3 billion
- Consolidated profit of EUR 228 million
In the first three months of 2018, the promotional business of KfW Group reached a total volume of EUR 18.9 billion (prior-year period: EUR 18.2 billion). As at the first quarter, domestic promotion achieved a commitment volume of EUR 14.9 billion and is thus consistent with the high level last year (EUR 14.6 billion). Strong demand for SME financing in particular made a significant contribution to this development. New commitments for international business rose to EUR 3.8 billion (EUR 3.3 billion), with KfW IPEX-Bank making a key contribution of EUR 3.3 billion (EUR 2.1 billion). Two large-volume individual contracts resulted in this increase in commitments. KfW Development Bank ended the first quarter EUR 0.4 billion below the previous year's level, which had been marked by one-off effects. In the first quarter, DEG committed financing amounting to EUR 0.1 billion. For all of 2018, KfW Development Bank and DEG once again anticipate a financing volume similar to the previous year's high level.
"The first quarter is a strong start to the new promotional year. The demand for KfW promotion is reflecting the solid economic growth in Germany," says Dr Günther Bräunig, Chief Executive Officer of KfW Group.
At EUR 228 million, consolidated profit was lower compared to the previous year (EUR 421 million), as anticipated. Developments in the first quarter were slightly above plan due to the low loan loss provisioning requirements typical for this period of the year. Consolidated profit before IFRS effects from hedging pertinent to KfW's management amounted to EUR 238 million previous year: EUR 434 million) and was only slightly negatively impacted by EUR 11 million from the valuation of derivatives.
"KfW's earnings position in the first quarter of 2018 developed on a lower level as expected, but still exceeded our expectations," says Dr Bräunig, Chief Executive Officer of KfW Group.
The operating result before valuation (before promotional expense) was EUR 374 million (EUR 500). Net interest income (before promotional expense) remained the main source of KfW's income at EUR 600 million (EUR 709 million). The decline in interest income is due in particular to lower prepayment fees, and to changes in the recognition of fees paid by the Federal Government for the management of promotional programmes which following a contract amendment have been recognised under Commission income instead of Net interest income since the second half of 2017. Net interest income had still be-nefited from these fees in Q1 2017 with income of EUR 28 million.
Promotional expense – largely interest rate reductions in new business – of EUR 84 million is slightly above the prior-year level (EUR 63 million) despite the continuing limited scope for reductions in the current interest rate environment. This development is largely due to the high commitment volume in the ERP Digitalisation and Innovation programme.
At EUR 0, risk provisions for lending business were once again at a plea-singly low level (previous year: charge of EUR 2 million). The group's equity investment and securities portfolio yielded a negative result of EUR 11 million (EUR +19 million) due to the weaker development of the US dollar.
The interim financial statements as of 31 March 2018 were prepared applying the new IFRS 9 for the first time. The first-time application effect due in particular to the new rules on risk provisions and the categorisation of securities resulted in a reduction in equity of EUR 218 million at the beginning of the year. For the first quarter of 2018, a negative effect of EUR 44 million resulted from the application of the new reporting standards to the earning’s position, which is recognised in the valuation result.
The group's regulatory capital ratios remain healthy despite the effects of the transition to IFRS 9. The total capital ratio amounted to 20.8% (31 December 2017: 20.6%).
Details on the business sectors' promotional activities
At the end of the first quarter, KfW repositioned its domestic promotional business, structuring it into two new business sectors: “Mittelstandsbank & Private Kunden ("SME Bank & Private Clients") and "Individualfinanzierung & Öffentliche Kunden" (“Customised Finance & Public Clients”). This was undertaken to align KfW's promotion more consistently with the needs of its customers.
The SME Bank & Private Clients business sector generated a promotional volume of EUR 12.7 billion (EUR 12.2 billion) in the first quarter.
The SME Bank segment, at EUR 6.3 billion, was significantly above the previous year's level (EUR 5.6 billion) in the first quarter of 2018. This was mainly due to the development of the energy transition and innovation priority areas.
With a promotional business volume of EUR 2.4 billion, the innovation priority area reported a significantly higher figure than in the same quarter of the previous year (EUR 96 million); this can be primarily attributed to the ERP Digitalisation and Innovation Loan. Demand for the programme, which kicked off to a very successful start in 2017, increased again significantly in the first months of 2018. To be able to continue to make this important financing offer available, structural changes to the programme are currently being made.
The promotional business volume in the start-ups and corporate investments priority areas totalled EUR 1.9 billion (EUR 2.7 billion). The reason for this is the decline in the KfW Entrepreneur Loan (EUR 0.6 billion; previous year: EUR 1.6 billion). The area of start-up financing did particularly well at EUR 1.1 billion, surpassing the already very strong figure from the previous year (EUR 1.0 billion).
In the energy efficiency and renewables priority area, the commercial KfW Energy Efficiency programmes in particular have experienced high demand in recent months. The Energy-efficient Construction and Refurbishment part of the programme in particular, with a promotional volume of EUR 1.0 billion, was up on the same quarter of the previous year (EUR 0.9 billion). At EUR 0.6 billion, the commitments in KfW's Renewable Energy Programme, on the other hand, fell short of the record figures from the previous year (EUR 1.4 billion).
The Private Clients segment generated a promotional business volume of EUR 6.3 billion (EUR 6.6 billion) at the end of the quarter. A high level of interest in real estate finance was generated by the positive underlying conditions, which were in turn the result of the strong conditions in the construction sector and the favourable interest climate.
A significant contribution was made by the energy efficiency and renewables priority area in this segment, too, with a promotional business volume of EUR 4.7 billion. Here, especially demand for the Energy-efficient Construction and Refurbishment programme remained high.
The previous year's level (EUR 1.4 billion) was almost maintained in the housing & living priority area with a promotional business volume of EUR 1.2 billion. The education priority area also recorded steady development with a result of EUR 0.5 billion at the end of the quarter (EUR 0.5 billion).
The Customised Finance & Public Clients business sector started the financial year with a commitment volume of EUR 2.2 billion, putting new business EUR 0.2 billion below the comparable figure for the previous year.
At EUR 0.7 billion, the promotional business volume of municipal and social infrastructure financing declined slightly year-on-year (EUR 1.1 billion), which reflects, among other things, the improved financial situation of the municipalities. Specifically, basic funding made a major contribution of EUR 0.5 billion to the total promotional business volume. In addition, funding for energy-efficient construction and refurbishment at municipal level accounted for a significant share at EUR 0.2 billion.
With a contract volume of EUR 1.5 billion, individual financing for banks was up on the previous year (EUR 1.3 billion). This development was driven in particular by brisk demand for global loans for leasing investments and refinancing of export credit loans covered by federal guarantees.
Commitments of EUR 21 million in customised financing for corporates were at a low level in the first quarter, which is typical for the time of year. New commitments of EUR 17 million were made within the ERP venture capital fund investments. In future, the equity financing business, which, among other things, also includes the ERP venture capital fund investments, will be spun off into a subsidiary.
KfW IPEX-Bank, who is responsible for the Export and project finance business sector within the group, achieved a total volume of new commitments of EUR 3.3 billion (EUR 2.1 billion) in the first quarter of 2018. New commitments focused on the business segments Maritime Industry (EUR 0.9 billion; prior-year period EUR 0.3 billion), Basic Industries (EUR 0.4 billion, prior-year period EUR 0.02 billion) and Financial Institutions and Trade Finance (EUR 0.4 billion; prior-year period EUR 0.4 billion).
The commitment volume for the Promotion of developing countries and emerging economies business sector totalled EUR 0.5 billion (EUR 1.2 billion). As of the first quarter of 2018, KfW Development Bank had committed EUR 0.4 billion for projects in developing countries and emerging economies and is thus below the previous year's figure (EUR 1.1 billion). At that time, two large projects in India had contributed to the unusually high commitment volume at the beginning of the year. Over 80% of commitments went to countries in Africa and the Middle East. However, the business area is expecting to achieve a financing volume similar to the previous year for 2018 as a whole. For 2018, DEG expects to be in demand as a development financier and consultant for private companies in persistently challenging market conditions. In the first quarter, it committed EUR 54 million (EUR 155 million) to financing corporate investments in emerging and developing countries. Current requests for financing point to more dynamic development in the second quarter.
Investments totalling roughly EUR 185 million (EUR 270 million) were made in the Financial markets business sector in the first quarter of 2018. Some EUR 117 million of this (EUR 170 million) were accounted for by investments in securitisation transactions in the area of capital market-oriented support for SMEs. For the green bond portfolio KfW invested roughly EUR 68 million (EUR 100 million) in two securities to promote climate action and environmental protection projects.
In the first quarter of 2018, KfW raised EUR 23.3 billion on international capital markets to fund its promotional business and had a successful start to its refinancing activities. KfW plans a refinancing volume of EUR 70 – 75 billion for all of 2018.
|Key figures of the income statement |
(EUR in millions)
|01.01.2018 – 31.03.2018||01.01.2017 – 31.03.2017|
|Operating result before valuation (before promotional expense)||374||500|
|Consolidated profit before IFRS effects from hedging||238||434|
|Key figures of the statement of financial position |
(EUR in billions)
|Volume of business||577.9||572.2|
|Key regulatory figures (in %)1)||31.03.2018||31.12.2017|
|(Core) tier 1 capital ratio||20.8%||20.6%|
|Total capital ratio||20.8%||20.6%|
1) The capital ratios shown do not take into account the interim results of each last quarter (Q1 2018 and Q4 2017). KfW records no material tier 2 capital in its equity, meaning that the (core) tier 1 capital ratio and the total capital ratio are virtually the same.