Successful first half of 2018 for KfW promotion
Press Release from 2018-08-08 / Group
- Total promotional business volume of EUR 36.1 billion
- Domestic promotion at a high level
- Strong demand for housing finance continues
- Commitments at KfW IPEX-Bank increase to EUR 6.7 billion
- Businesses show high level of interest in promotion for innovation and digitalisation
- Consolidated profit of EUR 822 million
KfW Group's promotional activity achieved a total volume of EUR 36.1 billion for the first half of 2018 (same period in the previous year: EUR 36.5 billion). With a commitment volume of EUR 27.1 billion, domestic promotion is again at the previous year's high level (EUR 27.6 billion). This was mainly driven by the strong demand in housing finance. At EUR 8.2 billion, the business volume in KfW's international financing is close to the previous year's figure of EUR 8.3 billion. New commitments in KfW IPEX-Bank's business sector rose to EUR 6.7 billion (EUR 5.7 billion), in line with expectations. At EUR 1.2 billion, the volume of commitments at KfW Development Bank came in lower in comparison to the previous year's figure (EUR 2.1 billion). However, the financing volume for 2018 as a whole is expected to reach a level similar to the previous year. DEG committed financing in the amount of EUR 0.4 billion (EUR 0.5 billion).
“The strong economic situation in Germany has resulted in a successful first half of the year for KfW’s promotional business. There has been a great deal of demand for our energy efficiency programmes for SMEs and private costumers, confirming the importance of our work in the field of the environment and sustainability. We are also pleased with the high level of interest that businesses have been showing in our enhanced promotional offers for innovation and digitalisation,” says Dr Günther Bräunig, Chief Executive Officer of KfW Group.
At EUR 822 billion, the earnings position came in slightly above the previous year's level (EUR 801 million), benefiting in particular from a good valuation result.
“All things considered, this is a very pleasing result. At the mid-point in the year, earnings have developed better than we expected. The fall in operating profit is primarily a result of lower margins and the ongoing effects of the low-interest phase. However, this is more than balanced out by the extraordinarily positive development of our valuation result, which incorporates figures such as risk provisions, currency effects, equity investments and the valuation of derivatives,” says Dr Günther Bräunig.
At EUR 739 million, operating income before valuation (before promotional expense) came in significantly lower than in the previous year (EUR 935 million). Net interest income (before promotional expense) amounting to EUR 1,199 million (EUR 1,352 million) continues to be the main source of income for KfW.
Promotional expense – mainly interest rate reductions for new business – totalled EUR 123 million and was slightly higher than the previous year (EUR 110 million).
The risk provisions in the loan business developed significantly better than expected in the first six months of the year with a total yield of EUR 2 million (previous year: negative yield of EUR 63 million). The private equity and securities portfolio of the group had a very positive effect overall on earnings amounting to EUR 138 million (EUR 22 million). This development is due, among other things, to DEG's equity finance business. Purely IFRS-related effects from the valuation of derivatives used for hedging purposes amount to EUR 121 million (previous year: EUR 33 million) and support the positive earnings performance.
Total assets increased up to EUR 489.6 billion (compared to EUR 472.3 billion as of 31 December 2017), mainly due to greater reserves of cash and cash equivalents.
The group's regulatory equity ratiosare still at a good level. As of 30 June 2018, the total capital ratio amounted to 19.9% (31 March 2018: 20.8%). The downturn in the second quarter was caused mainly by adjustments to the valuation method and exchange rate effects from EUR/USD. Furthermore, the interim results for the first half of 2018 have not yet been taken into account in the capital ratios.
Details on the business sectors' promotional activities
In the first half of the year, the SME Bank & Private Clients business sector achieved commitments of EUR 23.1 billion (EUR 23.0 billion), with the SME Bank alone contributing a stable promotional business volume of EUR 10.7 billion (EUR 10.9 billion).
With a commitment volume of EUR 2.9 billion (EUR 0.3 billion), developments in the priority area of innovation were particularly dynamic. Most of the demand was focused on the ERP Digitalisation and Innovation Loan, which was introduced in the second half of 2017. In an effort to cover the high demand and continue offering this important financing offer, the promotional conditions have been refined since the programme's launch, with commitments available under the new modified conditions since June 2018.
Start-ups and general corporate finance recorded a promotional business volume of EUR 3.4 billion (EUR 5.1 billion). While the KfW Entrepreneur Loan experienced a downturn (EUR 1.2 billion; prior-year period: EUR 3.0 billion), financing for business start-ups at EUR 1.9 billion was able to retain last year's strong performance.
The priority area of energy efficiency & renewables for commercial clients achieved a total commitment volume of EUR 4.2 billion (EUR 5.4 billion), thus maintaining a similarly high level to the prior-year period.
The private clients segment generated a promotional business volume of EUR 12.4 billion (EUR 12.2. billion) by the mid-way point of the year. The persisting strong conditions in the construction sector as well as the favourable interest environment continued to generate a high level of interest in real estate finance. The promotional business volume for the energy efficiency & renewables priority area in this segment amounted to EUR 9.2 billion (EUR 8.6 billion), with the majority of this sum generated by the Energy-efficient Construction and Refurbishment programmes. There was parti-cularly high demand for the energy-efficient refurbishment programmes for existing property.
In contrast, there was a slight decline in demand in the education and housing & living priority areas, which also include the Age-appropriate Conversion programme. This area generated a total promotional business volume of EUR 3.2 billion (EUR 3.6 billion).
The Costumised Finance & Public Clients business sector generated a commitment volume of EUR 4.0 billion in the first half of the year, which means that new commitments were lower than in the respective prior-year period (EUR 4.6 billion).
At EUR 1.3 billion, the commitment volume for municipal & social infrastructure was below last year's figure (EUR 2.0 billion). This development is primarily the result of improvements to municipalities' financial situations and the coinciding shortage of capacity in administration and the construction industry. At EUR 0.9 billion, basic funding made a major contribution 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 0.4 billion.
With a contract volume of EUR 2.6 billion, individual financing for banks was slightly up on last year's figure of EUR 2.2 billion. This area received a particular boost from brisk demand for global loans for leasing investments and refinancing packages for export credits with federal backing.
At the end of June, KfW also contributed EUR 50 million to the Connecting Europe Broadband Fund (CEBF), which will be used to support investment in neglected regions.
The commitment volume for customised corporate finance amounted to EUR 38 million and was thus significantly lower than last year's figure (EUR 352 million). Two large-scale commitments in the offshore wind power sector led to the much higher figure in 2017.
In the area of equity finance, the promotional business volume of EUR 58 million was much higher than the figure for the prior-year period (EUR 20 million). This rise can be traced back to increased ERP venture capital fund investments and the “High-Tech Start-up Fund”, a specialist fund for high-tech start-ups. In future, the equity financing business will be consolidated within a wholly-owned KfW subsidiary in order to substantially enhance KfW's activities in the field of venture capital and equity finance. The venture capital company is scheduled to launch operations at the start of the 4th quarter of 2018.
KfW IPEX-Bank, which is responsible for the group's Export and project finance business, generated a new commitment volume of EUR 6.7 billion (EUR 5.7 billion) in the first half of 2018 and thus met its own expectations. New commitments focused on the sector departments of Financial Institutions and Trade Finance (EUR 1.2 billion; prior-year period EUR 0.6 billion), Basic Industries (EUR 1.2 billion; prior-year period EUR 0.5 billion) and Maritime Industries (EUR 1.0 billion; prior-year period EUR 1.0 billion).
The commitment volume for the Promotion of developing countries and emerging economies business sector amounted to EUR 1.6 billion (EUR 2.6 billion). In the first half of 2018, KfW Development Bank committed EUR 1.2 billion to global projects and programmes, which is significantly lower than the previous year's figure (EUR 2.1 billion). As a great number of new projects have already been checked and prepared, the business area is expecting the financing volume for 2018 as a whole to reach a similar level to last year. A total of 52% of new commitments from the first half of the year are benefiting environmental and climate action. Almost 56% of all new commitments go to development projects in Africa and the Middle East, and a good 68% of the Federal Government's budget funds are channelled to this region. As of 30 June 2018, DEG had committed a total of EUR 359 million (EUR 473 million) for private sector investments in developing countries, with business developing, as expected, much more dynamically in the second quarter of 2018 than at the beginning of the year. A total of EUR 119 million of the commitments are earmarked for project finance. These funds will be used to finance infrastructure projects in areas such as renewables and telecommunications with long-term loans. Africa received around one quarter of new commitments.
In the Financial markets business sector, the promotional business volume for the first half of 2018 amounted to EUR 731 million (EUR 808 million). Of this figure, EUR 551 million (EUR 586 million) was invested in securitisation transactions for capital market-oriented promotion of SMEs. For its green bond portfolio, KfW invested a volume of EUR 179 million (EUR 222 million) in six securities to promote climate and environmental protection projects.
To fund its promotional business, KfW raised long-term funds in twelve different currencies on the international capital markets amounting to the equivalent of EUR 46.3 billion (EUR 46.9 billion) as of 30 June 2018 and looks back on a successful first half. Funding requirements for the year 2018 as a whole have been increased from initially EUR 70 to 75 billion to a total of EUR 75 to 80 billion.
|Key figures of the income statement|
(EUR in millions)
|01/01/2018 - 30/06/2018||01/01/2017 - 30/06/2017|
|Operating result before valuation (before promotional expense)||739||935|
|Consolidated profit before IFRS effects from hedging||700||768|
|Key figures of the statement of financial position (EUR in billions)||30/06/2018||31/12/2017|
|Volume of business||594.6||572.2|
|Key regulatory figures |
(in %) 1)
|(Core) tier 1 capital ratio||19.9 %||20.8 %|
|Total capital ratio||19.9 %||20.8 %|
1) The capital ratios stated do not consider the interim results of the first half of 2018. KfW reports no significant tier 2 capital in its equity, meaning that the (core) tier 1 capital ratio and the total capital ratio are virtually the same.