Good annual result 2018 fosters KfW’s promotional capacity
Press Release from 2019-04-10 / Group
- KfW financing volume reaches EUR 75.5 billion
- Consolidated profit of EUR 1.6 billion
- Low risk provisions and high one-off effects in valuation contribute to positive result
- Total assets nearly unchanged at EUR 485.8 billion
KfW achieved a total business volume of EUR 75.5 billion in the 2018 promotional year (2017: EUR 76.5 billion). Financing of EUR 46.0 billion was committed for domestic promotion. In light of the persistently robust domestic economy and continued very good financing conditions for private and commercial investors, KfW scaled back its promotion (2017: EUR 51.8 billion).
International business grew by 20% to reach a volume of EUR 28.3 billion (2017: EUR 23.5 billion). It was marked by a 29% increase in commitments in export and project finance to EUR 17.7 billion (2017: EUR 13.8 billion). The promotion of developing countries and emerging economies grew by 8% to EUR 10.6 billion (2017: EUR 9.7 billion). EUR 8.7 billion of this amount was accounted for by KfW Development Bank and EUR 1.9 billion by DEG.
Promotion of environmental and climate protection projects was once again a key focus of KfW's work (EUR 30.3 billion, or 40% of all commitments).
With a consolidated profit of EUR 1,636 million (EUR 1,427 million) in financial year 2018, KfW's earnings position developed far better than expected. This is mainly due to the exceptionally good valuation result, which is marked by – on balance - very low need to provide for potential loan losses, as well as to positive contributions to earnings from the equity investment portfolio. Moreover, the purely IFRS-induced effects from the valuation of derivatives used for hedging purposes at EUR 325 million (EUR 235 million) made a clearly positive contribution to the earnings position. Consolidated profit before IFRS effects from hedging, relevant for managing KfW, came in at EUR 1,311 million and thus just slightly above the previous year’s level (EUR 1,192 million).
"We are very satisfied with the development of the overall result in 2018", stated Dr Bräunig, Chief Executive Officer of KfW Group. "However, consolidated profit benefits from extraordinarily positive effects in the valuation result, while operating income as expected continued to decline, due to the persistent low interest environment. The result therefore once again is clearly above the sustainable earnings potential of KfW."
At EUR 1,387 million (EUR 1,661 million), the operating result before valuation (before promotional expense) came in below the prior-year figure and also below expectations. Net interest income (before promotional expense) based on continued very favourable funding conditions for KfW remained the main source of income. It recorded a slight decline to EUR 2,413 million (EUR 2,579 million). The decline in return on equity caused by the low interest rates and the decrease in margin returns from export and project finance had a negative effect in this context. At EUR 1,400 million (EUR 1,234 million), administrative expense was higher than the previous year, due to investments in KfW's ongoing digital transformation, regulatory measures and one-time effects.
Promotional expense in 2018 – largely interest rate reductions in new business – at EUR 216 million remains nearly unchanged (EUR 213 million) due to the limited scope for reductions in the persistent low interest rate environment.
Risk provisions for lending business of EUR 3 million (previous year: EUR 209 million) had only a very minor effect on the earnings position due to the positive economic development and recoveries of loans previously written off. This figure remained significantly below the projected standard risk costs. The risk provisions also increased through the creation of provisions recognised directly in equity resulting from the first-time application of IFRS 9, as well as through the low amount of additions recognised in profit or loss. The risk provisions for lending business created therefore also continue to cover all of KfW Group’s imminent and latent risks.
The Group’s equity investment and securities portfolio yielded a positive result of EUR 137 million (EUR -12 million), due in particular to valuation gains and sales proceeds from DEG’s equity finance business as well as from the domestic business sector Individualfinanzierung & Öffentliche Kunden (Customised Finance & Public Clients).
The purely IFRS-induced effects from the valuation of derivatives, of EUR 325 million (EUR 235 million), which are used exclusively for economic hedging purposes in risk positions, made an even better contribution to the valuation result than the previous year.
Total assets of EUR 485.8 billion were above the level of 31 December 2017 (EUR 472.2 billion), largely due to a rise in net lending volume.
The regulatory capital ratios of 20.1% at year-end 2018 remain healthy, despite the slight year-on-year decline (31 December 2017: 20.6%). The slight decline in the capital ratio is due to changes in methods and exchange rate effects.
|Key figures of the income statement|
(EUR in millions)
|01/01/2018 - 31/12/2018||01/01/2017 - 31/12/2017|
|Operating result before valuation (before promotional expense)||1,387||1,661|
|Consolidated profit before IFRS effects from hedging||1,311||1,192|
|Key figures of the statement of financial position (EUR in billions)||31/12/2018||31/12/2017|
|Volume of business||590.7||572.1|
|Key regulatory figures|
|(Core) tier 1 capital ratio||20.1 %||20.6 %|
|Total capital ratio||20.1 %||20.6 %|
1) The capital ratios listed take into account the respective interim profit (in 2018 until 30 June, in 2017 until 30 September).