Successful first half of 2019 for KfW promotion
Press Release from 2019-08-07 / Group
- Total promotional business volume of EUR 33.6 billion
- Domestic promotion reaches EUR 20.8 billion
- Demand for export and project finance grows by EUR 10.0 billion
- Increase in commitments for development cooperation to EUR 2.1 billion
- Consolidated profit at EUR 904 million
In the first half of 2019, KfW Group achieved promotional funding totalling EUR 33.6 billion (compared to EUR 36.1 billion during the same period in the previous year). Given the sustained positive financing environment for commercial and private investors, demand in the domestic promotional business sector fell to EUR 20.8 billion (EUR 27.1 billion). In the first half of 2018, a stark increase in commitments resulting from anticipatory effects related to the ERP Digitalisation and Innovation Loan in the Energy-efficient Construction and Refurbishment product family also contributed to the high volume in the prior-year period. New commitments in the areas of export and project finance and development cooperation remain on a positive trajectory, rising to EUR 12.1 billion (EUR 8.2 billion). In the field of export and project finance, the good start to the year for KfW IPEX-Bank continued with commitments totalling EUR 10.0 billion (EUR 6.7 billion). This increase in commitments was the result of a small number of high-volume financing transactions. Development cooperation also recorded a positive result for the first half of the year, with commitments rising to EUR 2.1 billion (EUR 1.6 billion). KfW Development Bank which continued to expand its activities in Africa contributed EUR 1.7 billion (EUR 1.2 billion) to this figure. Retaining a similar level to last year, DEG committed financing amounting to EUR 0.4 billion (EUR 0.4 billion).
“The first half of 2019 was a success. Demand rose for export and project financing, in particular. German companies remain global technological leaders in a number of areas. KfW supports them with their work by offering tailor-made financing options – and as a result, securing their global market standing, jobs and future viability,” says Dr Günther Bräunig, CEO of KfW Group.
With a consolidated profit of EUR 904 million (EUR 822 million), the earnings position for the first half of the year developed very well – particularly thanks to a strong valuation result. One of the main factors in this development was that the need for risk provisions in the lending business came out below expectations. Furthermore, the purely IFRS-related effects from the valuation of derivatives used for hedging purposes overstated the earnings position by EUR 99 million (EUR 121 million).
The operating income before valuation (before promotional expense) totalled EUR 843 million (EUR 739 million). At EUR 1,222 million, net interest income (before promotional expense) is slightly higher than the previous year's level (EUR 1,199 million) and continues to be the main source of income for KfW. For the first time, administrative expense at EUR 625 million stabilised at the previous year's level (EUR 629 million). Commission income contributed EUR 247 million to the result after EUR 169 million in the previous year.
KfW’s domestic promotional expense which has a negative impact on its earnings position – mainly interest rate reductions for new business – remains at a very low level at EUR 86 million (EUR 123 million) within the current interest environment.
“The positive development of KfW's earnings in the first quarter of 2019 continued into the second quarter and significantly exceeded our expectations. It is important to highlight that the operating result prior to valuation has improved and the performance of net interest income and commission income has been positive while administrative expenses have remained stable at the same time. Consolidated profit has been influenced by various positive non-recurring effects, particularly the IFRS valuation of derivatives. For this reason, the full-year result cannot be extrapolated from the half-year figures,” says Dr Bräunig, CEO of KfW Group.
With a positive result of EUR 10 million (EUR 2 million), risk provisions in the lending business contributed to the consolidated profit and are again significantly below the standard risk costs. The risk provisions result benefits primarily from the stable risk situation within the group as a whole as well as from the income from recoveries of receivables that had been written off and the calibration of risk parameters.
At EUR 53 million (EUR 138 million), the Group's private equity and securities portfolio had an overall positive effect on earnings. This result is due to factors including the positive performance of investments, such as DEG's equity finance business, as well as value increases caused by changes in exchange rates. Purely IFRS-related effects from the valuation of derivatives used for hedging purposes amount to EUR 99 million (EUR 121 million) and support the positive earnings performance at the mid-point of the year.
Total assets rose to EUR 519.1 billion (compared to EUR 485.8 billion as of 31 December 2018), mainly on account of the greater reserves of cash and cash equivalents (increase of EUR 21.8 billion) due to the temporary investment of large borrowings during the first half of the year.
The Group's regulatory equity ratios are still at a good level. As of 30 June 2019, the total capital ratio amounted to 21.2% (31 March 2019: 20.0%). The rise during the second quarter was caused mainly by the recognition of additional collateral in the domestic on-lending business.
Details on the business sectors' promotional activities
The SME Bank & Private Clients business sector generated a promotional volume of EUR 17.8 billion (EUR 23.1 billion) in the first half of 2019.
The SME Bank segment contributed EUR 8.4 billion, which is less than the previous year's figure (EUR 10.7 billion).
- The innovation priority area achieved a volume of EUR 0.3 billion (EUR 2.9 billion). The main reason for the significant drop from the previous year's figure was the high demand for the ERP Digitalisation and Innovation Loan last year. A change to the promotional conditions dampened demand from the second quarter of 2018 onwards. In a further step, the group of eligible applicants was expanded to include new businesses and entrepreneurs on 1 July 2019 in an effort to further develop innovation promotion.
- The area of start-ups and general corporate finance recorded a figure of EUR 4.0 billion, which marks an increase on the value for the same period last year (EUR 3.4 billion). This is largely attributable to the much higher demand for the KfW Entrepreneur Loan (EUR 2.0 billion; previous-year period: EUR 1.2 billion).
- The energy efficiency & renewables priority area recorded a volume of around EUR 4.1 billion, thus achieving close to the previous year's level (EUR 4.3 billion). This performance was driven primarily by the KfW Energy Efficiency Programme with a promotional volume of EUR 3.1 billion.
The private clients segment achieved EUR 9.4 billion (EUR 12.4 billion) during the first half of the year. The shortfall compared to the prior-year figure is mainly attributable to the generally good credit supply in Germany.
- The promotional business volume for the energy efficiency & renewables priority area amounted to around EUR 5.4 billion, which is below last year's record-breaking figure of EUR 9.2 billion. KfW implemented various changes to the energy-efficient construction and refurbishment product family with effect from 1 June 2019 in a bid to expand the options for promotion in this area.
- With commitments totalling EUR 3.1 billion, the housing & living priority area has exceeded the prior-year figure (EUR 2.3 billion). This is due to factors such as last year's high demand for the newly launched “Baukindergeld” grant to promote home ownership among families with children and single-parent families.
- At EUR 0.9 billion, the education priority area remains at a similar level to the previous year (EUR 1.0 billion). As this area is seasonal in nature, commitments are expected to revive during the second half of the year.
The Customised Finance & Public Clients business sector achieved a volume of EUR 3.0 billion. New business has thus fallen below the prior-year level (EUR 4.0 billion) following a switch to payment-based recognition in the area of general funding for the promotional institutions of the federal states and several large individual transactions that are not expected until the second half of the year.
At EUR 1.6 billion, the commitment volume for the municipal and social infrastructure segment for the first half of 2019 has significantly exceeded the previous year's figure (EUR 1.3 billion) despite ongoing bottlenecks in the construction industry and public administration. In addition to basic funding for general infrastructure investments for municipalities and municipal and social companies, programmes to support the energy transition at municipal level at EUR 0.5 billion also continued to account for a significant share.
With a volume of EUR 1.2 billion, the individual financing for banks & promotional institutions of the federal states segment fell noticeably short of the figure for the prior-year period (EUR 2.6 billion), which was influenced by factors such as large individual loans in the global lending business for lease financing. Furthermore, the promotional volume fell to around EUR 0.8 billion from the prior-year figure of EUR 1.3 billion as a result of a change to the recording method used for general refinancing for the promotional institutions of the federal states in the second quarter of 2019.
The commitment volume for the customised corporate finance segment for the first half of the year amounted to around EUR 152 million (EUR 38 million). The first contracts for the newly introduced KfW Loan for Growth were a decisive factor in this development.
Six venture capital fund investments with a volume of around EUR 77 million were completed by KfW Capital in the first half of 2019 with the support of the ERP Special Fund. This volume is almost double the figure for the same period last year (EUR 42 million). For the year 2019 as a whole, KfW Capital is planning to invest approx. EUR 150 million in venture capital funds. From 2020 onwards, KfW Capital will invest on average EUR 200 million p.a. with investments of around EUR 2 billion in total planned for the next ten years. KfW Capital's goal is to invigorate the VC market, enabling innovative tech companies in Germany to enjoy better access to growth capital. The aim of this approach is to strengthen the country's status as a centre of innovation over the long term. KfW Capital's services have been met with a great deal of interest from the German and European VC fund community.
KfW IPEX-Bank – which is responsible for the Export and project finance business sector and provides financing to promote the competitiveness and internationalisation of German and European businesses – continued its good start to the year, and its total new commitment volume of EUR 10.0 billion remains significantly above the prior-year figure (EUR 6.7 billion). The main driving forces behind this development are large individual transactions, such as an LNG-to-Power power plant project in Brazil, a wind farm in Taiwan and a liquid-gas-powered ferry for the Baltic Sea, which all amount to several million euro each. The largest contribution was made by the Maritime Industries sector department with EUR 2.1 billion (EUR 1.0 billion). This sector is financing an increasing number of conversion projects to reduce harmful emissions, but also LNG-powered cruise ships, ferries and container ships, which are contributing to the growth of LNG infrastructure. Further focus areas for new commitments are the Financial Institutions and Trade Finance sector departments with EUR 1.4 billion (EUR 1.2 billion) and Power, Renewables and Water with EUR 1.2 billion (EUR 0.9 billion).
The commitment volume for the Promotion of developing countries and emerging economies business sector amounted to EUR 2.1 billion (EUR 1.6 billion). In the first half of 2019, KfW Development Bank committed EUR 1.7 billion (EUR 1.2 billion) for projects in developing countries and emerging economies. Based on a multi-year comparison, the development of the commitment volumes in the first six months confirms the long-term upward trend. Almost 60% of the commitments in the first half of 2019 went to countries in Africa and the Middle East. Around 54% (EUR 929 million) of new commitments from the first half of the year are benefiting environmental and climate protection. As of 30 June 2019, DEG pledged EUR 374 million (EUR 359 million) for private corporate investments in developing countries. The regional focus remains Africa with EUR 164 million, closely followed by Asia. DEG has been financing corporate investment in Africa for many years with the specific aim of promoting qualified jobs. A total of EUR 122 million of the new commitments were allocated to project finance. These were used to finance infrastructural projects such as solar power plants in Jordan, Kenya and Argentina.
In the Financial markets business sector, the promotional business volume for the first half of 2019 amounted to EUR 772 million (EUR 731 million). From this figure, EUR 648 million (EUR 551 million) was invested in securitisation transactions for the capital-market-oriented promotion of SMEs. For its green bond portfolio, KfW invested a volume of EUR 125 million (EUR 179 million) in six securities to promote climate and environmental protection projects.
To fund its promotional business, KfW has raised long-term funds on the international capital markets as of 30 June 2019 amounting to the equivalent of EUR 53.6 billion (EUR 46.3 billion) in eleven different currencies. These transactions included two Green Bonds of EUR 3.6 billion in total, the proceeds from which KfW has linked to renewable energy projects and the construction of energy-efficient houses since the recent expansion of its Green Bond programme. KfW is planning a funding volume of EUR 80 billion for the whole of 2019.
|Key figures of the income statement|
(EUR in millions)
|01/01/2019 - 30/06/2019||01/01/2018 - 30/06/2018|
|Operating result before valuation (before promotional expense)||843||739|
|Consolidated profit before IFRS effects from hedging||805||700|
|Key figures of the statement of financial position (EUR in billions)||30/06/2019||31/12/2018|
|Volume of business||618.4||590.7|
|Key regulatory figures |
(in %) 1)
|(Core) tier 1 capital ratio||21.2 %||20.0 %|
|Total capital ratio||21.2 %||20.0 %|
1) The capital ratios listed do not take into account the interim results of the first quarter of 2019 (capital ratio as of 31 March 2019) and of the second half-year of 2019 (capital ratio as of 30 June 2019). 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.