Successful financial year 2019 – current focus on economic support due to the coronavirus pandemic
Press Release from 2020-04-02 / Group
- KfW promotional business volume reaches EUR 77.3 billion
- Consolidated profit of EUR 1.4 billion
- Increased operating income and moderate risk provisioning are key features of the result
- Increase in total assets to EUR 506.0 billion
- Emergency corona aid programme by the German Federal Government, the banking sector and KfW meets high demand
In 2019, KfW’s total promotional business volume rose to EUR 77.3 billion (2018: EUR 75.5 billion). Promotion for businesses, private customers and municipalities in Germany amounted to EUR 43.4 billion (2018: EUR 46.0 billion). Due to the low interest environment and good financing conditions, demand for promotional loans fell on the whole. However, demand increased in individual programmes such as the KfW Entrepreneur Loan, the Home Ownership Programme or the Baukindergeld grant.
The commitment volume in the Export and project finance business sector, which provides financing in the interests of the German and European economy, rose by around 25% to a record high of EUR 22.1 billion (2018: EUR 17.7 billion). This is primarily due to the growth in bank refinancing from the CIRR ship and ERP export financing programmes, which are instruments for promoting foreign trade. Promotion of developing countries and emerging economies maintained the previous year’s high level of EUR 10.6 billion. EUR 8.8 billion of this amount was accounted for by KfW Development Bank and EUR 1.8 billion by DEG.
The qualitative benchmarks that play a major role in KfW’s promotional activities developed well on a stable trajectory. For instance, promotion for climate and environmental protection amounted to 38% (“environment ratio”), while promotion for SMEs made up 40% (“SME ratio”).
With consolidated profit of EUR 1,367 million in financial year 2019, which, as forecast, is below the previous year’s figure (EUR 1,636 million), KfW’s earnings position developed far better than expected. This is the result of a positive trend in operating income and moderate risk provisioning. In contrast, the purely IFRS-related effects from the valuation of derivatives used for hedging purposes recorded a change from EUR 325 million in the previous year to EUR -80 million. Consolidated profit before IFRS effects from hedging, relevant for managing KfW, came in at EUR 1,447 million and thus above the previous year’s level (EUR 1,311 million).
“The consolidated profit generated in the 2019 financial year is very satisfactory,” said Dr Günther Bräunig, Chief Executive Officer of KfW Group. “We increased the operating result, while the valuation result came in lower than the previous year. In the current severe crisis, KfW uses consolidated profit to improve its capital base, which is essential, and increased its tier 1 capital ratio to 21.3%.” Bräunig continued: “We will put all our experience and strength to work in implementing the KfW Corona Aid Programme on behalf of the German Federal Government, together with the German credit industry. The objective is to help businesses and quickly provide them with liquidity. This challenging task will have a decisive impact on our 2020 business year.”
In the first weeks since the programme was launched, KfW received 2,432 applications with a total volume of EUR 9.8 billion (as of 01 April 2020). “The programme was set up very quickly and got off to a successful start. We expect that the number and volume of applications will increase significantly in the coming weeks,” said Bräunig.
At EUR 1,677 million (EUR 1,387 million), the operating result before valuation (before promotional expense) exceeded the prior-year figure and is above expectations. At EUR 2,484 million, net interest income (before promotional expense) increased slightly compared to the previous year (EUR 2,413 million). A positive development was seen in net commission income, which, strengthened by brisk demand for federal programmes, contributed EUR 512 million (EUR 374 million) to the increase in the operating result. Administrative expense, at EUR 1,320 million, is down on the previous year (EUR 1,400 million) thanks to the extensive cost-cutting measures.
Promotional expense – mainly low-interest loans in new business – in the 2019 financial year amounted to EUR 159 million, which is still below expectations and below the prior-year level (EUR 216 million) due to the limited scope for reductions in the persistent low interest rate environment.
Risk provisions in the lending business had a moderate negative impact on earnings of EUR 174 million (EUR -3 million). In this case, the need for value adjustments, reported particularly in the business sectors Promotion of developing countries and emerging economies, and SME Bank & Private Clients, were partly offset by positive non-recurring effects in the form of recoveries from loans that had already been written off.
The investment portfolio contributed a positive result of EUR 95 million (EUR 128 million) to the consolidated earnings, in particular due to valuation income and proceeds from the sale of equity investments in the Promotion of developing countries and emerging economies business sector and the domestic equity investments business.
The purely IFRS-induced effects from the valuation of derivatives used exclusively for hedging purposes in economically closed risk positions had a negative impact of EUR -80 million on the valuation result, following a positive contribution in the previous year (EUR 325 million).
At EUR 506.0 billion, total assets increased compared to the level of 31 December 2018 (EUR 485.8 billion), largely due to a rise in net lending volume and the liquidity level.
The total capital ratio of 21.3% at year-end 2019 remains healthy and increased year-on-year (31 December 2018: 20.1%). The rise is due to the increase in regulatory capital and to methodological adjustment effects reducing the total risk amount. These effects are essentially a matter of the regulatory-compliant recognition in the credit risk of limit and replacement collateral that was not previously taken into account.
For 2020 we have to expect that the current developments related to the spread of the coronavirus and the resulting global economic deterioration will also substantially affect KfW. Already in the first quarter of 2020, KfW is anticipating considerable negative impacts on the group’s earnings position. Firstly, these relate to risk provision expenses for financing in countries severely affected by the virus as well as especially hard-hit sectors of export and project finance. Secondly, significant negative effects are expected from the valuation of the investment portfolio, especially in the Promotion of developing countries and emerging economies business sector. Given this situation, consolidated earnings for the first quarter are expected in a range of EUR -600 million to EUR -950 million, despite the positive operating result amounting to EUR 300 million for the first two months of 2020. Depending on the developments in the period between now and the preparation of the quarterly financial statements, it is possible that this range could be either exceeded or not reached at all.
|Key figures of the income statement|
(EUR in millions)
|Operating result before valuation (before promotional expense)||1,677||1,387|
|Consolidated profit before IFRS effects from hedging||1,477||1,311|
|Key figures of the statement of financial position (EUR in billions)||31/12/2019||31/12/2018|
|Volume of business||610.7||590.7|
|Key regulatory figures|
|(Core) tier 1 capital ratio||21.3%||20.1%|
|Total capital ratio||21.3%||20.1%|
1) The capital ratios stated do consider the results of the first half of the respective years.