First quarter of 2020: good start to KfW’s new promotion year – result marked by the corona pandemic
Press Release from 2020-04-30 / Group
- KfW promotional business volume rises to EUR 19.8 billion
- Domestic promotion rises to EUR 13.6 billion
- Considerable interest in energy-efficient construction and refurbishment programmes as well as in home-ownership promotion
- KfW special programmes for coronavirus aid begin amidst high demand
- Export and project financing grows to EUR 5.7 billion
- Corona-related burdens push the consolidated results down to EUR -592 million
In the first three months of 2020, the promotional business volume of KfW Group was EUR 19.8 billion, which significantly exceeds the figure for the same period of the previous year (EUR 16.9 billion). Domestic promotion showed particularly strong development with a commitment volume of EUR 13.6 billion (EUR 10.9 billion). This is due to a high demand in the Energy-efficient Construction and Refurbishment programmes and in the KfW Home Ownership Programme. Both programme families contributed to this increase with a total volume close to EUR 7.0 billion. The KfW special programme for corona aid started on 23 March 2020 and registered around 2,000 applications and EUR 0.5 billion in commitments in just one week. Commitments for export and project finance at KfW IPEX-Bank grew to EUR 5.7 billion (EUR 4.8 billion). A significant driver here is the growth in bank refinancing from the CIRR shipping and ERP export financing programmes, which are instruments for promoting foreign trade. Promotion of developing countries and emerging economies achieved a total of EUR 0.5 billion. KfW Development Bank’s commitments are below the previous year’s level with a commitment volume of EUR 0.3 billion (EUR 0.8 billion). In the same period of the previous year, individual commitments contributed to the high volume, among other things. Retaining a similar level to last year, DEG committed financing amounting to EUR 0.2 billion.
The KfW special programme 2020, which is based on existing promotion products such as the KfW Entrepreneur Loan and the Start-up Loan – Universal and started immediately on 23 March 2020, provides liquidity support for companies of all sizes that are experiencing financing difficulties due to the coronavirus crisis. Overall, the volume in the KfW special programme for corona aid as of 29 April 2020 is 25,510 applications for a total amount of EUR 33.1 billion. Of this number, 25,183 have already been approved. 90% of the submitted applications have a credit volume of up to EUR 800,000, and almost an additional 8% are for loans with volumes of up to EUR 3 million. On 15 April 2020, KfW introduced a new product on behalf of the German Federal Government, the KfW Instant Loan for which KfW assumes 100% of the risk to provide companies with additional support during the coronavirus crisis. The KfW Instant Loan reached an application volume of EUR 794 million in the initial days (as of 29 April 2020). As events develop, a significant increase is expected in the corona programmes.
“The KfW promotion year started successfully, but the coronavirus crisis caught up with Germany and the world during the first quarter. We currently assume that Germany will need to prepare for a historic collapse in economic performance of around -6% for 2020 overall. The German Federal Government has set up a comprehensive protection package to maintain the productive potential of our economy throughout the crisis and beyond. KfW will play an important role in this,” said Dr Günther Bräunig, Chief Executive Officer of KfW Group. “We drew up the KfW special programmes for coronavirus aid with up to 100% risk assumption in record time to absorb companies’ liquidity shortfalls. The high demand for these loans shows that this was the right step.”
Companies and, as a result, banks have been heavily affected by the coronavirus crisis. This also applies to KfW’s earnings position. After a consolidated profit of EUR 295 million in the previous year, losses in the first quarter of 2020 amounted to EUR 592 million. While the operating result before valuation at EUR 435 million improved by almost 11% when compared to the previous year, the impacts of the corona pandemic are placing extreme burdens of around EUR 1 billion on the valuation result. These result from valuation discounts in the investment portfolio and from additional, predominantly general risk provisioning for lending business, without notable actual losses having materialised thus far due to the pandemic.
“KfW’s earnings development in the first quarter of 2020 is very good in operative terms. However, in light of the coronavirus crisis, KfW has made extensive corrections to the valuation result to represent current uncertainties as a precautionary measure,” said Dr Bräunig, Chief Executive Officer of KfW Group. He continued: “Due to positive opposite developments, equity is impacted by the consolidated losses of EUR 592 million only in the amount of roughly EUR 200 million. KfW thus remains in a strong position with a tier 1 capital ratio of 24.0%.”
The operating result before valuation (before promotional expense) totalled EUR 435 million (EUR 392 million). Net interest income (before promotional expense) of EUR 638 million exceeded the previous year’s figure (EUR 597 million) and continues to be the main source of income for KfW. Commission income contributed EUR 116 million to the result after EUR 107 million in the previous year, and the fact that administrative expense was similar to the previous year (EUR 318 million after EUR 312 million) also contributed to this positive development.
In the current interest environment, demand for interest rate reductions continues to fall. As a result, domestic promotional expense – which has a negative impact on the earnings position and relates primarily to interest rate reductions for new business – remains exceptionally low at EUR 24 million (EUR 58 million).
Due to the economic effects of the corona pandemic intensified by the procyclical impact of IFRS 9, risk provisions for lending business amount to EUR -385 million (EUR -14 million) as of 31 March 2020. The pressure on profits mainly results from general risk provisioning over the total term of the loan portfolio due to higher probabilities of default. In addition, there are large volatility-related burdens in the investment portfolio. The group recorded an overall negative result here of EUR 608 million (EUR +21 million), particularly in the Promotion of developing countries and emerging economies business sector.
The corona-related valuation effects are generating deferred tax revenues, resulting in taxes on income in an amount of EUR +65 million (EUR -12 million).Purely IFRS-related effects from the valuation of derivatives used for hedging purposes place additional strain on the earnings position with EUR 75 million (EUR -22 million). Consolidated profit before IFRS effects from hedging, relevant for managing KfW, came in at EUR -517 million, which is significantly less than the previous year (EUR +317 million).
Total assets increased to EUR 524.7 billion (compared to EUR 506.0 billion as of 31 December 2019), mainly because of greater reserves of cash and cash equivalents due to the high borrowings in the first quarter. Equity decreased by EUR 0.2 billion to EUR 31.2 billion primarily as a result of consolidated losses. In contrast, positive effects in the total amount of EUR 0.4 billion can be recorded from the valuation of pension obligations recognised directly in equity and of bonds recognised at fair value.
The group’s regulatory capital ratios are still at a good level. As of 31 March 2020, the total capital ratio amounts to 24.1% (31 Dec. 2019: 21.3%).The rise is mainly attributable to the switch to a new credit risk assessment system, approved by the supervisory authority, and to the recognition of profits accrued since 30 June 2019, which are reduced by the valuation losses of the first quarter 2020. Further effects of the coronavirus pandemic on the equity ratio will only become increasingly visible on subsequent reporting dates.
Details on the business sectors' promotional activities
The SME Bank & Private Clients business sector enerated a promotional business volume of EUR 11.9 billion (EUR 9.1 billion) in the first quarter of 2020, EUR 0.5 billion of which are part of the special programmes for coronavirus aid (beginning 23 March 2020). At 3.8 billion, the SME Bank segment is below the previous year’s figure (EUR 4.8 billion). Against the backdrop of the low-interest environment, there is generally less demand for corporate financing, in particular. Increasing uncertainty within companies due to the coronavirus crisis is also leading to decreased investment activity in the SME sector.
- The commitment volume in the priority area of Innovation remains at the same level as the previous year at EUR 0.1 billion (EUR 0.1 billion). To make the ERP Digitalisation and Innovation Loan even more attractive, KfW began issuing grants for the loan since the beginning of February.
- Start-Ups & Corporate Investments meanwhile recorded a value of EUR 1.8 billion, lower than the same quarter of the previous year (EUR 2.2 billion). The KfW Entrepreneur Loan contributed to this with EUR 1.1 billion, EUR 0.5 billion thereof since the special corona aid programme was launched. A significant volume increase due to the special corona aid programmes is expected in the course of the year.
- The priority area of Energy Efficiency & Renewables generated a promotional business volume totalling EUR 2.0 billion (EUR 2.4 billion). Commercial financing of energy efficiency measures was lower than the previous year’s level with a volume of EUR 1.0 billion (EUR 2.0 billion), which can be traced back to expiration of the KfW Energy Efficiency Programme Waste Heat (EUR 0.9 billion). The KfW Renewable Energies programme contributed EUR 0.8 billion (EUR 0.4 billion) to this priority area.
The Private Clients segment achieved a promotional business volume of EUR 8.0 billion by the end of the quarter, which was a significant increase compared to the previous year (EUR 4.3 billion). It is not yet possible to estimate how strong demand from private clients will be during the course of the year due to the high degree of uncertainty caused by the coronavirus crisis.
- The promotional business volume in the priority area of Energy Efficiency & Renewables is again approaching the record figures in the respective period of2018 and, due to product improvements to the energy-efficient construction and refurbishment product family, achieved a volume of EUR 5.0 billion (EUR 2.4 billion).
- The Housing & Living priority area expanded its promotional contribution to EUR 2.5 billion, surpassing the prior-year’s figure (EUR 1.4 billion). This is primarily based on strong demand of EUR 1.8 billion (EUR 0.7 billion) within the KfW Home Ownership Programme.
- The Education priority area remained stable again with a volume of EUR 0.5 billion at the end of the quarter (EUR 0.5 billion).
The Customised Finance & Public Clients business sector generated a commitment volume of EUR 1.6 billion by the end of the first quarter of 2020, which is close to the respective prior-year period (EUR 1.7 billion).
At EUR 0.7 billion, the commitment volume for Municipal & social infrastructure remained at last year’s level (EUR 0.7 billion). In addition to basic funding for municipalities and municipal and social enterprises, the programmes to support the energy transition at municipal level at EUR 0.3 billion also contributed significantly to the stable result.
With a commitment volume of EUR 0.7 billion, Individual financing for banks & promotional institutions of the federal states was slightly below the previous year’s figure (EUR 0.9 billion).
The commitment volume for Customised corporate finance totalled EUR 0.2 million (EUR 0.1 million). Transactions in the innovation financing segment were pivotal for this increase.
In the first three months of the year, the KfW Capital business sector recorded commitments of EUR 69 million, of which EUR 67 million are earmarked for the ERP VC Fund Investments programme (investments in 4 VC funds). When compared to the same period of the previous year, this means that the commitments nearly doubled (EUR 33 million). In the next ten years and supported by the ERP Special Fund, KfW Capital aims to invest around EUR 2 billion into venture capital funds to improve the access to growth capital for innovative technology companies in Germany.
New commitments at KfW IPEX-Bank – which is responsible for the Export and project finance business sector and supports German and European export companies with tailored financing to support forward-looking investments and secure jobs in the long term – at a total of EUR 5.7 billion were significantly above the prior-year figure (EUR 4.8 billion). Business from the bank refinancing CIRR scheme was a significant driver (EUR 0.8 billion, previous year: EUR 0.3 billion). All sector departments contributed to new lending business , in particular the Basic Industries sector department with EUR 1.1 billion (EUR 0.2 billion). Further focus areas are the sector departments of Financial Institutions and Trade Finance with EUR 0.8 billion (EUR 0.8 billion) and Maritime Industries with EUR 0.7 billion (EUR 1.4 billion). Due to the impacts from the coronavirus crisis on international trade and large investments, KfW IPEX-Bank is assuming that new business will be lower than the previous year’s level as the year progresses.
The commitment volume for the Promotion of developing countries and emerging economies business sector amounted to EUR 0.5 billion (EUR 1 billion). KfW Development Bank committed EUR 0.3 billion (EUR 0.8 billion) for projects in developing countries and emerging economies in the first quarter of 2020. The decline in commitments is due to high individual commitments from the previous year and also because it has become more difficult to prepare and implement the projects since March of this year due to the impacts of the corona pandemic. The business area remains present in the partner countries through local representations. KfW will also play a significant role in implementing the German Federal Ministry for Economic Cooperation and Development’s Emergency COVID-19 Support Programme. In the first quarter of 2020, DEG committed EUR 227 million to financing corporate investments in emerging and developing countries, thus exceeding the previous year's amount (EUR 156 million). Most of the newly committed financing is for Africa, followed by Asia and Latin America. We expect that companies in many developing countries will be affected by the health and economic impacts of the corona pandemic. As a result, DEG is providing targeted support to its customers with additional offers like the newly developed advisory service ‘BSS – COVID Rapid Response’. This facilitates co-financing for companies’ corona-related measures.
For the green bond portfolio, the Financial markets business sector invested roughly EUR 77 million (around EUR 24 million) in five securities to promote climate change mitigation and environmental protection projects in the first quarter of 2020.
In the first quarter of 2020, KfW raised EUR 27.7 billion in the international capital markets to fund its promotion business and thus had a successful start to its funding activities. KfW is planning on a funding volume of EUR 75 billion for 2020 overall. The coming weeks and months will show whether the demand for the special programmes set up in the context of the coronavirus crisis creates a need to adjust this target. In addition to funding on the capital markets, KfW also has the opportunity to refinance these programmes through the German Federal Government.
|Key figures of the income statement|
(EUR in millions)
|01/01/2020 - 31/03/2020||01/01/2019 - 31/03/2019|
|Operating result before valuation|
(before promotional expense)
|Consolidated profit before IFRS effects from hedging||-517||317|
|Key figures of the statement of financial position (EUR in billions)||31/12/2020||31/12/2019|
|Volume of business||632.7||610.7|
|Key regulatory figures |
|(Core) tier 1 capital ratio||24.0%||21.3%|
|Total capital ratio||24.1%||21.3%|
1) The capital ratios stated for 2019 do not consider the interim result for the second half of 2019, while the latter and the negative result of the first quarter 2020 are included in the capital ratios for 2020.