Third quarter of 2020: KfW promotional business volume doubled as a result of coronavirus aid programmes; back to earning profit
Press Release from 2020-11-04 / Group
- Increase of KfW’s financing volume to all-time high of EUR 109.1 billion
- Record domestic commitment volume of EUR 89.8 billion
- EUR 45.4 billion in commitments for KfW coronavirus aid programmes
- 97% of applications for coronavirus aid benefited SMEs, high demand fromindustry and commerce.
- High level of interest in energy-efficient residential financing
- Commitments of EUR 1 billion for coronavirus aid in developing countries and emerging economies
- Consolidated profit of EUR 145 million
The exceptional year is continuing: in the first nine months of 2020, KfW Group doubled its promotional business volume compared to the same period last year to reach an all-time high of EUR 109.1 billion (EUR 53.5 billion, +104%). The commitment volume in domestic promotional business even almost tripled (EUR 89.8 billion; EUR 31.6 billion in the prior-year period, +184%) due to strong demand for KfW coronavirus aid. Demand for energy-efficient housing finance also saw a huge increase compared to the same period last year (EUR 19.5 billion; previous year EUR 8.7 billion). Commitments by the business sector KfW Capital showed strong growth (EUR 773 million; previous year: EUR 103 million) due to the increase in ERP venture capital fund investments and the commitments under the start-up aid provided by the German Federal Government. As anticipated, commitments in export and project finance were below the previous year’s level (EUR 14.8 billion; same period of the previous year EUR 17.5 billion) due to the impact of the COVID-19 crisis on global trade. Promotion of developing countries and emerging economies increased to EUR 4.5 billion (EUR 3.5 billion), marked by the positive development of business area KfW Development Bank with a commitment volume of EUR 3.7 billion (EUR 2.6 billion). DEG committed financing in the amount of EUR 0.8 billion (EUR 0.9 billion).
Financial year 2020 is largely shaped by KfW’s special coronavirus aid programmes, which it implements on behalf of the German Federal Government and in close cooperation with the German banking industry. Around 90,000 loan applications had been received by 30 September 2020. A funding volume of EUR 45.4 billion was committed. Around 97% of these applications were submitted by small and medium-sized enterprises, of which 99% were loans with a volume of up to EUR 3 million, meaning that German SMEs in particular are benefiting from KfW coronavirus aid programmes.
95,000 applications have been received by now, of which 99% have already been processed. Commitments have reached a volume of EUR 45.6 billion.
To date, a total of around EUR 1.4 billion in aid from the German Federal Government for start-up companies in Germany has been approved for around 650 young, growth-oriented companies. Under Pillar 1, which includes the Corona Matching Facility and is handled by KfW Capital and the European Investment Fund (EIF), 38 applications from VC funds for around EUR 850 million have been approved so far. The funds aim to finance around 350 start-ups with this money. Under Pillar 2, KfW has now concluded global loan agreements for approximately EUR 522 million with the promotional institutions of the federal states, which use the funds to provide support programmes for start-ups in their respective regions. The funds from Pillar 2 are thus available throughout Germany. A volume in the range of EUR 100 million has already been committed from the funds provided by KfW. Currently, some 300 start-ups are benefiting.
Another coronavirus aid programme is the KfW Student Loan, which is being offered at zero interest until 31 March 2021 and has also been extended to students from abroad for this period. Since the start of the interest-free phase at the beginning of May 2020, around 36,500 students have applied for loans with a funding volume of more than EUR 1.1 billion, more than twice as many as during the same period of the previous year. Currently, 28,000 loans with a volume of around EUR 865 billion have already been committed.
Under the COVID-19 emergency relief programme for developing countries and emerging economies, almost EUR 1 billion had been committed by the end of the third quarter, currently commitments already add up to more than EUR 1.5 billion. These funds are used mainly for health security and pandemic response measures, for ensuring basic supplies and social protection, securing businesses in economic key sectors and the liquidity of developing countries and emerging economies.
“KfW has doubled its promotional activity, and will thus achieve a record volume in this exceptional year. The current promotional figures reflect the enormous effort we have made in partnership with policymakers and the German banking industry to help the economy counteract the consequences of the pandemic. This is a reason to be confident, but only if our entire society sticks to the measures decided by the federal and state governments to effectively contain the pandemic,” said Dr Günther Bräunig, Chief Executive Officer of KfW Group.
The earnings position of KfW Group has clearly improved, but the effects of the coronavirus pandemic continue to have a significant impact on profitability. As of 30 September 2020, there is still a considerable negative impact on the valuation result, but it was possible to reverse some of the burdens from the first half of the year. This mainly related to the discounts recognised for equity investments. At EUR -784 million, risk provisions remained almost at the same level compared to the previous quarter (EUR -781 million as of 30 June 2020).This contrasts with a very good operating result, enabling the group to become profitable again and report a profit of EUR 145 million. However, due to the pandemic, this is significantly lower than the previous year’s consolidated profit of EUR 1,245 million. At EUR 1,426 million, the operating result before valuation improved by 10% compared to the previous year, while the valuation result had a negative impact on the earnings position of around EUR 1.3 billion. Of this amount of EUR 1.3 billion, nearly EUR 1 billion is attributable to the impact of the COVID-19 crisis.
“KfW’s earnings position developed positively in the third quarter of 2020. The positive operating result, paired with the simultaneous decline in burdens on the valuation result mean that KfW is able again to report a consolidated profit as of 30 September 2020,” said Dr Bräunig.
The operating result before valuation (before promotional expense) was EUR 1,426 million and thus above the prior-year level (EUR 1,295 million). Net interest income (before promotional expense) of EUR 1,936 million was slightly higher than the previous year’s figure (EUR 1,851 million) and continues to be the main source of income for KfW. Net commission income of EUR 450 million significantly exceeded the previous year’s figure of EUR 387 million. In addition, the positive operating result is due to the stable development of administrative expense, which at EUR 960 million hardly exceeded the previous year’s level (EUR 944 million) despite the implementation of the coronavirus aid programmes.
In the current interest environment, demand for interest rate reductions continued to be low. 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 – remained very low at EUR 71 million (EUR 101 million).
The valuation result continues to be significantly affected by the economic impacts of the coronavirus pandemic, which in the first three quarters of 2020 contributed considerably to a risk provision result in the lending business of EUR -784 million (EUR -45 million). Compared to the first half of the year, KfW recorded a slight decrease in coronavirus-related risk provisions of EUR 34 million to EUR -553 million. Burdens on the net result as of 30 September 2020 continue to relate mainly to provisions for performing loans and, in individual cases, for defaulted exposures. Further burdens arising from individual defaults expected in the fourth quarter due to the ongoing pandemic are to be mitigated by the general risk provisions already anticipated of EUR 421 million. The valuation result from the equity investment portfolio of EUR -366 million is driven by the Promotion of developing countries and emerging economies business sector. Burdens related to coronavirus amounted to EUR -425 million. In the third quarter, some general valuations could be reversed in the context of individual valuations of exposures. The reversals of impairments compared to the first half of the year amounted to EUR 169 million.
The coronavirus-related valuation effects generated deferred tax revenues, resulting in taxes on income in the amount of EUR +59 million (EUR -34 million).
Purely IFRS-related effects from the valuation of derivatives used for hedging purposes put a strain on the earnings position with EUR 105 million (EUR -9 million). Consolidated profit before IFRS effects from hedging, relevant for managing KfW, came in at EUR 251 million, and thus has improved compared to the first half of 2020 (EUR -392 million). Due to the pandemic, profit before IFRS effects from hedging was, however, significantly less than the previous year (EUR +1,255 million).
Total assets increased to EUR 554.7 billion in the first three quarters (compared to EUR 506.0 billion as of 31 December 2019) due to disbursements under the KfW Special Programme 2020 and an increase in central bank balances. Equity remained unchanged compared to 31 December 2019 at EUR 31.4 billion. KfW’s commitment to countering the economic impact of the pandemic is reflected not only in the increased lending volume, but also in the sharp rise in irrevocable loan commitments, which were the main reason for the increase in business volume to EUR 687.4 billion (31 December 2019: EUR 610.7 billion).
The group’s regulatory equity ratios are still at a good level. As of 30 September 2020, the total capital ratio amounted to 24.0% (30 June 2020: 23.7%).
Details on the business sectors’ promotional activities
With a promotion volume of EUR 69.5 billion as of 30 September 2020, new business in the SME Bank & Private Clients business sector reached a record level (EUR 26.4 billion). Within the SME Bank commercial segment the substantial increase to EUR 41.7 billion (EUR 11.4 billion), is due in particular to commitments in the coronavirus aid programmes amounting to EUR 32.3 billion.
- The priority area Start-ups and general corporate finance recorded a figure of EUR 35.3 billion (EUR 5.2 billion). The main drivers continued to be the KfW Entrepreneur Loan with commitments of EUR 26.9 billion (EUR 26.1 billion from the Coronavirus Special Programme) and the KfW Instant Loan with EUR 5.0 billion.
- In the priority area of Energy efficiency & renewables, new commitments of EUR 5.8 billion remained at the same level as the previous year (EUR 5.8 billion). With increased demand of EUR 2.8 billion (EUR 1.6 billion), the KfW Renewable Energies Programme compensated for KfW’s discontinued Energy Efficiency Programme for Waste Heat (EUR 1.0 billion) and the Energy Efficiency Programme for Production, which saw less demand at EUR 0.4 billion (EUR 0.9 billion).
- The priority area of Innovation generated commitments of EUR 0.6 billion (EUR 0.4 billion). This was mainly based on a considerable increase in demand for the ERP Digitisation and Innovation Loan to EUR 0.6 billion (EUR 0.3 billion) following the introduction of a promotional grant in February. The promotional funding will benefit medium-sized companies in particular, helping them to finance digitalisation projects and the translation of innovation into growth, thus also helping them to overcome the coronavirus crisis.
The Private Clients segment also achieved a promotional volume of EUR 27.8 billion as of 30 September 2020, which is significantly higher than the previous year’s result (EUR 15.0 billion).
- The priority area of Energy efficiency & renewables made a considerable contribution to this result with EUR 19.5 billion (EUR 8.7 billion). The promotional conditions, which were improved in January (especially the increase in redemption grants by as much as 15 percentage points), led to a further noticeable upswing in demand. The programmes promote investments in new energy-efficient buildings and energy-efficient refurbishment of existing buildings, thereby supporting the German Federal Government’s climate targets.
- Commitments in the housing sector also reached a good level of EUR 6.5 billion (EUR 5.0 billion), reflecting the continuing robustness of the construction sector despite the coronavirus crisis.
- The priority area of Education generated commitments of EUR 1.7 billion (EUR 1.3 billion). The significant increase over the previous year is mainly due to adjustments to the KfW Student Loan product (zero interest rate and expansion of the scope of applicants) as part of the coronavirus aid measures. Aid to support graduates during the coronavirus crisis has thus been well received.
In the Customised Finance & Public Clients business sector, the commitment volume of EUR 19.5 billion was also significantly higher than the previous year’s figure of EUR 5.1 billion, a trend that is also largely due to the commitments from the coronavirus aid programmes.
Customised corporate finance is marked by the high commitment volume of the Syndicated loan under the coronavirus aid programme. Of a total volume of EUR 12.6 billion (EUR 0.2 billion), EUR 11.7 billion was committed to medium-sized and large companies under the Special Programme as at the reporting date. This figure already includes waivers and credit cuts of EUR 2.7 billion.
With a commitment volume of EUR 3.1 billion, promotional funding for Municipal & Social infrastructure also showed an increase over the same period of the previous year (EUR 2.6 billion). This development is driven by global loans to promotional institutions of the federal states that benefit non-profit enterprises as part of the coronavirus aid programmes with commitments of EUR 0.3 billion. In addition, both the basic programmes for municipalities and municipal and social enterprises and the programmes to support the energy transition in the municipal sector are contributing to the increase in volume.
At around EUR 3.8 billion, Customised finance for banks & promotional institutions of the federal states experienced a considerable increase over the same period last year (EUR 2.2 billion). This is mainly due to the increase in demand for general refinancing by the promotional institutions of the federal states, which rose to EUR 2.2 billion (EUR 1.0 billion),, and global loans to promotional institutions of the federal states for start-ups under the coronavirus aid programmes amounting to EUR 0.5 billion.
Commitments in the KfW Capital business sector amounted to around EUR 773 million in the first three quarters of 2020 (including EIF commitments under the coronavirus package of measures for start-ups). So far this year, 11 VC fund investments with a volume of around EUR 172 million have been committed under the ERP Venture Capital Fund Investments programme with support from the ERP Special Fund (previous year: EUR 102 million; + 69%). Together with the EIF, KfW Capital also implemented Pillar 1 of the German Federal Government’s start-up aid, which includes the Corona Matching Facility. As of 30 September EUR 599 million have been contractually committed in Pillar 1.
At 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 – the effects of the coronavirus crisis on world trade and large parts of the entire global economy were, as expected, now more strongly reflected in new business. With a total volume of new commitments of EUR 14.8 billion, it was below the level of the prior-year period (EUR 17.5 billion). KfW IPEX-Bank is assuming that new business will continue to be significantly lower than the previous year’s level as the year progresses. All sector departments contributed to new lending business, in particular, the Power, Renewables and Water sector department with EUR 2.5 billion (EUR 2.3 billion).
The commitment volume for the promotion of developing countries and emerging economies business sector amounted to EUR 4.5 billion (EUR 3.5 billion). KfW Development Bank commitments increased significantly in the third quarter and reached EUR 3.7 billion (EUR 2.6 million). The predominant share of budget funds – EUR 918 million – and thus about half of the total commitments went to countries in Africa and the Middle East. A much higher commitment volume than the previous year is expected for 2020 as a whole. This is especially due to KfW’s involvement in the implementation of the German Federal Ministry for Economic Cooperation and Development’s Emergency COVID-19 Support Programme for developing countries and emerging economies. With commitments of around EUR 1 billion as of 30 September 2020, a considerable part of the programme volume has already been implemented. An important goal of coronavirus aid for developing countries and emerging economies is to connect pandemic response with promoting innovative investments, for example, in the area of “green recovery”, in order to strengthen the basis for sustainable development beyond the coronavirus crisis. As of 30 September 2020, DEG’s newly committed finance for investments by private companies in developing countries and emerging economies amounted to EUR 784 million (EUR 869 million). In a global environment that continues to be challenging, EUR 322 million of this amount was made available directly for projects by companies in developing countries. A further EUR 307 million was allocated to financial institutions in developing countries, who use these funds primarily to provide loans to local SMEs. As a reliable partner of companies, particularly during the coronavirus pandemic, DEG has also already supported around 200 specific company measures via COVID-19 response programmes and consultancy services in 2020, for example to implement health measures.
For the green bond portfolio, the Financial markets business sector invested roughly EUR 323 million in securities to promote climate change mitigation and environmental protection projects in the first three quarters of 2020.
To fund its promotional business, KfW has raised long-term funds in fourteen different currencies on the international capital markets amounting to the equivalent of EUR 57.25 billion as of 30 September 2020. To fund the German Federal Government’s special programme, KfW has a new source of funding at its disposal via the federal Economic Stabilisation Fund (ESF), from which a maximum amount of EUR 100 billion can be drawn. During the third quarter of 2020, an amount of EUR 28.18 billion was refinanced via the ESF for the first time in different tranches. The supportive framework conditions will enable KfW to achieve attractive refinancing results in its domestic currency, the euro, in the fourth quarter as well. Depending on how the market develops, this will be supplemented by issuances in foreign currencies.
|Key figures of the income statement|
(EUR in millions)
|01.01.2020 – 30.09.2020||01.01.2019 – 30.09.2019|
|Operating result before valuation (before promotional expense)||1,1426||1,295|
|Consolidated profit before IFRS effects from hedging||251||1,255|
|Key figures of the statement of financial position (EUR in billions)||30.09.2020||31.12.2019|
|Volume of business||687.4||610.7|
|Key regulatory figures |
|(Core) tier 1 capital ratio||23.8||23.5|
|Total capital ratio||24.0||23.7|
1) The capital ratios listed do not take into account the interim result of the current year. 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.