First quarter 2012: KfW concentrates its promotion

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The FINANCIAL — KfW has continued to concentrate its promotional activity, just as it had announced at the beginning of the year, and has shifted its focus even more strongly to products and programmes of high promotional quality.


One priority in the first quarter of 2012 were commitments in the area of environmental and climate protection, at EUR 6.5 billion or 44% of the promotional business volume. This was a significant rise over 2011, when that share was 32%. For the year 2012 as a whole, the bank anticipates an environment quota of 36%.

"KfW's new focus on important promotional areas such as climate protection and demographic change is now showing first results. For example, the environment quota in new promotional business rose strongly in the first quarter. This is a sign that we have charted the right course", said Dr Ulrich Schröder, Chief Executive Officer of KfW.

The total financing volume of KfW per 31 March 2012 was EUR 14.7 billion. This change compared to the same period last year (EUR 22.7 billion) resulted not only from the implementation of the strategic focus but mostly from changes in the methodology of general refinancing of state promotional institutions. KfW used to enter into the agreements at the beginning of the year for the entire year, but from 2012 onwards will negotiate them for each quarter. As a result, the commitment volume will be distributed across the quarters. This explains the decline in volume in this segment by EUR 6,75 billion in the first quarter (1st quarter 2011: EUR 7.95 billion; 1st quarter 2012: EUR 1.2 billion).

The year began on a positive note also with regard to KfW's income situation, continuing the good trend of the 2011 business year. In the first quarter a consolidated  profit of EUR 697 million (EUR 1,021 million) was generated. The consolidated profit before IFRS effects from hedging, which is relevant for the management of KfW, was even higher than in the same period last year, at EUR 685 million (EUR 588 million).

"KfW can be very satisfied with its income situation in the first quarter of 2012, which is significantly above the long-term potential. However, it is not a basis for projection of the annual result given the strong influence of valuation effects", Dr Schröder added.

The operating result before valuation was EUR 576 million (EUR 509 million). This was due primarily to net interest income of EUR 721 million (EUR 624 million), which improved again as KfW main source of income. KfW continues to benefit from favourable funding conditions based on its first-class credit rating in what is again an improved interest rate environment, particularly in the short-term segment. At EUR 135 million, the interest rate reductions granted in the promotional lending business remained on the high level of the previous year (EUR 139 million).

The risk situation of the KfW group developed as expected. The consistent continuation of an ongoing, conservative risk policy led to corresponding impairment requirements particularly in the business area of export and project finance. Individual special effects in connection with the risks assumed as part of the IKB rescue had positive effects. Overall risk provisions for lending business were reduced by EUR 99 million in total (EUR 71 million).

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The result from the equity investment and securities portfolio in the amount of EUR 49 million (EUR 23 million) was mostly due to the improved development of the market for Eurozone securities in the first quarter of 2012. KfW's participation in the consolidation of Greek debt and the ensuing sale of all securities with Greek sovereign risk had only insignificant earnings effects.

The purely IFRS-related effects from the valuation of derivatives used for hedging purposes overdraw the income situation only to a minor degree by EUR 12 million, after this had still been a major factor in the group's high consolidated profit last year (EUR 433 million).

Total assets decreased slightly by EUR 1.4 billion to EUR 493.4 billion particularly as a result of a drop in derivative market values due to exchange rates, while net loans and advances remained virtually unchanged at EUR 360.6 billion. In contrast, the business volume generated by new lending business and the resulting increase in irrevocable  loan commitments increased by EUR 2.1 billion to EUR 575.7 billion.

The positive development of the result and the adjustment of the risk models due to the changes made to the legal situation of financial securities in 2011 lead to significantly improved regulatory ratios. With a Tier 1 ratio of 17.0% (31 December 2011: 15.4%) and 14.2% according to Basel III, KfW already meets the new regulatory requirements.

The results of the group's activities — In the business area KfW Mittelstandsbank the volume of new business reached EUR 5.2 billion (EUR 5.6 billion). In the area of business start-ups and general corporate finance the volume of commitments decreased as planned from EUR 3.2 billion to EUR 2.6 billion. This decrease is mainly due to the closing of the economic stimulus programmes, in particular the KfW Special Programme. Remaining commitments were still being made from this programme in the first quarter of 2011. A significant increase to EUR 2.3 billion was recorded in the promotional area of environmental protection (EUR 1.9 billion). Commitments under the KfW Renewable Energies Programme in particular developed positively, reaching EUR 1.8 billion (EUR 1.2 billion). In the KfW Offshore Wind Energy Programme KfW has not yet made any commitments in 2012, although the interest in it remains at a very high level. Some projects, however, are being postponed particularly because of delays in the connection to the grid. KfW is participating in considerations aimed at improving the financing situation of offshore project grid connection and further grid expansion.

In the business area KfW Privatkundenbank, the volume of financing amounted to EUR 3.8 billion (EUR 4.5 billion). This change resulted from the strategically intended termination of the Housing Modernisation Programme and the reduction of the maximum financing amount under the KfW Home Ownership Programme at the end of 2011. Both were implemented as KfW shifted the focus of its financing activities towards the energy turnaround and demographic change. The volume of the climate protection-relevant Energy-efficient Construction and Refurbishment programmes was EUR 2.3 billion, more than 50% higher than the EUR 1.5 billion committed in the same period last year. Demand was stimulated particularly by the continuing favourable conditions of the Energy-efficient Refurbishment Programme (from 1.00% effective annual interest rate). In education finance commitments reached EUR 519 million, exceeding the previous year's EUR 478 million. Demand for the KfW Student Loan in particular increased by 16%.

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In the business area KfW Kommunalbank, commitments for infrastructure finance reached EUR 365 million, falling short of the very high volume in the same period last year (EUR 1.1 billion). Among other fac¬tors, this was due to the municipalities' current budget situation, which is influenced by higher tax revenues. In addition, several large-volume financings led to very high quarterly figures last year. On the other hand, commitments in the environment and climate protection relevant financing windows increased to a pleasing EUR 29 million (EUR 13 million). In the general refinancing of promotional institutions of the federal states KfW changed the contractual basis from annual to quarterly. As a result of this change in methodology, the volume in the first quarter 2012 was significantly below that of last year's first quarter, at EUR 1.2 billion (EUR 7.95 billion).

In the business area of export and project finance, which KfW IPEX-Bank handles within KfW, new business commitments totalled EUR 3.1 billion (EUR 2.8 billion). With a share of EUR 0.7 billion (EUR 0.3 billion), a major driver was the business unit Manufacturing Industries/ Commerce/ Health/ Telecommunications, which financed primarily projects in the area of energy efficient plant and equipment, sales and production facilities.

According to KFW, in the business area promotion of developing and transition countries, the commitments in the business area KfW Entwicklungsbank fell slightly to EUR 589 million (EUR 713 million). The largest share of funding went to social infrastructure programmes, at EUR 285 million. In this area KfW is supporting water supply and sanitation as well as education and health projects as priority areas. Commitments by DEG amounted to EUR 244 million, significantly more than the EUR 136 million committed in the same period last year. New commitments for infrastructure projects developed very positively, at EUR 75 million (EUR 26 million), as did commitments for projects in agriculture and food security, at EUR 50 million (EUR 16 million).

In the first quarter of 2012 KfW raised long-term funds for the equivalent of EUR 33.8 billion in the international capital markets in eleven different currencies. For the business year 2012 KfW is planning a funding volume of around EUR 80 billion. This estimate is scheduled to be reviewed at the end of the second quarter of 2012 based on the current business performance. As at 30 April 2012, KfW has already raised EUR 40.4 billion, more than half the funding volume planned for the year. KfW committed EUR 230 million for capital market-related products.



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