06.11.2019 – 10:26
Third quarter of 2019: A successful financial year continues
- Total promotional business volume reaches EUR 53.5 billion - Domestic promotion totals EUR 31.6 billion - Export and project finance grows to EUR 17.5 billion - Development cooperation at EUR 3.5 billion - Consolidated profit at EUR 1,245 Million
In the first nine months of 2019, the promotional business of KfW Group reached a total volume of EUR 53.5 billion (prior-year period: EUR 51.3 billion). As a result of the sustained positive financing conditions for commercial and private investors in a consistent low-interest environment, demand for domestic promotion fell to EUR 31.6 billion (EUR 34.7 billion). Commitments for Export and project finance at KfW IPEX-Bank rose significantly to reach EUR 17.5 billion (EUR 11.9 billion). A large portion of this commitment volume was based on the brisk demand for bank refinancing from the CIRR ship refinancing scheme and the ERP export financing programme. Promotion for development cooperation totalled EUR 3.5 billion (EUR 3.8 billion). At EUR 2.6 billion, the volume of funds committed by KfW Development Bank was slightly below the previous year's level (EUR 3.0 billion). Traditionally, commitments tend to rise significantly in the fourth quarter. DEG finished the third quarter on a positive note with EUR 0.9 billion (EUR 0.8 billion).
"In terms of promotion, 2019 looks to be a good year," said Dr Günther Bräunig, Chief Executive Officer of KfW Group. "Demand for export and project finance has been particularly noteworthy, confirming the importance of KfW's portfolio of financing options. This makes an important contribution to future-proofing and ensuring the success of the German economy in globalised markets."
Development of the earnings position was generally stable during the first three quarters with a consolidated profit of EUR 1,245 million (EUR 1,252 million). Both the positive operating income before valuation and a positive valuation result contributed to this development.
The operating income before valuation (before promotional expense) totalled EUR 1,295 million (EUR 1,125 million). At EUR 1,851 million, net interest income (before promotional expense) is slightly above the previous year's level (EUR 1,797 million). Administrative expense remained close to the previous year's level at EUR 944 million (EUR 945 million). Reaching EUR 387 million (EUR 272 million), commission income rose as a result of deferred compensation from previous years, which covered costs for new programmes such as the launch of the Baukindergeld help-to-buy scheme.
In the current interest environment, demand for interest rate reductions continued 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 at a very low level at EUR 101 million (EUR 149 million).
"The positive development of KfW's earnings continued in the third quarter of 2019 and exceeded our expectations. It is worth highlighting the increase in operating income compared with the previous year thanks to improvements to the interest income and commission result and the continued stability of administrative expense. In view of the end of the year, we expect consolidated profit to fall below last year's level but to once again exceed KfW's long-term income potential," commented Bräunig.
Risk provisions in the lending business pulled earnings down slightly by EUR 45 million (EUR 34 million) but remained significantly below standard risk costs. The risk provision result benefited from the overall stable risk situation within the group. A slight increase in specific valuation allowances was recorded in only a small number of areas, particularly for promotional activities in developing and transition countries. This development was counteracted by factors such as income from recoveries of receivables that had been written off.
At EUR 128 million (EUR 88 million), the Group's private equity and securities portfolio had an overall positive effect on earnings. This result was mainly due to value increases caused by changes in exchange rates in DEG's equity finance business. Purely IFRS-related effects from the valuation of derivatives used for hedging purposes had almost completely levelled off by September at just EUR 9 million (EUR 296 million).
Total assets rose to EUR 527.2 billion (compared with EUR 485.8 billion as at 31 December 2018) mainly as a result of greater reserves of cash and cash equivalents (increase of EUR 20.5 billion) and due to fair value changes - brought on by interest and exchange rates - in connection with derivatives used for hedging and their presentation under the hedge accounting method.
The Group's regulatory capital ratios are still at a good level. As of 30 September 2019, the total capital ratio amounted to 21.1% (30 June 2019: 21.2%).
Details on the business sectors' promotional activities
By the end of the third quarter 2019, the SME Bank & Private Clients business sector achieved commitments of EUR 26.4 billion (EUR 28.4 billion). The SME Bank segment contributed a promotional business volume of EUR 11.4 billion.
- The focus area of start-ups and general corporate finance achieved a total of EUR 5.2 billion (EUR 4.7 billion). This rise is largely attributable to high demand of over EUR 2.6 billion (EUR 1.6 billion) for the KfW Entrepreneur Loan.
- At EUR 5.8 billion, the commitment volume in the focus area of energy efficiency & renewables exceeded the previous year's level of EUR 5.4 billion. The main forces behind this development include the KfW Renewable Energy Programme with a promotional business volume of EUR 1.6 billion (EUR 1.1 billion). The programme supports the financing of renewables used for power generation and combined heat and power generation in combined heat and power plants, as well as financing measures for integrating renewables into the energy system.
- With a commitment volume of EUR 0.4 billion, the priority area of innovation was significantly below the previous year's record-breaking figure of EUR 3 billion. The main reason for the significant drop from the previous year's level was the disproportionately high demand for the ERP Digitalisation and Innovation Loan last year. The promotional conditions for this programme have since been refined, causing demand to decline. In a further step in the middle of this year, this promotional offering was expanded to encompass innovative businesses and start-ups.
The private clients segment generated a promotional business volume of EUR 15 billion (EUR 15.3 billion) and was therefore at a similar level to the previous year.
- With commitments totalling EUR 5.0 billion, the housing & living priority area has exceeded the prior-year figure (EUR 3.4 billion). The main cause for this rise is the Baukindergeld grant introduced in the previous year. Under this programme, government funds are used to help families with children to purchase their first home for private use. The promotional aim of the Baukindergeld scheme is to increase the rate of home ownership by families in Germany, which is very low by European standards.
- The priority area of energy efficiency & renewables for private customers achieved EUR 8.7 billion, which is below the previous year's record-breaking level (EUR 10.4 billion). This can be traced back to the good supply of credit for building loans in Germany at present.
- There was a slight decline in the education priority area (EUR 1.3 billion; prior-year period EUR 1.5 billion). This has affected the KfW Student Loan in particular. Thanks to the good economic situation, a large number of students are benefiting from increased support from their parents or relatives. The Customised Finance & Public Clients business sector generated a commitment volume of around EUR 5.1 billion by the end of the third quarter 2019, which is lower than the previous year's level (EUR 6.2 billion).
At EUR 2.6 billion, the business volume for municipal & social infrastructure exceeded the prior-year figure (EUR 2.3 billion). In addition to basic funding for general infrastructure investments for municipalities and municipal and social enterprises, programmes to support the energy transition at municipal level at EUR 0.7 billion also contributed significantly to the positive development. For the first time, grants under the new "Smart Cities Pilot Projects" promotional approach were committed with a value of EUR 60 million.
With a commitment volume of EUR 2.2 billion, individual financing for banks & promotional institutions of the federal states was significantly below the previous year's high figure (EUR 3.8 billion), which was influenced by factors including large contracts in the global lending business for lease financing.
The commitment volume for customised corporate finance totalled EUR 206 million (EUR 98 million). Contracts for the newly introduced KfW Loan for Growth were a decisive factor in this development.
In the first three quarters of 2019, the KfW Capital business sector recorded commitments totalling EUR 103 million (EUR 95 million). With support from the ERP Special Fund, KfW Capital has completed seven venture capital fund investments so far this year (30 September). The investment volume totals around EUR 102 million (+29% compared with the prior-year period: EUR 79 million). After 12 months of operations, the deal pipeline remains well filled a long way into 2020, while the VC fund community's interest in KfW Capital is still high. For the year 2019 as a whole, KfW Capital is planning to invest over approximately EUR 150 million; from 2020, the fund investor intends to invest an average of around EUR 200 million p.a. in German and European VC funds. KfW Capital's goal is to strengthen the VC market, enabling innovative tech companies in Germany to enjoy better access to growth capital through financially strong funds.
New commitments 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 - remain significantly above the prior-year figure (EUR 11.9 billion), totalling EUR 17.5 billion. The main cause for this is the significant increase in the business volume from bank refinancing in the CIRR ship refinancing scheme and the ERP export financing programme (EUR 3.5 billion; prior-year value EUR 0.9 billion). All sector departments contributed equally to generally good new business volume in the original credit business, reflecting the sector expertise and structuring competence of KfW IPEX-Bank, which is divided into various sectors. As in the previous quarter, the Maritime Industries sector department accounted for the largest share with EUR 2.7 billion (EUR 1.6 billion). Further focus areas are the Power, Renewables and Water sector department with EUR 2.3 billion (EUR 2.3 billion) and Financial Institutions and Trade Finance with EUR 2.3 billion (EUR 1.6 billion).
The commitment volume for the Promotion of developing countries and emerging economies business sector amounted to EUR 3.5 billion (EUR 3.8 billion) in the third quarter. In the past quarter, commitments by KfW Development Bank rose significantly to EUR 2.6 billion. The predominant share of budget funds - around EUR 1 billion - and almost half of all commitments went to countries in Africa and the Middle East. A commitment volume similar to that of the previous year (approximately EUR 8.7 billion) is expected for 2019 as a whole. New business at DEG also developed well in the third quarter. Commitments for investments in private companies in developing countries and emerging economies totalled EUR 869 million (EUR 809 million). A total of EUR 347 million was earmarked for financial institutions, which could then provide loans to local small and medium-sized enterprises, for instance. A total of EUR 217 million was allocated to infrastructural measures in the renewables and mobile communications sectors, for example. From a regional standpoint, commitments for investments in Asia accounted for the largest share at around EUR 240 million, closely followed by Latin America with EUR 228 million and Africa with EUR 227 million.
In the Financial markets business sector, the promotional business volume for the third quarter of 2019 amounted to EUR 1,018 million (EUR 1,023 million). Of this figure, EUR 841 million (EUR 739 million) was invested in securitisation transactions for capital market-oriented promotion of SMEs. For its green bond portfolio, KfW invested a total volume of EUR 177 million (EUR 284 million) in eight securities to promote climate action and environmental protection projects.
To fund its promotional business, KfW raised long-term funds on the international capital markets amounting to the equivalent of EUR 73.1 billion (EUR 61.7 billion) as of 30 September 2019. Around 52% of the funds were raised in euros, while around 27% was raised in US dollars. In addition to the two main currencies of euros and US dollars, bonds were also issued in nine other currencies, with the British pound representing the third largest currency (12% share as at 30 September). Thus far, EUR 6.9 billion of the funding was raised by issuing seven green bonds in seven currencies. The largest USD green bond from a Sovereign, Supranational or Agency issuer (SSA segment) to date was issued in September with a volume of USD 2 billion. Funding requirements for 2019 as a whole amount to EUR 80 billion.
Key figures of the income statement 01/01/2019 - 01/01/2018 - (EUR in millions) 30/09/2019 30/09/2018 Operating result before valuation (before promotional expense) 1,295 1,125 Promotional expense 101 149 Consolidated profit 1,245 1,252 Consolidated profit before IFRS effects from hedging 1,255 956
Key figures of the statement of financial position (EUR in billions) 30/09/2019 31/12/2018 Total assets 527.2 485.8 Equity 31.0 30.3 Volume of business 627.9 590.7
Key regulatory figures (in %)1) 30/09/2019 31/06/2019 (Core) tier 1 capital ratio 21.1% 21.2% Total capital ratio 21.1% 21.2%
1) The capital ratios listed take into account the interim results of the half of the year 2019 (as opposed to 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.
Service: An overview of the business and promotional figures in table form is available for download at: www.kfw.de/geschaeftszahlen.
Original content of: KfW, transmitted by news aktuell