KfW: Strong first half of 2021 promotional year – sharp increase in domestic promotion – high consolidated profit

• Total promotional business volume of EUR 49.8 billion
• Domestic promotion at EUR 41.1 billion
• Demand for Coronavirus Special Programmes decreasing as expected
• Continued high level of interest in promoting energy-efficient housing
• Consolidated profit of EUR 1,396 million

In the first half of 2021, KfW Group achieved a promotional business volume of EUR 49.8 billion (first half of 2020: EUR 76.2 billion; first half of 2019: EUR 33.6 billion). The decrease in commitments compared to 2020 is due to weakening demand for coronavirus aid as a result of the end of the lockdown. However, compared to the same period in previous years, the promotional business volume has increased significantly during the first half of the year. This is particularly evident in the commitment volume for domestic promotional business, which reached EUR 41.1 billion (first half of 2020: EUR 63.0 billion; first half of 2019: EUR 20.8 billion), nearly doubling the amount from 2019, the year before the coronavirus pandemic. Financing for energy-efficient housing experienced a significant rise in demand to EUR 19.2 billion (first half of 2020: EUR 12.7 billion; first half of 2019: EUR 5.4 billion). KfW Capital commitments totalled EUR 112 billion (same period the previous year: EUR 139 billion). As anticipated, the commitment volume in Export and project finance was below the previous year’s level (EUR 6.5 billion; same period the previous year EUR 11.3 billion) due to the effects of the ongoing coronavirus crisis on world trade. Promotion of developing countries and emerging economies reached a total of EUR 1.9 billion (EUR 2.0 billion). KfW Development Bank’s commitments slightly exceeded the previous year’s figure at EUR 1.5 billion (EUR 1.4 billion). DEG committed financing in the amount of EUR 409 billion (EUR 590 billion).

Since the coronavirus aid programmes were launched (on 23 March 2020), KfW committed loans totalling EUR 58.6 billion in Germany and abroad (as of 31 July 2021). In domestic business, small and medium-sized enterprises continue to be the majority of those making use of the special programmes with loan volumes of up to EUR 3 million. As expected, demand during the first half of 2021 has levelled off with commitments amounting to EUR 6.5 billion when compared to the same period the previous year (EUR 33.8 billion). The decline in use of the special programmes for coronavirus aid is due in particular to the end of the lockdown and businesses opening again across the country during the second quarter of 2021.

“We can look back at a strong first half of the 2021 promotional year. Since most of the pandemic-related restrictions have been lifted, the German economy and, in particular, many service companies are on a strong path to recovery again. As a result, the demand for KfW coronavirus aid is decreasing, and the promotion of structural transformation is becoming the main focus again. This gives us cause to be optimistic about solid economic growth for 2021 as a whole,” said Dr Günther Bräunig, Chief Executive Officer of KfW Group.

KfW Group’s earnings position in the first half of 2021 saw consolidated profit of EUR 1,396 million (EUR -576 million). This development is based on a stable operative result and benefited from a very positive valuation result, which was impacted by net reversals in loan loss provisions and positive developments in the value of the investment portfolio. All business sectors made above-average contributions to group profit after the crisis year 2020. The consolidated profit before IFRS effects from hedging, relevant for managing KfW, amounted to EUR 1,466 million (EUR -392 million).

“KfW’s favourable earnings trend over the last three quarters also continued in the second quarter of 2021. The above-average result of EUR 827 million in the second quarter is due to reversal effects of the valuation discounts for loans and investments during the previous year within the context of the coronavirus crisis. At EUR 1,396 million, we thus recorded the best result that we have seen in a decade for the first half of a year”, said Dr Bräunig.

The operating result before valuation (before promotional expense) was EUR 915 million, falling slightly below the previous year’s very strong result of EUR 967 million. At EUR 1,303 million, net interest income (before promotional expense) was similar to the prior-year level (EUR 1,302 million) and remains KfW’s main source of income. Net commission income of EUR 304 million (before promotional expense) slightly exceeded the prior-year amount of EUR 300 million. At EUR 692 million (EUR 636 million), administrative expense (before promotional expense) was lower than expected, as typical for the course of the financial year.

In the current interest environment, demand for interest rate reductions continued to be low. As a result, domestic promotional expense – which negatively impacts the earnings position and relates primarily to interest rate reductions for new business – remained exceptionally low at EUR 44 million (EUR 54 million).

The valuation result is characterised by reversals in impairment losses in the loan and investment portfolio, after the prior-year result suffered heavily from the economic effects of the coronavirus pandemic. Risk provisions in the lending business totalling EUR +277 million (EUR -781 million) is marked by reversals of, in particular, latent risk provisions as a result of an improved macroeconomic environment, as well as of income from recoveries of loans previously written off. The valuation result from the equity investment portfolio of EUR +358 million (EUR -557 million) is driven by reversals of impairment losses particularly in the Promotion of developing countries and emerging economies business sector. DEG accounts for EUR 199 million of the business sector’s contribution to earnings, which amounts to EUR 242 million.

Purely IFRS-related effects from the valuation of derivatives used for hedging purposes put a strain on the earnings position with EUR 70 million (EUR -184 million).

At EUR 547.4 billion, total assets are slightly above the figure as at 31 December 2020 (EUR 546.4 billion). The rise in the volume of lending by EUR 9.5 billion as a result of disbursements in the context of coronavirus aid was compensated by declines in liquid assets amounting to EUR 3.1 billion and lower market values from derivatives (EUR -5.0 billion). Equity rose due to the very good mid-year result and relief in the revaluation reserve resulting from the interest-based valuation of pension provisions to EUR 33.4 billion (31 December 2020: EUR 31.8 billion).

As expected, the group’s regulatory equity ratios declined as a result of CRR II implementation; however, they continue to develop to good levels. The total capital ratio amounted to 24.1% as of 30 June 2021 (31 March 2021: 24.9%).

Details on the business sectors’ promotional activities

With a promotional business volume of EUR 36.6 billion as of 30 June 2021, the SME Bank & Private Clients business sector reached a high level. Compared to the previous year (first half of 2020: EUR 48.7 billion; first half of 2019: EUR 17.8 billion), the first half of 2021 was marked by a slowdown, which is mainly attributable to the expected decrease in demand for the coronavirus aid programmes, but also recorded growth in the Private Clients segment, compared to 2020 and 2019.

New business in the commercial SME Bank segment with a volume of EUR 12.2 billion (first half of 2020: EUR 30.7 billion; first half of 2019: EUR 8.4 billion) demonstrated good development in the first half of 2021.

• The promotional priority area of start-ups and general corporate finance recorded new commitments of EUR 7.9 billion (EUR 26.5 billion). For the KfW Entrepreneur Loan, KfW granted commitments amounting to EUR 3.8 billion (EUR 20.2 billion), mainly related to the Coronavirus Special Programme. The KfW Instant Loan achieved commitments of EUR 2.0 billion (EUR 4.1 billion).
• The priority area of energy efficiency & renewables recorded new commitments amounting to EUR 3.9 billion and thus achieved the previous year’s level (EUR 3.9 billion). KfW’s Renewable Energies programme and the KfW Energy Efficiency Programme for Energy-efficient Construction and Refurbishment played the largest part here; the latter expired on 30 June 2021 and was replaced by Federal Funding for Efficient Buildings (BEG).
• At EUR 0.5 billion (EUR 0.4 billion), the promotional priority area of innovation demonstrated slight growth. The ERP Innovation and Digitalisation Loan accounts for the largest share of this.

The Private Clients segment accounted for a promotional business volume of EUR 24.4 billion as of 30 June 2021, thus clearly exceeding the prior-year result (first half of 2020: EUR 18.0 billion; first half of 2019: EUR 9.4 billion).

• The largest contribution, with a commitment volume of EUR 19.2 billion (first half of 2020: EUR 12.7 billion; first half of 2019: EUR 5.4 billion), was accounted for by the priority area of energy efficiency & renewables with the Energy-efficient Construction and Refurbishment product family. Before the Energy-efficient Construction and Refurbishment programme switched over to Federal Funding for Efficient Buildings (BEG) on 1 July 2021, the second quarter of 2021thus also recorded a high level of commitments similar to 2019.
• In the housing segment (home-ownership promotion and age-appropriate conversion), commitments declined to EUR 2.6 billion (EUR 3.0 billion).
• Demand in the priority area of education at EUR 1.1 billion was slightly above the previous year’s level (EUR 1.0 billion).

The Customised Finance & Public Clients business sector recorded a commitment volume of approximately EUR 4.3 billion in the first half of 2021. After the extremely high volume of the previous year (EUR 14.2 billion) due to special coronavirus measures, business volume normalised again during the first six months of 2021.

Customised corporate finance achieved a commitment volume amounting to EUR 0.2 billion after recording EUR 10.1 billion during the previous year. This volume from the previous year was characterised by utilisation of the Coronavirus Special Programme syndicate financing. Commitments during the first half of 2021returned to the level of 2019 again (first half of 2019: EUR 0.2 billion).

Municipal and social infrastructure saw a rise in the number of applications and had a promotional business volume totalling EUR 1.8 billion; as a result of fewer large-volume individual projects ), it recorded a slight decline, compared to the prior-year level (EUR 2.0 billion).

Individual financing for banks & promotional institutions of the federal states exceeded the previous year’s figure (EUR 2.1 billion) with a business volume of over EUR 2.3 billion. The main reason for this was several large-volume transactions within the global loans for leasing investments.

Commitments in the KfW Capital business sector amounted to a total of around EUR 112 million in the first half of 2021 (EUR 139 million, including commitments by the European Investment Fund (EIF) under the German Federal Government’s coronavirus package of measures for start-ups). In the ERP Venture Capital Fund Investments programme, which KfW Capital is implementing with the support of the ERP Special Fund, by the middle of the year EUR 92 million (EUR 137 million) had been committed to VC funds, which are now gradually investing these funds in start-ups and young technology companies in Germany. The lower volume of the investments made to date can be attributed to typical variations in commitments in fund business; the deal pipeline is well filled as planned through the end of the year. As part of the first pillar of the German Federal Government’s package of coronavirus measures for start-ups, which is one of the measures included in the Corona Matching Facility (via KfW and the EIF), around EUR 20 million was additionally committed this year (no figures from previous years) (incl. the EIF, HTGF, not including the ERP Start-up Fund, which is included in KfW’s promotional figures).

At KfW IPEX-Bank – which is responsible for the Export and project finance business sector and provides financing to support German and European businesses on global markets – the effects of the ongoing coronavirus crisis on world trade and large parts of the entire global economy continued to strongly affect new business. New commitments of EUR 6.5 billion remained within the range of the previous quarters; however, they clearly remain below the level of the prior-year period (EUR 11.3 billion), which was still unaffected by the crisis. All sector departments contributed to new business, most notably the Financial Institutions, Trade & Commodity Finance sector department with EUR 1.2 billion (EUR 1.6 billion).

Commitments in the Promotion of developing countries and emerging economies business sector amounted to EUR 1.9 billion (EUR 2.0 billion). In the first half of 2021, KfW Development Bank committed EUR 1.5 billion (EUR 1.4 billion) for projects in developing countries and emerging economies. Programmes in Africa and the Middle East account for close to one third of the total commitments. KfW Development Bank will also continue to provide coronavirus aid with funds from the Federal Ministry for Economic Cooperation and Development (BMZ) in 2021 with around EUR 2 billion; EUR 363 million for coronavirus aid was committed in the first half of the year. DEG’s newly committed finance for investments by private companies in developing countries and emerging economies amounted to EUR 409 million (EUR 590 million). EUR 168 million of this was earmarked for financial institutions in developing countries, which use the funds to provide loans to local small- and medium-sized enterprises. In light of the coronavirus pandemic, DEG is continuing to use its promotional offerings and advisory services to provide private companies in developing countries with support to help cope with the current challenges.

For its green bond portfolio, the Financial markets business sector invested roughly EUR 374 million (EUR 221 million) in 14 securities to promote climate change mitigation and environmental protection projects in the first six months of 2021. As a result, the promotional portfolio volume was EUR 2.1 billion on the reporting date.

To fund its promotional business, KfW has raised funds on the international capital markets amounting to EUR 50.5 billion (EUR 35.9 billion) in 14 different currencies. The first half of the year developed very positively for the issuance of Green Bonds. KfW issued EUR 7.6 billion in Green Bonds in 11 currencies and thus achieved 76% of the target issue volume for 2021 within the first six months. It is to note here that the issuance of a Green Bond with a volume of EUR 4 billion has been the largest first issuance of a green bond by a non-governmental issuer to date. KfW is planning a funding volume of EUR 75–80 billion for the whole of 2021.

¹⁾ The capital ratios indicated take into account the eligible interim results according to Art. 26 (2) of the Capital Requirements Regulation, which deviate from the respective annual/quarterly results according to IFRS.

An overview of the business and promotional figures is available in table form at: Business and Promotional Figures

KfW Annual Report online: Reporting Portal – Facts and Figures