KfW Group consolidated earnings 2022: Consolidated profit returns to normality in an exceptional year

• Consolidated profit of EUR 1.37 billion roughly equal to the average of the last five years
• KfW promotional business volume in 2022 at historic high of EUR 166.9 billion – a solid start to 2023
• Risk-bearing capacity strengthened at a very high level
• Positive valuation result with moderate need for risk provisions in the lending business
• Total assets virtually unchanged at EUR 554.6 billion
• KfWplus transformation agenda – 2023, the year of implementation

In spite of the difficult economic environment in the year 2022 which was marked by the war, KfW continued the positive trajectory of previous years in consolidated profit. At EUR 1.37 billion, consolidated profit was roughly at the average level of the last five years and is attributable in particular to a robust operating result and moderate net additions to risk provisions. The 2021 result of EUR 2.22 billion reflected one-off catch-up effects related to the coronavirus pandemic.

Risk-bearing capacity at a very high level

The regulatory equity ratios were still at a very high level at the end of 2022 with a total capital ratio of 25.2% and a (common equity) tier 1 capital ratio of 25.0% and significantly increased year-on-year in the course of the postponed recognition of income from the second half of 2021 and the first half of 2022 (31 December 2021: 23.9% each).

In 2022, KfW’s promotional business volume and new business rose by 56% to EUR 166.9 billion (2021: EUR 107 billion). The reason for this is the large volume of mandated transactions amounting to EUR 58.3 billion in connection with ensuring the energy supply in Germany.

Accordingly, the domestic promotional business recorded a very strong business year with a promotional volume of EUR 136.1 billion (2021: EUR 82.9 billion). KfW thus made a significant contribution regarding the transformation of the economy towards renewables and energy independence, as well as to economic stabilisation in Germany.

KfW Capital’s commitments for start-ups and young, innovative technology companies in Germany rose significantly in 2022 by 151% to around EUR 1.3 billion (2021: EUR 502 million).

The Export and project finance business sector recorded new commitments of EUR 18.1 billion (2021: EUR 13.6 billion), a significant recovery in business volume.

Commitments in the promotion of developing countries and emerging economies reached a record level of just under EUR 12.6 billion (2021: EUR 10.1 billion). KfW Development Bank accounted for around EUR 10.9 billion (2021: EUR 8.6 billion). DEG also contributed EUR 1.6 billion to the increase (2021: EUR 1.5 billion).

Stefan Wintels, Chief Executive Officer of KfW, stated:

“Despite the ongoing crisis environment, KfW is financially very well positioned to fulfil its tasks as a transformation and promotional bank. In the exceptional year 2022, despite all the special tasks resulting from the war in Ukraine, we recorded a welcome result at the level of the pre-crisis years.”

A solid start to 2023: new business as of 28 February 2023 at EUR 30 billion

KfW kicked off 2023 with new business totalling EUR 30.0 billion (February 2022: EUR 22.3 billion) as of 28 February. At EUR 26.1 billion, new commitments for domestic promotional business in particular were significantly higher than in the previous year (February 2022: EUR 19.4 billion). A large proportion of this was mandated transactions amounting to EUR 17.3 billion, which were mainly prolongations and disbursements from the gas price brake and the emergency aid for gas and heat.

Export and project finance saw a strong start to the year with a commitment volume of EUR 3.7 billion (February 2022: EUR 2.3 billion).
Promotion of developing countries and emerging economies stood at EUR 0.4 billion (February 2022: EUR 0.6 billion). New commitments in this business segment usually only increase later over the course of the year.

Transformation agenda – KfWplus – 2023, the year of implementation

“2022 was a year of major challenges in which KfW strongly demonstrated its ability to deliver to the Federal Government. In order to be able to continue fulfilling its task as a transformation and promotional bank successfully in the future, it will also develop itself as an organisation. The KfWplus strategic agenda defines the framework and level of ambition for this,”

said Stefan Wintels.

As part of this strategic orientation, KfW has taken a major step in the Paris-compatible management of KfW financing with the “transForm” project. In addition, the economic, environmental and social impacts of KfW’s financing and promotion activities will be measured more intensively and summarised in a KfW-wide “impact score”. The organisational adjustment of domestic promotion also provides significant impetus on the market side. For example, KfW’s promotional offering is continuously adapted and expanded in line with the “climate & environment” and “digitalisation & innovation” megatrends – such as the “Climate action campaign for corporates”, the “Sustainable transformation syndicated loan” or the “PtX platform” set up on behalf of the Federal Ministry for Economic Affairs and Climate Action (BMWK) and the Federal Ministry for Economic Cooperation and Development (BMZ). The latter is the first of its kind in the world to bundle promotional and financing instruments for investors to fund plants for the production of green hydrogen in non-European countries.

Consolidated earnings in detail:

At EUR 1,536 million (2021: EUR 1,712 million), the operating result before valuation (before promotional expense) came in below the previous year’s figure, primarily due to lower net interest income. The slight decline in net interest income (before promotional expense) of EUR 2,416 million (2021: EUR 2,531 million) was characterised by higher than expected interest margin income and commitment fees on the one hand. On the other hand, the current interest rate trend has not yet taken effect on the contribution to profit resulting from the maturity transformation. In conjunction with KfW’s continued excellent funding opportunities, net interest income continues to be the main source of income. Net commission income of EUR 629 million (before promotional expense) was at the same level as the previous year (EUR 634 million). Net commission income is largely influenced by income from the implementation of the Federal Government’s promotional programmes, particularly in the area of energy efficiency and renewables. Despite a strong increase in tasks, administrative expense (before promotional expense) only rose slightly to EUR 1,509 million (2021: EUR 1.452 million). This includes one-off effects, such as the payment of the inflation compensation premium in the 2022 financial year. In addition, higher expenses for domestic promotional programmes and Financial Cooperation also contributed to the increase.

At EUR 305 million, promotional expense in 2022 was significantly above the previous year (2021: EUR 188 million), primarily due to the increase in interest rate reductions for new business. In particular, as a result of the rise in interest rates in the second half of 2022 and the passing on of the negative funding rates to financing partners starting from the second half of 2021, the need for interest rate reductions increased compared to previous years from EUR 144 million to EUR 267 million.

The Russia-Ukraine war and the associated effects on the global economy are reflected in the declining valuation result.

Risk provisions in the lending business at EUR -122 million (2021: EUR +196 million) is primarily characterised by the formation of additional provisions for latent risks as a result of the gloomy outlook for sectors and countries. Provisions for defaulted Russia/Ukraine exposures amount to figure in the very low double-digit millions. In contrast, recoveries on loans written off and net reversals of exposures at risk of default positively contributed to the moderate expenses resulting from risk provisions for lending.

The valuation result from the investment portfolio of EUR 89 million (2021: EUR 766 million) shows significant pressures as a result of the Russia-Ukraine war in DEG’s and KfW Development Bank’s equity investment portfolios, which were increasingly directly and indirectly affected by this war. The domestic business sectors and export and project finance were able to contribute positive earnings contributions.

Purely IFRS-related valuation effects from derivatives used for hedging purposes contributed positively to earnings at EUR 202 million, compared with EUR -139 million in the previous year. This was primarily due to the development of interest rates in the second half of the 2022 financial year.

Total assets grew moderately by EUR 3.9 billion to EUR 554.6 billion (2021: EUR 550.7 billion). The increase in net loans and advances by EUR 24.9 billion (of which EUR 22.4 billion from mandated transactions for energy suppliers) and in liquid funds by EUR 13.8 billion were offset by the EUR 30.5 billion decline in value adjustments from macro hedge accounting. KfW raised EUR 89.4 billion in the capital markets to fund its business activities. In addition, EUR 32.0 billion were raised in 2022 via the Economic Stabilisation Fund (WSF) to refinance the support measures for energy companies to ensure energy supply (EUR 20.0 billion) and the special coronavirus programmes (EUR 12.0 billion).

Bernd Loewen, Chief Financial Officer of KfW, emphasised:

“Multiple crises such as the war in Ukraine and the resulting energy price crisis have shaped KfW’s net assets, financial and earnings position in 2022. With the further strengthening of equity through consolidated profit as well as the interest-related decline in pension obligations, KfW remains financially well positioned in spite of the crisis environment and has been able to further expand its scope for promotion.

¹⁾ The comparative figure was adjusted by EUR 270 million.

²⁾ The capital ratios stated take into account the eligible interim results according to Art. 26 (2) of the Capital Requirements Regulation, which deviate from the respective annual results in accordance with IFRS.

KfW Annual Report online:
www.kfw.de/berichtsportal

Information about the press conference on annual results:
2023 press conference on annual results