KfW: Positive first half of 2023 – encouraging normalisation of promotional needs after exceptional year 2022

• KfW promotional business volume amounts to EUR 58.7 billion
• New commitment volume in Germany normalises to EUR 42.8 billion
• Export and project finance more than doubled to EUR 14.4 billion
• Above-average consolidated earnings of EUR 885 million
• Very robust risk-bearing capacity with equity increased to EUR 37.4 billion and a tier 1 ratio of 27.5 %

In the first half of 2023, KfW Group achieved a promotional business volume totalling EUR 58.7 billion (06/022: EUR 95.1 billion, 06/ 2021: EUR 49.8 billion). The trend to normalisation of promotion and financing thus confirmed itself compared with the exceptional year 2022. This was mainly reflected in domestic promotion amounting to EUR 42.8 billion (06/2022: EUR 87.0 billion, 06/2021: EUR 41.1 billion). The commitment volume was marked by more subdued demand for loans as a result of the increased interest rate level in addition to the expiration of the special programmes for coronavirus aid and the switch from broad-based promotion to focused promotion with more demanding promotional conditions in the Federal Funding for Efficient Buildings programmes. Among other things, the programmes for general corporate finance, disbursements of the German Federal Government’s emergency aid / price brake for gas and heat, and mandated transactions in the energy sector contributed positively to a further high promotional business volume in the first half of the year.

The Export and project finance business sector also did well. At EUR 14.4 billion, it achieved a commitment volume that was more than twice as high as in the same period of the previous year (06/2022: EUR 6.0 billion). All sector departments contributed to new business.

At EUR 1.5 billion (06/2022: EUR 1.4 billion), KfW Development Bank’s commitments were slightly above the previous year’s level. DEG committed EUR 609 million. This is almost twice as high a financing volume compared with the previous year (06/2022: EUR 356 million). The focus of the financing activities of the three international business areas was on the issues of climate, environment and support for the transformation of societies and companies.

KfW Capital’s commitment volume amounted to around EUR 1.4 billion in the first half of the year (06/2022: EUR 307 million). This significant increase was mainly due to commitments for the new building blocks of the Future Fund (EUR 800 million for the European Tech Champion Initiative and EUR 215 million for the Deep Tech Climate Fund).

Stefan Wintels, Chief Executive Officer of KfW, stated:

"Overall, the first half of 2023 was challenging for the economy and society. Nonetheless, we experienced a normalisation of domestic promotional demand. We're particularly pleased with performance in export and project finance, in which we were able to make commitments that were more than twice as high this year as in the previous year. In doing so, we're supporting German industry and the long-term international competitiveness of our country."

KfW Group closed the first half of 2023 with an above-average consolidated profit of EUR 885 million, slightly below the previous year’s result (06/2022: EUR 949 million). The purely IFRS-related effects from the valuation of derivatives used for hedging purposes overstated the earnings position by EUR 177 million (06/2022: EUR 142 million). Consolidated profit before IFRS effects from hedging, which is relevant for the management of KfW, was still encouragingly high at EUR 708 million (06/2022: EUR 807 million).

The operating result before valuation (before promotional expense) was slightly below the previous year at EUR 829 million (06/2022: EUR 889 million). Net interest income (before promotional expense) of EUR 1,256 million (06/2022: EUR 1,232 million) remains the group’s main source of income. Net commission income (before promotional expense) of EUR 294 million was down on the previous year’s exceptionally strong figure of EUR 357 million due to large-volume mandated transactions. Administrative expense (before promotional expense) stood at EUR 721 million, just slightly above the level of the previous year (06/2022: EUR 700 million).

Due to an environment of increasingly high interest rates, demand for interest rate reductions continued to rise compared with previous years. As a result, domestic promotional expense – mainly interest rate reductions for new business – which has a negative impact on KfW’s earnings position - at EUR 141 million was significantly higher than in the previous year (06/2022: EUR 120 million).

The valuation result was characterised by positive contributions from risk provisions for lending business and the purely IFRS-related valuation effects from derivatives; the performance of the investment portfolio had a negative impact.

The positive risk provisioning result in the loan business totalling EUR 109 million (06/2022: EUR -52 million) resulted in particular from the general improvement in macroeconomic factors and the positive outlook for companies in western Europe. This was reflected in a positive contribution to earnings from risk provisions for lending business for performing loans. The moderate net expenses for non-performing loans were almost entirely offset by recoveries of receivables that had been written off.

The valuation result from the investment portfolio of EUR -30 million (06/2022: EUR 128 million) was heavily impacted by the business areas KfW Capital and DEG. KfW Capital’s portfolio result was primarily negatively impacted by adverse performance in the area of information and communication technology. At DEG, effects from the conversion of foreign currency exposures due to the weaker USD had a dampening effect. However, KfW Development Bank’s investment portfolio performed well.

At EUR 556.9 billion, total assets were slightly higher than at the end of the previous year (EUR 554.6 billion).

With a total capital ratio of 27.5 % and a (common equity) tier 1 capital ratio of 27.5 % (March 2023: 27.2 % and 27.0 %), the regulatory capital ratios came in at a very good level. The increase in equity ratios was mainly due to rating improvements by business partners in the on-lending business.

Details on the business sectors’ promotional activities

1. SME Bank and Private Clients

As of 30 June 2023, the SME Bank and Private Clients business sector achieved a promotional business volume of EUR 18.0 billion (06/2022: EUR 47.3 billion, 06/2021: EUR 36.6 billion). Of this, EUR 10.1 billion was attributable to the SME Bank commercial segment (06/2022: EUR 23.6 billion, 06/2021: EUR 12.2 billion) and EUR 8.0 billion to the Private Clients segment (06/2022: EUR 23.7 billion, 06/2021: EUR 24.4 billion). This was due to the following developments:

SME Bank: Start-ups and corporate investment

New commitments totalling EUR 4.0 billion were made in the priority area of start-ups and corporate investments in the first half of the year (06/2022: EUR 7.8 billion). The downturn compared with the same period of the previous year was due in particular to the end of the special programmes for coronavirus aid in the middle of last year and to normalisation in core business. There was high demand for the ERP promotional loan for small and medium-sized enterprises. Loans amounting to EUR 3.3 billion were committed here (06/2022: EUR 2.3 billion).

SME Bank: Climate change and the environment

The priority area of climate change and the environment generated new commitments of EUR 5.2 billion (06/2022: EUR 14.7 billion). Due to the exceptional situation in the prior-year period, there were mainly fewer new commitments in Federal Funding for Efficient Buildings (BEG). In the meantime, demand has normalised in view of the higher construction standards. In the Climate action campaign for SMEs, new commitments at the end of the first half made up EUR 1.3 billion, significantly higher than in the previous year (06/2022: EUR 0.4 billion).

SME Bank: Innovation

At EUR 0.9 billion, the volume of new commitments in the priority area of innovation was at the previous year’s level (06/2022: EUR 1.0 billion).

Private Clients: Energy efficiency and renewables

At EUR 5.3 billion, the majority of the promotional business volume in the Private Clients segment arose in the priority area of energy efficiency and renewables (06/2022: EUR 20.3 billion). Commitments were made in this priority area mainly in the Federal Funding for Efficient Buildings and the successor product Climate-friendly New Construction. As mentioned earlier, the considerable downturn compared with the same period in the previous year was also due to the stricter promotional conditions in the context of the switch from broad-based promotion to focused promotion of top performers.

Private Clients: Residential & Housing

The promotional business volume in the residential and housing sector declined slightly to EUR 1.7 billion (06/2022: EUR 2.5 billion). The downturn was largely due to lower new commitments in the KfW Home Ownership programme amounting to EUR 1.6 billion (06/2022: EUR 2.0 billion), which reflected the overall decline in demand for real estate financing due to the rise in interest rates.

Private Clients: Education

In the area of education, new commitments as of 30 June 2023 were at around EUR 1.0 billion, slightly above the level of the previous year (06/2022: EUR 0.9 billion).

2. Customised Finance and Public Clients

The Customised Finance and Public Clients business sector generated a commitment volume of around EUR 23.4 billion in the second quarter of 2023. In particular, prolongations of mandated transactions for energy companies (EUR 11.5 billion) and the implementation of emergency aid and the gas price brake on behalf of the German Federal Government (EUR 7.0 billion) contributed to this high result. The commitment volume of the previous year was even higher due to the crisis-related mandated transactions in the energy sector (06/2022: EUR 39.4 billion, 06/2021: EUR 4.3 billion).

Customised finance: Corporates

In customised finance for corporates, a commitment volume of EUR 11.7 billion was reached (06/2022: EUR 33.6 billion). This was mainly due to prolongations (EUR 16.9 billion) and the associated restructuring of existing mandated energy transactions in the first quarter of 2023, as well as commitments in the syndicated digital infrastructure loan of EUR 0.2 billion. Amount reductions of EUR 5.4 billion on the mentioned prolongations had an offsetting effect on the aforementioned extensions due to a welcome lower loan requirement in the second quarter of 2023.

Customised finance: Municipal and social infrastructure

The volume of business for municipal and social infrastructure was significantly higher than in the previous year, with new commitments of over EUR 9.5 billion (06/2022: EUR 3.5 billion). The increase resulted in particular from disbursements of EUR 7.0 billion from the Federal Government’s emergency aid / price brake for gas and heat. However, demand was also strong in traditional promotional business for municipal and social infrastructure. Programmes in the priority area of climate change and the environment in particular once again had a good response with commitments totalling EUR 0.8 billion after an exceptional previous year (06/2022: EUR 1.2 billion).

Customised finance: Banks and promotional institutions of the federal states

With a volume of business of EUR 2.2 billion, individual financing for banks and promotional institutions of the federal states nearly achieved the previous year’s figure (06/2022: EUR 2.3 billion). With commitments of EUR 1.7 billion, there was welcome high demand from the promotional institutions of the federal states for general refinancing, which even exceeded the previous year (06/2022: EUR 1.4 billion).

3. KfW Capital

Commitments in the KfW Capital business sector amounted to around EUR 1.4 billion in 2023 (06/2022: EUR 307 million). The significant increase was mainly due to the commitments for the new building blocks of the Future Fund (European Tech Champions Initiative (ETCI): EUR 800 million and Deep Tech Climate Fund: EUR 215 million). KfW Capital’s own investment programmes “ERP VC Fund Investments” and “ERP/Future Fund Growth Facility” provided EUR 187 million in the first half of 2023. KfW Capital made a total of eleven investment commitments to VC funds.

4. KfW IPEX-Bank

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 the global markets, the upwards trend from the beginning of the year continued: At EUR 14.4 billion, their new commitments were more than twice as high as in the same period of the previous year (06/2022: EUR 6.0 billion). All sector departments contributed to new business, most notably the sector departments of Energy & Environment at EUR 2.9 billion (06/2022: EUR 0.8 billion) and Industry & Services at EUR 2.6 billion (06/2022: EUR 1.0 billion) and Maritime Industries with EUR 2.4 billion (06/2022: EUR 0.6 billion). In particular, financing was provided for fibre-optic projects as well as wind farms and photovoltaic systems with which KfW IPEX-Bank supports the economy and society in the transformation process.

5. Promotion of developing countries and emerging economies

KfW Development Bank

In the first half of 2023, KfW Development Bank committed EUR 1.5 billion for projects in developing countries and emerging economies (06/2022: EUR 1.4 billion). The German Federal Ministry for Economic Cooperation and Development’s (BMZ) core theme of “Climate and Energy, Just Transition” accounted for almost half of the commitments amounting to EUR 681 million. Four loans will be used in Albania, Serbia and Turkey to support projects in the areas of “Climate change mitigation and adaptation” and “Renewable energy sources and energy efficiency”. EUR 318 million will be used to finance programmes in the priority area of “Sustainable economic development, training and employment”. EUR 152 million of this amount relates to two programmes in Namibia. They serve to promote small and medium-sized enterprises as well as the economic recovery of the country.

DEG

DEG’s new commitments for investments by private companies in developing countries and emerging economies saw a significant rise: EUR 609 million was committed in the first half of 2023, almost twice as much as in the previous year (06/2022: EUR 356 million). EUR 261 million of commitments were made to companies in Latin America, including financial institutions, which supply small and medium-sized local enterprises with loans. This will enable SMEs to develop further and create skilled jobs. A further EUR 225 million of DEG’s new commitments are earmarked for investments in Asia, such as the production of green electricity and medicines. Financing committed to investments in Africa also serves to boost local production, innovation and SMEs. In the first half of the year, DEG acted as lead arranger several times and was able to attract further private investors.

6. Financial markets

In the first half of 2023, KfW invested EUR 412 million in green bonds as part of the existing promotional mandate. The total volume of the portfolio was around EUR 2.6 billion as of 30 June 2023.

KfW raised EUR 53.7 billion in seven different currencies in the international capital markets to fund its promotional business in the first half of 2023 (06/2022: EUR 56.6 billion). The majority of the funding was carried out in euros (65 %). The US dollar (21 %), British pound (7 %) and Australian dollar (6 %) also made an important contribution to the funding mix. As of 30 June 2023, KfW had achieved 63 % of the planned funding volume of EUR 85 billion for 2023 as a whole. At the end of July, KfW had already raised EUR 61.1 billion (72 %) in the international capital markets.

KfW is still involved in various initiatives to mitigate the economic and social consequences of the war in Ukraine and continues to provide financing for energy companies. To fund these transactions in the energy sector, mandated to it by the German Federal Government, it can access funds from the Economic Stabilisation Fund (WSF). The funds provided via the WSF amounted to around EUR 25 billion as of 30 June 2023. The outstanding volume of WSF funds amounted to around EUR 17 billion as of the reporting date.

¹⁾ 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.