First half of 2020: KfW’s financing volume more than doubled as a result of coronavirus aid programmes

• Promotional business volume rises to EUR 76.2 billion
• Domestic promotion triples to EUR 63 billion as a result of KfW’s coronavirus aid programmes
• EUR 33.6 billion in commitments for KfW coronavirus aid programmes
• 97% of applicants for KfW’s coronavirus aid programmes are small and medium-sized enterprises
• Demand booming for promotion of housing construction
• Impact of the coronavirus crisis leads to a negative result of EUR 576 million

In the first half of 2020, KfW Group recorded a commitment volume of EUR 76.2 billion which is more than twice the previous year’s figure (EUR 33.6 billion during the same period of the previous year, +127%). Domestic promotion even tripled in volume to EUR 63.0 billion (EUR 20.8 billion, +203%) as a result of the coronavirus aid programmes. Demand for promotion of housing construction also more than doubled year-on-year (EUR 12.7 billion; previous year EUR 5.4 billion). The investment subsidiary KfW Capital increased its commitments in the first half of the year to EUR 139 million (EUR 77 million). Commitments for export and project finance at KfW IPEX-Bank grew to EUR 11.3 billion (EUR 10.0 billion). The promotion of developing countries and emerging economies reached a total of EUR 2.0 billion (EUR 2.1 billion). With a commitment volume of EUR 1.4 billion, KfW Development Bank’s commitments were slightly below the previous year’s level of EUR 1.7 billion. DEG ended the first half of the year with new business totalling EUR 0.6 billion (EUR 0.4 billion).

Financial year 2020 is largely marked by KfW’s special coronavirus aid programme (“KfW Coronavirus Aid”), which it launched on behalf of the German Federal Government and in close cooperation with the financing partners. As of 30 June 2020, KfW has received around 70,000 loan applications and has made commitments totalling EUR 33.6 billion. Around 97% of these applications were submitted by small and medium-sized enterprises, while 99.8% of the loans applied for have a volume of up to EUR 3 million. This means that German SMEs in particular are benefiting from KfW’s Coronavirus Aid. To date, 81,359 applications have been submitted for the programme (as of 11 August 2020), 99.7% of which have already been finalised. The commitment volume is EUR 42.6 billion, with mainly large-volume loan applications still in the review stage, depending on when the application was submitted.

To support start-ups and young technology companies during the coronavirus crisis, the first pillar of the start-up aid measures of the German Federal Government (including the Corona Matching Facility) was established, and other promotional funds were provided in the form of global loans via promotional institutions of the federal states. VC funds can obtain funding to support start-ups in Germany through this first pillar. To date, 75 applications from VC funds have been submitted to KfW and the EIF, totalling around EUR 1.1 billion. Of these, 11 applications for an amount of EUR 375 million have been approved so far; the funds can invest this money in over 230 start-ups.

An additional measure under the coronavirus aid scheme is the KfW Student Loan, which is offered at zero interest until 31 March 2021 to support students during the crisis. Around 24,000 students have applied for a loan to date, for a total amount of about EUR 700 million. This is about five to six times the number of applications compared to the same period the previous year (as of 11 August 2020).

“KfW recorded its highest-ever promotional activity in the first half of 2020, in a time when Germany’s economic output experienced its biggest ever decline as a result of the coronavirus crisis. However, the decisive measures taken by the German Federal Government, an important element of which is KfW’s Coronavirus Aid, are taking effect,” said Dr Günther Bräunig, CEO of KfW Group. “The KfW Coronavirus Aid was set up at lightning speed with the German Federal Government and our financing partners. Our good and longstanding cooperation has once more proven its effectiveness.”

The coronavirus pandemic has plunged the entire global economy into a deep recession. Companies and, as a result, banks have been heavily affected. For KfW, too, this places significant burdens on its risk provisioning and in the valuation of its equity investments, which already made their mark in the first quarter of 2020 and continued in the second quarter. After a consolidated profit of EUR 904 million in the first half of 2019, the first half of 2020 closed with a loss of EUR 576 million. While the operating result before valuation at EUR 967 million improved by nearly 15% compared to the previous year, the valuation result had a negative effect of around EUR 1.5 billion on the earnings position. Of this amount, around EUR 1.1 billion are induced by the impact of the COVID-19 crisis. The negative valuation result is due to additional risk provisions and valuation discounts in the investment portfolio, which relate in particular to the business sector for the promotion of developing countries and emerging economies.

“KfW’s earnings development in the second quarter of 2020 remains very good in operative terms. However, the coronavirus crisis continued to have a heavy negative impact on KfW’s earnings position. Allocation of risk provisions and valuations take in account our expectation that individual defaults in the loan business and burdens in the investment business will only occur with a time lag, and include general assumptions based on developments in sectors and regions. KfW, however, remains in a strong position with a tier 1 capital ratio of 23.5%,” said Dr Bräunig.

The operating result before valuation (before promotional expense) totalled EUR 967 million (EUR 843 million). Net interest income (before promotional expense) of EUR 1,302 million exceeded the previous year’s figure (EUR 1,222 million) and continues to be the main source of income for KfW. Commission income contributed EUR 300 million to the result after EUR 247 million in the previous year. This positive development was supported by administrative expenses, which at EUR 636 million were at the same level as the previous year (EUR 625 million).

In the current interest environment, demand for interest rate reductions continued to be low. As a result, the domestic promotional expense – which has a negative impact on the earnings position and relates primarily to interest rate reductions for new business – remained very low at EUR 54 million (EUR 86 million).

The valuation result is strongly influenced by the economic impacts of the coronavirus pandemic, which in the first half of 2020 significantly contributed to a risk provision result in the lending business of EUR -781 million (EUR +10 million). The pandemic-related adverse effects on earnings of EUR 587 million resulted mainly from the formation of provisions for critical industries and countries in the form of a general, forward-looking provision. Risk provisions from individual rating downgrades still largely fall outside the range of defaults; these have occurred in individual cases only up to 30 June 2020. KfW expects an increase in individual defaults with a time lag from the second half of the year onwards. The resulting additional burdens on the result are to be mitigated by the general risk provisions already anticipated as of 30 June 2020. In addition, valuation discounts of EUR 557 million (+EUR 53 million) arose from the investment portfolio, which were already made in the accounts for the first quarter of 2020 on the basis of general assumptions for critical industries and regions. These affected in particular the business sector for the promotion of developing countries and emerging economies.

The coronavirus-related valuation effects generated deferred tax revenues, resulting in taxes on income in the amount of EUR +39 million (EUR -26 million).

Purely IFRS-related effects from the valuation of derivatives used for hedging purposes place strain on the earnings position with EUR 184 million (EUR +99 million). Consolidated profit before IFRS effects from hedging, relevant for managing KfW, came in at EUR -392 million, and thus has improved compared to the first quarter of 2020 (-EUR 517 million). Due to the pandemic, profit before IFRS effects from hedging is, however, significantly less than the previous year (EUR +805 million).

Total assets increased to EUR 522.3 billion in the first half of the year (compared with EUR 506.0 billion as of 31 December 2019), due to disbursements under the KfW Special Programme 2020. Equity decreased by EUR 0.4 billion to EUR 30.9 billion, primarily as a result of consolidated losses. This was offset by positive effects of EUR 0.2 billion in total from the valuation of pension obligations recognised directly in equity and of bonds recognised at fair value.

The Group’s regulatory equity ratios continue to fluctuate at a good level. As of 30 June 2020, the total capital ratio amounted to 23.7% (31 March 2020: 24.1%).

Details on the business sectors’ promotional activities

New promotional business in the SME Bank & Private Clients business sector achieved a volume of EUR 48.7 billion (EUR 17.8 billion) as of 30 June 2020.
With commitments of EUR 30.7 billion (EUR 8.4 billion), demand for loans increased considerably, especially in the SME Bank segment, thanks to the Coronavirus Special Programme.

• At EUR 26.5 billion, the promotional business volume in the focus area of start-ups and general corporate finance increased significantly compared to the first half of 2019 (EUR 4.0 billion). The main driver was the KfW Entrepreneur Loan with EUR 20.2 billion, of which EUR 19.3 billion were committed under the Coronavirus Special Programme. EUR 4.1 billion of this amount were committed under the corresponding KfW Instant Loan.
• The priority area of innovation reached EUR 0.4 billion (EUR 0.3 billion). In this area, the ERP Digitalisation and Innovation Loan has developed positively since the introduction of the additional grant in early February.
• In the priority area of energy efficiency & renewables, new commitments of EUR 3.9 billion were slightly down on the previous year (EUR 4.1 billion). This was mainly due to the expiration of the KfW Energy Efficiency Programme for Waste Heat (EUR 1.0 billion). By contrast, the KfW Renewable Energy Programme showed positive development with EUR 1.8 billion (EUR 0.8 billion). The reasons for this included favourable borrower terms and conditions.

At the end of the second quarter, Private Clients achieved a promotional business volume of EUR 18.0 billion, which was significantly higher than the previous year (EUR 9.4 billion) despite the coronavirus crisis.

• Commitments for private clients in the priority area of energy efficiency & renewables reached a new peak of EUR 12.7 billion (EUR 5.4 billion). One reason for the sharp rise in promotional figures was the significant programme improvements made at the beginning of the year in the Energy-efficient Construction and Refurbishment product family, which were related to the German Federal Government’s implementation of the Climate Cabinet resolutions. With supported investments in more than 215,000 energy-efficient housing units in the first half of 2020, KfW, on behalf of the German Federal Government, provided key impetus for the energy transition in the building sector and at the same time supported the mainly medium-sized skilled crafts businesses. Climate change mitigation and supporting the economy go hand in hand in these programmes.
• Commitments in the residential & housing segment were also very encouraging at EUR 4.2 billion (EUR 3.1 billion). The KfW Home Ownership Programme, which continues to be in great demand, made the largest contribution with a financing volume of EUR 2.8 billion (EUR 1.7 billion).
• With new commitments of EUR 1.0 billion, education finance was higher than the previous year (EUR 0.9 billion), particularly due to the attractive product changes in the KfW Student Loan as a coronavirus aid measure (zero interest rate until 30 March 2021 and an expansion of the scope of applicants to include foreign students).

In the Customised Finance & Public Clients business sector, the commitment volume of EUR 14.2 billion in the first half of 2020 was also significantly higher than the previous year’s figure of EUR 3.0 billion. The commitments from the Coronavirus Special Programme also played a key role here.

In the Customised corporate financing segment, the volume of funding was dominated by the strong demand for direct investments for syndicated financing within the scope of the coronavirus aid scheme. With a total commitment volume of EUR 10.1 billion (EUR 0.2 billion), EUR 9.3 billion was committed to medium-sized and larger companies under the Coronavirus Special Programme by the reporting date.

With a commitment volume of almost EUR 2.0 billion, the business volume for Municipal & Social infrastructure also showed an increase over the same period of the previous year (EUR 1.6 billion). While the basic programmes for municipalities and municipal and social enterprises made a stable contribution to the volume of business, the programmes to support the energy transition at municipal level recorded an increase of EUR 0.6 billion over the previous year (EUR 0.5 billion).

At just under EUR 2.1 billion, Individual financing for banks & promotional institutions of the federal states experienced a considerable increase over the same period last year (EUR 1.2 billion). The main reason for this was the increased demand for general funding of the promotional institutions of the federal states and larger individual transactions in the refinancing of Hermes-covered export credits.

In the first half of 2020, commitments to German and European VC funds in the KfW Capital business sector amounted to EUR 139 million (EUR 77 million) despite the coronavirus pandemic. The ERP VC Fund Investments programme accounted for EUR 137 million of this amount, which represents a year-on-year increase of about 80% (EUR 77 million): nine VC funds received commitments from KfW Capital with the support of the ERP Special Fund for capital calls to finance innovative technology companies in Germany. To provide start-ups in Germany with liquidity during the pandemic, KfW Capital and KfW, together with the German Federal Government, designed the Corona Matching Facility (CMF). Since 14 May 2020, it has been possible for VC funds to be accredited by KfW Capital and since 18 May 2020 also by the EIF. The programme relies on the proven process of KfW Capital: VC funds can supplement their funds for start-ups in need of capital during the coronavirus crisis with public funding from KfW Capital or the EIF on the same terms.

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 – continued its good start to the year with a somewhat flattening growth curve: with a total volume of new commitments of EUR 11.3 billion, it was still above the prior-year figure (EUR 10.0 billion). Due to the impacts from the coronavirus crisis on global trade and large parts of the entire global economy, KfW IPEX-Bank is assuming that new business will be lower than the previous year’s level as the year progresses.

The commitment volume for the Promotion of developing countries and emerging economies business sector amounted to EUR 2.0 billion (EUR 2.1 billion). In the first half of 2020, KfW Development Bank committed EUR 1.4 billion (EUR 1.7 billion) for projects in developing countries and emerging economies. KfW Development Bank will participate in the Federal Ministry for Economic Cooperation and Development’s Emergency COVID-19 Support Programme with up to EUR 5 billion in 2020 alone and thus provide significant support for developing countries in the second half of 2020. This will probably lead to an increase in promotion commitments.

DEG’s new business developed well in the second quarter of 2020, in view of the persistently challenging environment: as of 30 June 2020 DEG had committed EUR 599 million for investments by private enterprises in developing and emerging-market countries, considerably more than in the same period of last year (EUR 374 million). A total of EUR 183 million was earmarked for financial institutions, which use the funds to provide loans to local small- and medium-sized enterprises. From a regional standpoint, Africa and Asia accounted for the bulk of new commitments. In light of the coronavirus pandemic and its effects, DEG is using a variety of programmes to provide private companies in developing countries with targeted support to help cope with the current challenges.

For the green bond portfolio, the Financial markets business sector invested roughly EUR 221 million in ten securities to promote climate change mitigation and environmental protection projects in the first six months of 2020.

To fund its promotional business, KfW has raised long-term funds in fourteen different currencies on the international capital markets as of 30 June 2020 amounting to the equivalent of EUR 35.9 billion. KfW is planning a funding volume of EUR 65 billion for the whole of 2020.
To refinance the German Federal Government’s special programme, KfW has a new source of funding at its disposal via the federal Economic Stabilisation Fund (ESF), which can be drawn on up to a maximum of EUR 100 billion. In the third quarter of 2020, funding of up to EUR 30 billion will be provided via the ESF for the first time. In the second half of the year, KfW plans to resume a regular presence on the capital market by issuing liquid bonds. In light of its outstanding funding requirements of around EUR 30 billion for the second half of the year, the promotional bank will also step up its issuing activities in the USD market again. For the year 2020 as a whole, KfW still has a target volume for green bond emissions of up to EUR 8 billion.

¹⁾ The negative result for the first half of 2020 is included in the capital ratios for 2020.

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