OREANDA-NEWS. In the first nine months of 2013, promotional activities of the KfW Group reached a total volume of EUR 51.1 billion. After a total volume of EUR 48.2 billion was achieved during the same period of 2012, this result confirms that demand for KfW promotion remains high. Performance in the domestic promotional business was consistently positive, reaching a commitment volume of EUR 38.1 billion (previous year: EUR 35.3 billion). Domestic promotion focused on supporting the transition to new forms of energy through financing offers in the areas of energy, climate and the environment. As at the third quarter of 2013, financing commitments for environmental and climate protection programmes alone amounted to EUR 16.8 billion (EUR 16 billion), or 44% of all domestic commitments.

“The continued high demand for KfW promotion, even in today's financial and economic environment, shows that KfW is extremely well positioned with its promotional products,” said Dr Ulrich Schroder, Chief Executive Officer of the KfW Group. “Demand for programmes in the areas of renewable energy, innovations and energy efficiency has risen even further, for instance. These programmes enable companies, municipalities, institutions and private individuals to assist the German government in its efforts to reach its energy targets.”

With a consolidated profit of EUR 880 million (EUR 1,739 million in the same period of 2012), earnings for the period ending 30 September 2013 developed as expected and continued to exceed KfW's sustained income potential. For the year 2013, consolidated profit already reflects up to EUR 311 million in government funding which was taken for KfW promotional activities financed from the Energy and Climate Fund. Purely IFRS-related effects stemming from the valuation of derivatives used for hedging purposes accounted for EUR 58 million of earnings. Against this backdrop, consolidated profit before IFRS effects from hedging*, which is relevant for the economic management of KfW's business, remained high at EUR 938 million (EUR 1,512 million).

“The income trend normalised further during the first three quarters of 2013, but is still higher than the Group's potential over the long term,” said Dr Schroder. “Moreover, KfW's additional promotional efforts from the substitution of federal funds are already included in the total drawdown forecast. Regardless of the expected continued decline in interest income and uncertainties surrounding the performance of risk provisions, in particular, we are looking forward to a highly satisfactory annual result,” Dr Schroder continued.

The operating result before valuation (and before promotional activities) amounted to EUR 1,792 million (EUR 2,118 million). KfW's extremely good refinancing options as well as a less favourable yet still positive interest rate environment continued to have a positive impact on interest income as KfW's main source of income. Net interest income (before promotional activities) came to EUR 2,268 million (EUR 2,576 million). At EUR 422 million (EUR 401 million), promotional activities - essentially in the form of interest rate reductions - were higher than in the same period of the previous year.

The charges resulting from risk provisions in the lending business fell short of expectations at EUR 195 million (EUR 210 million). They resulted from the maritime industry business within export and project finance as well as domestic SME financing.

The result from the private equity and securities portfolio totalling EUR 46 million (EUR 118 million) was attributable to an increase in the value of structured securities, in particular.

Total assets decreased substantially by EUR 35.3 billion to EUR 476.4 billion. This development was largely the result of changes in market value connected to hedging transactions. Net loans and advances declined just slightly to EUR 361.2 billion (31 December 2012: EUR 364.8 billion) despite extremely high levels of non-scheduled repayments.

The regulatory capital ratios remained at a consistently high level (Tier 1 ratio: 20.6% or total capital ratio: 23.2%). The Tier 1 capital ratio under Basel III is currently 16.9%.

Detailed results of the Group's promotional activities

At the reporting date on 30 September 2013, commitments tied to new business in the KfW Mittelstandsbank business area reached a total volume of EUR 17.3 billion, the same level as in the same period of the previous year. The individual areas of promotion performed differently. In the area of Business Start-Ups and General Corporate Finance, commitments increased from EUR 8.2 billion as at the 2012 reporting date to EUR 8.6 billion, despite the recently weaker demand. This can be attributed to the KfW Entrepreneur Loan with commitments of EUR 6.1 billion (prior-year period: EUR 5.8 billion) and programmes for the promotion of business start-ups with commitments of just under EUR 2.1 billion (prior-year period: EUR 1.8 billion).

Compared to the same period of the previous year, the volume of commitments in the area of Innovations increased by EUR 0.1 billion to over EUR 0.8 billion as a result of the positive development under the ERP Innovation Program.

Volumes dropped, however, in the area of Environmental Financing. At EUR 7.9 billion, the Group failed to reach the level recorded in the same period of the previous year (EUR 8.4 billion). A key reason behind this was the considerable decline in the financing of photovoltaic plants (EUR 0.8 billion compared to EUR 3.2 billion during the same period of the previous year). This decline was specifically attributable to the ongoing cuts made to photovoltaic feed-in compensation since April 2012 in accordance with the German Renewable Energy Act (EEG). With commitments of EUR 3.6 billion during the first three quarters, demand for loans for Energy Efficiency Measures considerably exceeded the level seen during the same period of the previous year (EUR 2.1 billion).

The business area Kommunalbank and Privatkundenbank/Credit Institutions registered a considerable volume increase compared with the same period of the previous year, with commitments totalling EUR 20.9 billion (EUR 19.3 billion). Nearly all areas of promotional focus contributed to increased volumes. Infrastructure Finance for municipalities and municipal/social enterprises displayed considerable momentum in terms of commitments. At EUR 3.4 billion, the volume of commitments was up significantly on the same period of the previous year (EUR 2.3 billion). With new business volumes of EUR 11.9 billion, the promotional focus on Housing made an equally significant contribution to the increased promotional volume (previous year: EUR 10.7 billion). Commitments of EUR 8.0 billion in the climate and environment relevant programmes Energy-efficient Construction and Refurbishment, in particular, considerably exceeded the previous year (EUR 6.9 billion). In this context, commitments for investment and construction monitoring grants within the scope of the Energy-efficient Refurbishment programme rose to nearly 47,000 (previous year: 27,000). Another positive development was seen in the area of Education Finance where commitments totalled EUR 1.8 billion (previous year: EUR 1.6 billion). This was due to a sharp increase in the number of loan commitments through KfW Student Loan (up 36%) compared to the first three quarters of the previous year.

Cautious drawdowns of General Refinancing of Promotional Institutions of the Federal States caused the commitment volume to decline to EUR 1.8 billion compared to the pro rata volume of the previous year (EUR 3.5 billion). Commitments in the area of Individual Financing Banks came to EUR 1.9 billion (previous year: EUR 1.2 billion). Here, the areas of focus were the promotion of SMEs through global loans (some EUR 1.4 billion) and the programme to refinance export loans covered by federal guarantees (approx. EUR 415 million). The higher volume of commitments year-on-year is attributable to a special transaction carried out on behalf of the Federal Government, which was a global loan of EUR 800 million made to ICO, the Spanish promotional bank.

In the business area of Export and Project Finance, handled by KfW IPEX-Bank, new business commitments totalled EUR 10.0 billion (EUR 8.5 billion). These commitments mainly included export and investment financing in markets relevant to the German and European economies. Financing of projects with relevance to environmental and climate protection continued to play an important role. The largest volume of new commitments was generated by the business sectors Maritime Industries, EUR 2.5 billion, and Power, Renewables and Water, EUR 2 billion.

The commitment volume in the Promotion of Developing and Transition Countries business area totalled EUR 2.6 billion (EUR 2.5 billion). KfW Development Bank made commitments totalling EUR 1.7 billion (EUR 1.6 billion) by the end of the third quarter of 2013. These mainly went to Asia (EUR 668 million) followed by sub-Saharan Africa (EUR 418 million). Some 60% of the commitments benefit climate and environmental protection, with 53% of those funds committed by KfW. New business developed well at DEG during the third quarter of 2013: As at 30 September 2013, it had committed a total of EUR 884 million for the financing of private investments in developing and emerging economies (EUR 949 million). At the regional level, business development in Asia was particularly positive: At EUR 366 million, commitments were up nearly 25% on the previous year (EUR 295 million). Main sectors of focus included the financial sector and the manufacturing industry.

As at 31 October 2013, KfW raised long-term funds for the equivalent of EUR 62.3 billion in the international capital markets in 13 different currencies. It anticipates a funding volume of EUR 65-70 billion for the year as a whole.

In the first nine months of the year, EUR 458 million was made available to banks and leasing companies via securitisation instruments to finance SMEs.