KfW: Earning power in 2013 has normalised at a high level
Frankfurt (ots)
- Total commitment volume of EUR 72.5 billion - Consolidated profit of EUR 1.3 billion - NPV accounting of interest rate reductions implemented - Significant reduction in total assets to EUR 464.8 billion - Tier 1 capital ratio pursuant to Basel III: 17.1%
In 2013, the KfW Group recorded high demand for its financial products (as in previous years) and approved funding at a total volume of EUR 72.5 billion (2012: EUR 73.4 billion). The focus here remained on funding small to medium-sized enterprises, as well as on climate and environmental protection, and particularly supporting the German Federal Government in implementing the energy turnaround. At EUR 20.5 billion, international business volume was up by 4% (on EUR 19.7 billion). The Export and project finance business sector, the KfW Development Bank business area and the subsidiary DEG all contributed to this growth.
In line with expectations, KfW's earning power in the 2013 financial year came in lower than the previous year, which was characterised by positive non-recurring items in interest and valuation income. Irrespective of assuming public subsidies of EUR 264 million for the KfW promotional activities financed from the Energy and Climate Fund, the consolidated profit of EUR 1,273 million (EUR 2,413 million) is at the upper end of sustainable earnings potential. KfW's own promotional activities - mainly in the form of interest rate reductions - were increased to EUR 597 million (EUR 560 million). The interest rate reductions were reported at their net present value for the first time ever. This was applied retrospectively for all existing business and resulted in a one-off charge of EUR 2.3 billion on equity. Application of this procedure delivered two key advantages. On the one hand, the charge to KfW is being recognised over the entire loan term already with the loan commitments in the income statement; on the other, it facilitates more targeted management of new business.
At EUR 1,299 million (EUR 2,259 million), consolidated profit before IFRS effects from hedging*, which is relevant to KfW's management and eliminates the effects induced solely by IFRS, is up EUR 27 million on the annual result.
"The earning power normalised at a high level in 2013 and was at the upper end of sustainable earnings potential, irrespective of the provision of KfW funds to assume public subsidies for the KfW promotional activities financed from the Energy and Climate Fund. With this positive result, KfW is once again improving the capital base to secure its long-term promotional capacities - even under the stricter regulatory requirements of Basel III," commented Dr Ulrich Schröder, Chief Executive Officer of the KfW Group, at Monday's press conference on annual results in Frankfurt am Main. "Opting to convert the representation of KfW's interest rate reductions on the balance sheet to an NPV method is another key step in the modernisation process and helps to synchronise the management and accounting of KfW's promotional activities.
The operating result before valuation (before promotional activities) of EUR 2,302 million (EUR 2,836 million) also normalised as expected. Interest income, which is the most important source of earnings, came in at a consolidated value of EUR 2,997 million; owing to an extraordinary development in the yield curve, the figure for the 2012 financial year was a record EUR 3,522 million. With stable interest margins in the lending business, the decline was largely due to these lower yield curve contributions. KfW continued to benefit from its first-class credit rating.
In total, the risk provisions in the credit business resulted in negative effects on earnings to the tune of EUR 311 million, which is lower than expected in spite of what is still a conservative valuation policy. In 2013, risk provisions continued to focus on the Maritime Industry segment of Export and project finance. However, this development has eased noticeably here compared with 2012. During the previous year, risk provisions amounted to just EUR 155 million, due to high positive one-off effects in other segments and the dissolution of portfolio value adjustments.
Further easing in the Eurozone and the central banks' monetary policy characterised the situation on the financial markets. On the back of the improved underlying conditions, the securities portfolio performed well again, contributing EUR 57 million (EUR 77 million) to earnings.
The EUR 46 million (EUR 135 million) earnings from the equity investment portfolio were primarily the result of the Promotion of developing and transition countries business sector.
In the 2013 financial year, consolidated total assets reduced significantly by EUR 44.7 billion to EUR 464.8 billion. The decline is largely due to changes in the market value caused by the interest and exchange rates in connection with derivatives used for hedging and reporting of the same in hedge accounting. Irrespective of the strong volume of new business, net loan receivables fell by EUR 4.3 billion to EUR 358.3 billion due to high non-scheduled repayments in the domestic promotional lending business.
Taking the consolidated results into consideration, the total capital ratio was 22.3% (20.6%) and the tier 1 capital ratio 20.6% (18.2%). Under Basel III, the tier 1 capital ratio is currently 17.1% (15.1%).
**The press release in full including an overview of the key financial figures are available on our homepage at www.kfw.de.
* Declaration of consolidated profit before IFRS effects from hedging: Derivatives must be reported at NPV pursuant to IFRS, even if they are not used for trading purposes, but serve to hedge interest and currency risks as is the case at KfW. Under IFRS, the offsetting valuation effects of secured underlying transactions in the balance sheet can only be considered to a limited extend and therefore have temporary, economically unfounded effects on KfW's earning power. These offset one other in total over the entire term of the hedged positions.
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