Q1 2016: demand for KfW promotion more subdued

Frankfurt am Main (ots) -

- Slight drop in total funding commitments to EUR 15.6 billion
- Increase in domestic promotional business volume to EUR 12.2
billion
- Strong demand for promotional housing programmes
- KfW IPEX-Bank back to normality at EUR 2.5 billion, after
exceptional year in 2015
- Consolidated profit of EUR 246 million

KfW Group made funding commitments totalling EUR 15.6 billion in
the first three months of 2016 with its promotional activity (same
period in previous year: EUR 17.4 billion, -10%). The domestic
promotional business reached a commitment volume of EUR 12.2 billion
in the first quarter (EUR 9.8 billion, +25%) and performed much
better compared to the weak first quarter in the previous year. This
increase was driven in particular by strong demand for real estate
financing, but also corporate investments in energy efficiency
projects. The commitment volume in KfW's international financing at
EUR 3.3 billion (EUR 7.6 billion, -56%) fell short of the previous
year, as expected after the exceptional year of 2015 when
non-recurring effects resulted in very high commitments of KfW
IPEX-Bank already in the first quarter. In Q1 2016, commitments of
KfW IPEX-Bank were back to normality at EUR 2.53 billion (EUR 6.75
billion, -63%). DEG closed the first quarter with EUR 0.15 billion
(EUR 0.32 billion, -55 %), while the KfW Development Bank business
area contributed positively to the Q1 figure with EUR 0.67 billion
(EUR 0.54 billion, +25%).

"As expected, demand for KfW promotion was somewhat more subdued
in the first quarter of 2016. The persistently strong demand for
energy efficiency measures in housing construction and for commercial
environmental financing is a positive trend though. This is a good
sign for the German economy and a key factor in the energy
transition," said Dr Ulrich Schröder, Chief Executive Officer of KfW.

The earnings position contracted in the first quarter of 2016, as
anticipa-ted as well, with a consolidated profit of EUR 246 million
(EUR 417 million). The purely IFRS-related effects from the valuation
of derivatives used as collateral understate the earnings position
only marginally by EUR 17 million. The consolidated profit before
IFRS effects from hedging, which is relevant from a KfW management
perspective, thus came in at EUR 262 million, well below the previous
year's figure (EUR 694 million).

"KfW's earnings development in the first quarter of 2016 returned
to normal again, following the non-recurring effects that shaped the
previous year. In annual terms, too, we expect to see a contraction
in earnings compared to 2015 as a whole," revealed Dr Schröder.

The operating result before valuation (and before promotional
activity) was EUR 419 million (EUR 515 million). Net interest income
(before promotional activity) amounting to EUR 631 million (EUR 713
million) continues to be the main source of income.

Promotional activity - mainly interest rate reductions for new
business - totalled EUR 56 million, slightly higher than the previous
year (EUR 48 million) despite the still low rate reduction margin in
the current interest rate environment.

Risk provisions in the lending business pulled earnings down by
EUR 78 million (EUR 4 million). The private equity and securities
portfolio of the group had a negative effect on earnings overall
amounting to EUR 43 million (EUR +138 million). This development is
primarily attributable to DEG's private equity result that was
affected by exchange rates.

Total assets came in lower than at 31 December 2015 (EUR 503.0
billion) registering a figure of EUR 498.9 billion. This development
is primarily due to currency-related fair value changes in connection
with hedging transactions.

The group's regulatory capital ratios have increased compared to
31 December 2015. As of 31 March 2016 the total capital ratio under
the IRBA sits at 21.2% (31 December 2015: 18.4%) while the Tier 1
ratio is 21.0% (31 December 2015: 18.3%). KfW has been subject to the
regulatory reporting requirements for capital ratios since the start
of the year. Until regulatory approval is received for the IRBA, KfW
reports to the banking supervisory authority in accordance with the
credit risk standardised approach (CRSA), based on which the total
capital ratio as of 31 March 2016 is 15.4% (31 December 2015: 13.5%)
and the Tier 1 ratio is 15.3% (31 December 2015: 13.5%). The increase
can be attributed to improvements in risk measurement methodology as
well as to exchange rate and business developments in the first
quarter.

Details on the business sectors' promotional results

The promotional business volume in the Mittelstandsbank business
sector totalled EUR 4.2 billion as of 31 March 2016 (EUR 3.7
billion). In spite of the somewhat weaker business climate in the
corporate sector, the promotional business volume developed soundly
compared to the same quarter in the previous year. Commercial
environmental financing was a particular factor in this, while loan
demand for general corporate finance was rather hesitant.

The priority area of business start-ups and general corporate
finance fell just short of the previous year's level with commitments
of EUR 1.9 billion (EUR 2.1 billion). Start-up financing reached EUR
0.9 billion and general corporate finance recorded EUR 1.0 billion
(EUR 0.7 billion and EUR 1.4 billion).

Commitments in the field of innovation came in at EUR 0.2 billion
(EUR 0.1 billion). What is more, the new participation strategy
launched last year was fully implemented. In March 2016, KfW and the
Federal Ministry for Economic Affairs and Energy started the external
co-investment fund coparion. As the second pillar of the new
participation strategy alongside ERP venture capital fund
investments, in the coming years and together with private lead
investors the fund is to participate directly in innovative start-ups
and young technology firms. With a volume of EUR 225 million,
coparion is the largest VC fund in Germany.

With commitments of EUR 2.1 billion (EUR 1.5 billion), the
environment priority sector achieved strong growth. Commitments for
renewable energies amounted to EUR 0.9 billion (EUR 0.7 billion). It
is particularly pleasing how loan demand developed in the energy
efficiency programme, restructured in 2015, supporting investments by
companies in sophisticated energy efficiency projects. The level from
the previous year was easily surpassed with a figure of EUR 1.1
billion (EUR 0.6 billion).

The Kommunalbank and Privatkundenbank/Kreditinstitute business
sector made a very successful start to 2016 with new business of EUR
8.0 billion (EUR 6.1 billion). Practically every single priority area
contributed to this growth compared to the previous year.

The priority area of housing reached a new high with a commitment
volume of EUR 4.5 billion (EUR 3.4 billion). The still robust
construction activity resulted in an increase in all promotional
housing programmes. Changed conditions in the energy-efficient
construction programme had some anticipatoryeffects, too.

In infrastructure financing the promotional business volume of EUR
1.4 billion (EUR 0.8 billion) brought about a powerful increase
compared to the previous year. This is particularly attributable to
the "Refugee Accommodation" special facility, through which KfW
provided interest-free loans to municipalities. Likewise there was
strong demand for basic municipal promotion as well as energy
efficiency funding for public buildings.

The previous year's level was maintained in the priority area of
education and social development, with a commitment volume of EUR 0.6
billion (EUR 0.6 billion). Solid development was noted in the general
funding for promotional institutions of the federal states and the
individual financing of banks, amounting to EUR 0.9 billion (EUR 0.7
billion) and EUR 0.6 billion (EUR 0.5 billion) respectively.

In the Export and project finance business sector, for which KfW
IPEX-Bank is responsible, new commitments added up to EUR 2.5
billion. This means the commitment volume is back to the normal
levels of previous years (2015: EUR 6.8 billion, 2014: EUR 3.3
billion, 2013: EUR 2.7 billion) after the exceptional year of 2015,
when non-recurring effects resulted in high commitments in the first
quarter. Financial institutions and trade finance constituted another
priority area amounting to EUR 0.8 billion. The encouraging start to
the year was equally helped by Power, Renewables and Water as well as
Aviation and Rail (both EUR 0.4 billion), a period otherwise shaped
by difficult market conditions in many sectors.

Commitments in the Promotion of developing and transition
countries business sector totalled EUR 820 million (EUR 863 billion).
The KfW Development Bank business area raised its commitment volume
by more than 25% at the end of the first quarter of 2016 compared to
the same period of the previous year. The total commitment volume for
programmes in developing and emerging countries stood at EUR 674
million (EUR 539 million). Just under half of this amount headed to
Asia, and more than a third to Africa. On the whole, 54% of the
projects are directed at climate and environmental protection. DEG
will be in demand again in 2016 as a development financier, but it
will also be confronted with challenging market conditions. After a
subdued start with new commitments totalling EUR 146 million in the
first quarter (EUR 324 million), financing for Asia amounted to EUR
86 million (EUR 62 million). At EUR 39 million more than a quarter of
the new commitments were for investments by German companies (EUR 72
million). In terms of sectors, especially the commitments for the
agri-food economy developed positively at EUR 47 million.

Investments totalling EUR 108 million were made in the capital
markets business sector in the first quarter of 2016. For the green
bond portfolio KfW invested roughly EUR 33 million in a security to
promote climate and environmental protection projects. In the field
of capital market-based SME promotion, investments in securitisation
transactions during this period totalled EUR 75 million.

To fund its promotional business, KfW raised long-term funds in
ten different currencies on the international capital markets
amounting to the equivalent of EUR 22.2 billion as of 31 March 2016.
Roughly 40% of the borrowings were in euros, and the remaining 60%
was in foreign currencies. For the year as a whole, KfW is expecting
a funding volume of EUR 70-75 billion. A review of this estimate will
take place at the end of the second quarter as scheduled, based on
current business developments.

**The complete Press Release with an overview of the promotional
figures in table form is abailable for download at:
www.kfw.de/geschaeftszahlen

Pressekontakt:
KfW, Palmengartenstr. 5 - 9, 60325 Frankfurt
Kommunikation (KOM), Sybille Bauernfeind,
Tel. +49 (0)69 7431 2038, Fax: +49 (0)69 7431 3266,
E-Mail: presse@kfw.de, Internet: www.kfw.de