First half 2016: Demand for KfW promotion paints a mixed picture

Frankfurt am Main (ots) -

- Total commitments down to EUR 36.2 billion
- Increase of domestic promotional business to EUR 26.7 billion
- Strong demand for energy efficiency measures in residential
construction and corporate business
- Commitments of KfW Development Bank twice as high at EUR 3.1
billion
- KfW IPEX-Bank back to previous years' level at EUR 5.4 billion,
after exceptional year in 2015
- Consolidated profit of EUR 779 million exceeds expectations

In the first half of 2016, KfW Group distributed promotional
funding totalling EUR 36.2 billion (compared to EUR 41.5 billion
during the same period in the previous year, resulting in a
year-on-year decline of 13%). The domestic promotional business was
very successful during this period at EUR 26.7 billion, and exceeded
the figure for the previous year (EUR 25.7 billion) by about EUR 1
billion (+4%). Strong demand in particular for the financing of
energy-efficient residential construction and energy efficiency
projects at companies contributed to this increase. Demand for
general corporate finance, however, remained down year-on-year on
account of reluctance among Germany companies to invest. At EUR 9.0
billion, new commitments for KfW's international business were much
lower than in the previous year (EUR 15.4 billion, -42%). This trend
can be attributed mainly to the anticipated normalisation of the
volume of commitments at KfW IPEX-Bank, which at EUR 5.4 billion came
in far below the previous year's figure marked by non-recurring
effects (EUR 13.1 billion, -59%), but is generally in line with the
average over the past five years (EUR 5.8 billion). The commitments
of the KfW Development Bank business area underwent a particularly
positive trend, almost doubling from EUR 1.6 billion to EUR 3.1
billion. DEG committed financing in the amount of EUR 0.43 billion
(EUR 0.67 billion).

"As anticipated, the demand for KfW promotion reflects the
moderate growth of the German economy. At the same time, KfW's
promotional figures show the strong interest in long-term financing
at a time of low interest rates, particularly in the field of
residential construction," said Dr Ulrich Schröder, Chief Executive
Officer of KfW.

Although the earnings position weakened as expected in the first
half of 2016, with consolidated profit of EUR 779 million (EUR 1,152
million), it still exceeded our expectations. This trend is due in
particular to positive non-recurring effects in the valuation result.

"KfW's results improved in the second quarter of 2016. KfW is once
again benefiting from various non-recurring effects this year. We
expect our results for the year as a whole to fall compared to 2015
but still be over average," said Dr Schröder.

The operating result before valuation (before promotional
activity) was EUR 949 million (EUR 1,009 million). Net interest
income (before promotional activity) amounting to EUR 1,363 million
(EUR 1,415 million) continues to be the main source of income based
on KfW's persistently good funding conditions.

Promotional activity - mainly interest rate reductions for new
business in 2016 - totalled EUR 104 million, well below the previous
year's figure (EUR 181 million) on account of what is still a low
rate reduction margin in the current interest environment.

Risk provisions in the lending business exerted only a moderate
drag on the earnings position, totalling EUR 13 million. The need for
valuation adjustments, particularly in the Export and project finance
and Promotion of developing countries and emerging economies business
sectors, was largely offset by positive non-recurring effects in the
form of amounts received for receivables that had already been
written off.

The still pleasing result from the private equity and securities
portfolio amounting to EUR 46 million (EUR 135 million) is primarily
attributable to DEG's private equity result.

The purely IFRS-related effects from the valuation of derivatives
used as collateral also reduced the earnings position by EUR 190
million (+EUR 68 million).

Total assets of EUR 512.2 billion are up in comparison to 31
December 2015 (EUR 503.0 billion), mainly due greater reserves of
cash and cash equivalents.

The group's regulatory equity ratios held steady or fell slightly
in recent months following a marked increase in the first quarter.
The total capital ratio amounts to 21.5% when applying the IRBA
analagously (31 March 2016: 21.2%). 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 authorities in accordance with the
credit risk standardised approach (CRSA), based on which the total
capital ratio is 14.7% as of 30 June 2016 (31 March 2016: 15.4%). The
changes in the second quarter can mainly be attributed to the
development of exchange rates and business.

Details on the business sectors' promotional activities

The new business of Mittelstandsbank (SME Bank) at EUR 9.5 billion
was down compared to the previous year (EUR 11.0 billion). This is a
result of the current market conditions (modest expectations for the
European economies, consolidation of low interest rates, very strong
liquidity reserves at banks) also having an impact on demand for KfW
promotion. The decline mainly relates to the general corporate
finance sector (EUR 2.9 billion, previous year: EUR 3.9 billion).
Start-up finance, in contrast, performed very well with new
commitments of EUR 1.7 billion, equalling the already very strong
result for the previous year.

Promotion in the field of innovation held steady in comparison to
the previous year (EUR 0.3 billion). "coparion", the new
co-investment fund established by KfW and the German Federal Ministry
for Economic Affairs and Energy (BMWi), commenced operations in
March. coparion invests venture capital in young tech companies in
partnership with private lead investors.

Funds with a total volume of EUR 4.6 billion (EUR 5.0 billion)
were committed in the promotional area of environmental protection,
and individual, large-volume financings are expected in the second
half of the year. The KfW Energy Efficiency Programme, which was
restructured in 2015, performed particularly well. With commitments
of EUR 2.2 billion (EUR 1.6 billion), the previous year's level was
easily surpassed. The new "waste heat" programme was also added to
the product family on 1 May 2016. It finances measures of companies
to avoid and utilise waste heat via low-interest loans as well as
redemption grants from the German Federal Ministry for Economic
Affairs and Energy (BMWi). In this way, the SME Bank is making
another important contribution to saving energy and reducing CO2
emissions in the commercial sector.

The volume of new business for the Kommunalbank and
Privatkundenbank/Kreditinstitute business sector amounted to EUR 17.2
billion in the first half of 2016 (up from EUR 14.7 billion). This
growth was mainly driven by the priority areas of housing and
infrastructure finance.

Commitments in the housing sector hit a new high at EUR 10.4
billion (EUR 8.0 billion), which reflects the persistent strength of
the construction sector. One very encouraging development is that the
growth was mainly achieved in the energy-efficient construction and
rehabilitation promotional programmes, which means that more
investment went into the construction of energy-efficient buildings
and the energy-efficient refurbishment of existing properties.

Infrastructure financing also made a clear contribution to this
positive trend, with a promotional business volume of EUR 2.4 billion
(EUR 2.0 billion). In addition to the "refugee accommodation" special
facility, through which KfW provide a further EUR 500 million of
interest-free loans to municipalities in 2016, demand rose for basic
municipal promotion and the promotion of energy efficiency in public
buildings.

There was also an increase in individual financing of banks, with
commitments exceeding EUR 1.0 billion (EUR 0.7 billion). On the other
hand, the commitment volume in the promotional fields of general
funding for promotional institutions of the federal states and
education fell slightly to EUR 2.4 billion (EUR 2.7 billion)and to
EUR 1.1 billion (EUR 1.2 billion) respectively.

In the Export and project finance business sector, for which KfW
IPEX-Bank is responsible, new commitments added up to EUR 5.4
billion. As had already become apparent in the first quarter, the
volume of commitments thus returned to the normal level of previous
years (average for the past five years: EUR 5.6 billion) following
the exceptional year of 2015 in which the accumulation of
non-recurring effects in the first half of the year led to an
extraordinarily high volume of commitments of EUR 13.1 billion. In
difficult market conditions, Power, Renewables and Water constituted
a priority area with EUR 1.4 billion. The Financial Institutions and
Trade Finance sector departments also contributed EUR 1.1 billion,
while Maritime Industries contributed EUR 0.8 billion to the volume
of commitments.

Commitments in the Promotion of developing countries and emerging
economies business sector totalled EUR 3.6 million (EUR 2.3 million).
KfW Development Bank almost doubled the volume of commitments for
projects and programmes around the world, from EUR 1.6 billion in the
first half of 2015 to EUR 3.1 billion in the first half of 2016.
Around EUR 350 million was paid out in the first half of 2016 for
projects relating to crises and refugees.

As of 30 June 2016, DEG had committed a total of EUR 434 million
for investments by private companies in developing countries and
emerging economies (EUR 669 million). The volume of new commitments
picked up in the second quarter following a modest start. Commitments
amounting to EUR 159 million were entered into in the field of equity
finance (EUR 154 million). DEG was able to agree commitments
amounting to EUR 104 million (EUR 105 million) for investments of
German companies.

The promotional business volume in the Financial markets business
sector amounted to EUR 536 million in the first half of 2016. KfW
invested around EUR 176 million in a total of seven securities to
promote projects aimed at protecting the climate and environment for
its green bond portfolio. Investments in securitisation transactions
in the field of the capital market-oriented promotion of SMEs
amounted to EUR 359 million during this period.

To fund its promotional business, KfW raised long-term funds on
the international capital markets amounting to the equivalent of EUR
42.4 billion as of 30 June 2016. Around 39% of the funds were raised
in euros, while around 47% was raised in US dollars and 14% in eleven
other foreign currencies. KfW continues to anticipate a funding
volume of EUR 70 billion to EUR 75 billion for the year as a whole.

Service:

An overview of the promotional figures in table form is available
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: Sybille.Bauernfeind@kfw.de, Internet: www.kfw.de