OREANDA-NEWS. The KfW Group reached a total commitment volume of EUR 13.9 billion (prior-year period: EUR 15.6 billion) with its funding activities in the first quarter of 2014. New commitments to international business rose from EUR 3.3 billion to EUR 3.8 billion (+16%), with the main contribution coming from the Export and project finance business sector (+23%) and the KfW Development Bank business area (+11%). By contrast, the commitment volume in domestic promotion declined to EUR 10 billion in comparison to the previous year (EUR 12.2 billion) on account of the muted demand for infrastructure and corporate financing. The focus of the promotional business nevertheless remains on SME and environment financing.

"The first quarter of 2014 has closed out at a high level despite a slight decline in the volume of new commitments. This shows that demand for KfW's promotional offerings is responding to the overall economic conditions and is changing with a view to KfW's subsidiary role.. The fact that Export and project finance, in particular, has grown despite the present challenging economic policy setting is encouraging," says Dr Ulrich Schroder, CEO of the KfW Group.

The earnings position recorded a positive development in the first quarter of 2014 with a consolidated profit of EUR 391 million (EUR 463 million). The quarterly performance is above the pro-rated full-year figure mainly thanks to a typically moderate trend of risk provisions for lending business in the first quarter. The purely IFRS-related effects from the valuation of derivatives used for hedging purposes have slightly understated the earnings position. Although at EUR 402 million, consolidated profit before IFRS effects from hedging*, which is relevant for the management of KfW, is below the previous year's figure (EUR 528 million), it is still in line with expectations.

"The profit trend of KfW in the first quarter of 2014 was gratifying and is generally in line with our expectations. For the rest of the year we project among other things an increase in the need for risk provisions for lending business and anticipate initial start-up costs from the measures required to make KfW compliant with the application of the German Banking Act (KWG), which will lead to a rise in administrative costs. This means that the full-year result cannot be extrapolated from the quarterly result," says Dr Schroder.

The operating result before valuation (before promotional activities) comes to EUR 507 million (EUR 641 million). Net interest income (before promotional activities) amounting to EUR 682 million remains the main source of earnings for KfW on the basis of the continuing good refinancing opportunities available to KfW although it falls short of the high prior-year level (EUR 802 million) on account of the deteriorating rate setting. The promotional activities - essentially interest rate reductions from new business in 2014, whose charges have since 2013 been recorded at their net present value in the earnings position - as expected is below the prior-year level at EUR 99 million (EUR 165 million).

Risk provisions for lending business weighed down the earnings position to no more than a minor extent at EUR 37 million (EUR 38 million) and resulted mostly from export and project finance as well as the from the promotion of developing and transition countries.

Investment and securities income of EUR 42 million (EUR 78 million) remains gratifying and is mainly due to the positive performance on the capital markets - particularly in southern Europe - and DEG's investment business.

At EUR 464.0 billion, total assets remain at the level recorded on 31 December 2013 (EUR 464.8 billion).

As a result of the application of the Basel III rules the regulatory capital ratios have decreased to the extent expected but they remain relatively high. The Tier 1 capital ratio now stands at 17.6% and the total ratio at 18.7%.

Results of promotional activities by business sector

The commitment volume for new business in the Mittelstandsbank business sector totalled EUR 5.1 billion as at 31 March 2013. The performance compared to the previous year (EUR 5.9 billion) reflects the further contraction in demand for loans from companies and the self-employed in Germany. The slight increase in corporate investments observed since the start of this last year has so far failed to prompt a trend reversal. Companies' equity situation is currently good, as a result of which investments are largely financed internally.

The Mittelstandsbank focal area Start-ups and general corporate finance records the most important commitment volume, reaching EUR 2.7 billion (EUR 3.1 billion). A decline in lending demand was recorded primarily in general company financing. By contrast, commitments for start-up financing remained unchanged over the prior-year period.

Promotional financing for innovation came to EUR 0.3 billion and was thus at the level of Q1 2013, while the ERP Innovation Programme recorded an increase.

Funding commitments for environment and climate financing came to EUR 2.1 billion (EUR 2.6 billion). Compared with the exceptionally strong prior-year quarter, among others, commitments in the Energy Efficiency Programme settled down to a normal level. The commitment volume for the Renewable Energies programme at KfW reached the previous year's level, despite counteracting effects. While commitments for the financing of photovoltaic systems declined, commitments for the financing of onshore wind farms increased.

The promotional volume in the Kommunal- und Privatkundenbank / Kreditinstitute business sector comes to EUR 4.9 billion (EUR 6.2 billion). The year-on-year decline is attributable, in particular, to the altered demand in infrastructure financing and to the refinancing of promotional institutions of the federal states and of banks. The focal area housing provided further impetus. The commitment volume at EUR 3.5 billion is above the very good pre-year figure (EUR 3.2 billion). The high demand for the Programmes for Energy-Efficient Construction and Refurbishment supported by the Federal Government, which is already substantially above the previous year's figure with a funding volume of EUR 2.3 billion (EUR 1.8 billion), is very gratifying.

In the focal area infrastructure financing the commitment volume has returned to normal again at EUR 0.6 billion following an exceptionally high reading in the previous year (EUR 1.3 billion). The decline in relation to 2013 concerns, in particular, the two standard programmes for municipalities (IKK) and for municipal and social enterprises (IKU) (minus EUR 0.6 billion). Then again, the increase in demand for programmes promoting municipal investments in energy efficiency is gratifying. At EUR 589 million, the commitment volume for education financing is above the previous year's level (EUR 564 million). The KfW Student Loan remains the most important programme here.

The volume of general refinancing of promotional institutions of the federal states is below the previous year's figure at EUR 0.2 billion (EUR 0.7 billion). For the year as a whole, however, it is expected that a volume at the previous year's level will be reached.

In the focal area Individual Financing - Banks (commitment volume: EUR 15 million, prior-year quarter: EUR 472 million) no large-volume transactions were made. Compared with the previous year the liquidity resources of banks in Germany and the funding situation of business partners in Europe have improved.

The Export and project finance business sector, for which KfW IPEX-Bank is responsible, committed EUR 3.3 billion in new business (EUR 2.7 billion). An important growth driver here is the Maritime Industries sector department with EUR 1.1 billion (EUR 0.5 billion). Other key areas of new business are the sector departments Financial Institutions, Trade & Commodity Finance with EUR 0.7 billion (EUR 0.6 billion) and Aviation and Rail with EUR 0.4 billion (EUR 0.5 billion).

A total of EUR 539 million (EUR 624 million) was committed to developing and transition countries in the first quarter. The KfW Development Bank business area committed funding of EUR 378 million (EUR 341 million) in the first quarter of 2014 on behalf of the Federal Government. 76% of funding during this period supports climate and environment protection programmes. The focus here is on the following sectors: energy generation and supply (23%), water supply, sewage and waste management (20%) and healthcare (16%). The trend observed in 2013 continued as far as the deployment of budget funds is concerned: 44% of commitments in the first quarter of 2014 went to programmes and projects in sub-Saharan Africa. DEG's new business was initially more muted in the first quarter of 2014 in comparison with the previous year. A wait-and-see approach adopted by companies on account of the weaker economic momentum in major emerging markets made its effect felt. Financing commitments with a volume of EUR 161 million were made (EUR 283 million). Commitments to Africa, a strategic focal area of DEG, came to EUR 33 million (EUR 27 million). The performance in the infrastructure sector was also gratifying with commitments of EUR 65 million (EUR 34 million).

In the Capital markets business sector, EUR 116 million (EUR 98 million) were made available to banks and leasing companies for SME financing via securitisation instruments in the first three months.

As at 30 April 2014 KfW raised long-term funds equivalent to EUR 27.6 billion in nine different currencies on the international capital markets. For the year as a whole KfW expects a funding volume of around EUR 65 to 70 billion. This estimate will be reviewed as planned at the end of the second quarter of 2014 in light of the current business performance.