KfW Charts Path for 2024: Balancing Domestic Investment and Global Impact

KfW headquarter Frankfurt, Westarkade
SOURCE: kfw.de

(IN BRIEF) KfW, the state-owned promotional bank, unveils its strategic priorities for 2024, emphasizing a focus on domestic development and global cooperation. Key initiatives include expanding support for construction and housing in Germany, increasing assistance to SMEs, and continuing to promote environmental protection globally. Despite global challenges, KfW achieved a record-breaking business volume in 2023, highlighting its significant contributions to economic growth and innovation.

(PRESS RELEASE) FRANKFURT, 7-Feb-2024 — /EuropaWire/ — The state-owned promotional bank KfW has announced that it will expand its domestic promotion on behalf of the German Federal Government in the important action areas of construction and housing in 2024. More than EUR 10 billion are earmarked for this in the federal budget for 2024 – this would be an increase of roughly EUR 5 billion compared to prior-year spending.

At the “Start of the year” press conference, KfW CEO Stefan Wintels said:

“On behalf of the German Federal Government, we are supporting the people in Germany to handle the climate-friendly transition in the building sector, step by step. And over the course of the year, we will use the budgetary resources made available to us to provide incentives for creating more affordable housing. The Federal Government intends to provide us with more funds for this than last year.”

In addition, the support of German SMEs continues to be a focus of KfW promotion. Among other things, key topics such as leasing, start-up promotion and key technologies for the energy transition will receive more support.

With regard to KfW’s activities abroad, Wintels emphasised:

“On behalf of the Federal Government, we are helping to protect our planet and improve the living conditions of people in those countries that are particularly affected by climate change and the unequal distribution of wealth. Financial Cooperation is an important instrument for representing German and European interests and strengthening partnerships, especially in the context of changing geopolitics.”

On the whole, KfW has left the previous years’ path of acute crisis aid on behalf of the Federal Government in 2023. Instead of immediate aid and price brakes to secure the energy supply, the focus is now on strategic investments. Wintels said the following about this topic:

“KfW’s continued high commitment figures reflect the major challenges and capital requirements for the transformation in Germany and worldwide. The decade of decision is also a decade of investment. In order to master the transformation, we need to become faster and more specific, and we must keep an eye on the needs of the people in Germany.”

2023 was another very strong promotional year. New business volume of EUR 111.3 billion is the third highest since 2020 (2022: EUR 166.9 billion). Domestic promotion amounted to EUR 77.1 billion in 2023 (2022: EUR 136.1 billion). This downturn is due in particular to a sharp decline in mandated transactions for energy companies to EUR 11.5 billion (previous year: EUR 54.2 billion) and the significantly lower commitments for Federal Funding for Efficient Buildings. For the latter, the switch from broad-based promotion to focused promotion with more demanding promotional conditions led to a downturn to EUR 16.1 billion (2022: EUR 37.4 billion).

KfW IPEX-Bank, which is responsible for the Export and project finance business sector, recorded an increase of 33% in new commitments amounting to EUR 24.2 billion (2022: EUR 18.1 billion), the highest volume of business in its history. In this way, it made an outstanding contribution to supporting the German and European economy in a market environment still strongly characterised by challenges. This was notably achieved by financing a number of onshore and offshore wind farms, photovoltaic systems as well as projects for battery cell production, the production of green hydrogen and green steel to transform the economy.

KfW Capital’s commitments for start-ups and young, innovative technology companies in Germany rose significantly in 2023 by 69% to around EUR 2.1 billion (2022: EUR 1.3 billion). With the final closing of the Growth Fund, an important milestone was reached in the development of the venture capital ecosystem in Germany. This is an excellent example of mobilising private capital.

Commitments in the promotion of developing countries and emerging economies reached a volume of just under EUR 10.9 billion. KfW Development Bank accounted for around EUR 9 billion. Despite ongoing global crises, the promotion of a sustainable transformation remains the focus of Financial Cooperation. KfW Development Bank supported projects in the area of climate and environmental protection with EUR 6 billion in 2023, which corresponds to a share of 67% of total new commitments. In the context of global climate action, the expansion of the German-Indian solar partnership with EUR 200 million and support for the environmentally sustainable and socially compatible reform of the energy sector in South Africa amounting to EUR 500 million should be highlighted. Against the backdrop of challenging global conditions, DEG was able to achieve a record commitment volume from its own funds of EUR 1.9 billion (2022: EUR 1.6 billion) for private investments in developing countries and emerging economies. Moreover, it was able to mobilise another EUR 613 million from investors.

The KfW year in detail

1. SME Bank and Private Clients

The SME Bank and Private Clients business sector achieved a promotional business volume of EUR 39.1 billion (2022: EUR 64.8 billion).

SME Bank segment

The SME Bank generated a promotional business volume of EUR 20.4 billion (2022: EUR 33.1 billion). The decrease compared to the previous year is mainly due to the significantly lower level of commitments in Federal Funding for Efficient Buildings. In addition, the coronavirus aid programmes initiated by the German Federal Government ended in mid-2022.

Start-ups and corporate investment

In the priority area of start-ups and corporate investments, loans amounting to a promotional business volume of EUR 7.7 billion (2022: EUR 11.6 billion) were committed in 2023. The declining volumes are primarily due to the expiry of the coronavirus aid programmes in mid-2022 (2022: EUR 3.5 billion). With a new commitment volume of around EUR 6.6 billion, the ERP promotional loan for SMEs, introduced at the beginning of 2022 as part of general corporate and start-up financing, came in above the previous year’s level (2022: EUR 5.4 billion).

Climate change and the environment

In 2023, new commitments amounted to EUR 11.2 billion in the priority area of climate change and the environment (2022: EUR 19.5 billion). The downturn compared to the previous year is mainly due to changes in the programme conditions in Federal Funding for Efficient Buildings (BEG). The Renewable Energies – Standard programme recorded commitments of EUR 5.4 billion (2022: EUR 6.9 billion). In the Climate Action Campaign for Corporates, the new commitment volume of EUR 1.5 billion more than doubled compared to the previous year (2022: EUR 0.7 billion. Overall, KfW made another significant contribution to the economic transition to renewable energies and energy independence.

Innovation

At EUR 1.5 billion, the promotional business volume in the priority area of innovation in 2023 was below the previous year’s level (2022: EUR 1.9 billion). This can be attributed to a lower commitment volume in the ERP Digitalisation and Innovation Loan.

Private Clients segment

With a promotional business volume of EUR 18.8 billion, the Private Clients segment was below the previous year’s level (2022: EUR 31.7 billion), but still at an overall high level.

Energy efficiency and renewables

At EUR 12.3 billion, the majority of the promotional business volume in the Private Clients segment can be attributed to the priority area of energy efficiency and renewables (2022: EUR 25.8 billion). The significant downturn compared to the same period last year is due to a realignment of Federal Funding for Efficient Buildings. In the fourth quarter in particular, there was solid demand in the promotional programmes for Climate-friendly Construction, Residential property for families and the Federal Funding for Efficient Buildings.

Residential & Housing

The promotional business volume in the residential and housing sector exceeded the previous year’s level with new commitments amounting to EUR 4.6 billion (2022: EUR 4.1 billion). The main driver of this development was the home ownership programme with new commitments of EUR 4.2 billion (2022: EUR 3.1 billion).

Education

Commitments in the priority area of education amounted to EUR 1.8 billion as of 31 December 2023, roughly at the previous year’s level (2022: EUR 1.9 billion).

2. Customised Finance and Public Clients

The Customised Finance & Public Clients business sector generated a commitment volume of EUR 35.9 billion in 2023. In particular, prolongations and the associated restructuring of mandated transactions for energy companies (EUR 11.5 billion) from the first quarter of 2023 and the implementation of emergency aid and the price brake for gas and heat on behalf of the German Federal Government (EUR 13.7 billion) contributed to this high result. The significantly higher volume of the previous year (EUR 70.0 billion), which was characterised by the crisis-related energy mandated transactions, has thus largely normalised.

Customised finance: Corporates

Customised finance for corporates recorded a commitment volume of EUR 11.9 billion (2022: EUR 54.6 billion). The above-mentioned prolongations of existing energy mandated transactions totalling EUR 16.9 billion in the first quarter of 2023 and commitments for innovation financing of EUR 0.4 billion were decisive here. On the other hand, amount reductions of EUR 5.4 billion on the aforementioned prolongations during the year due to a welcome decrease in credit demand had a counteracting effect.

Customised finance: Municipal and social infrastructure

With a value of EUR 18.8 billion, the volume of business for municipal and social infrastructure was significantly above the previous year’s level (EUR 11.2 billion). The increase resulted in particular from disbursements of EUR 13.7 billion from the Federal Government’s emergency aid and price brake for gas and heat. Core business was characterised by strong demand for basic financing for municipal and social infrastructure of EUR 3.2 billion. Programmes in the priority area of climate change and the environment also had a good response again with commitments totalling nearly EUR 1.6 billion (2022: EUR 1.9 billion).

Individual financing: Banks and promotional institutions of the federal states

With a volume of business of EUR 5.1 billion, individual financing for banks and promotional institutions of the federal states significantly exceeded the figure for the previous year (2022: EUR 4.1 billion). With commitments of nearly EUR 3.7 billion, there was very high demand from the promotional institutions of the federal states for general funding, which also significantly exceeded the previous year’s level (EUR 2.8 billion). There was also solid demand for global loans for leasing investments, which totalled a contract volume of EUR 600 million.

3. KfW Capital

Commitments in the KfW Capital business sector amounted to around EUR 2.1 billion in 2023 (2022: around EUR 1.3 billion). The increase in volume to strengthen the venture capital (VC) ecosystem is due in particular to the successful launch of new components of the Federal Government’s Future Fund, including ETCI and DTCF, which KfW Capital coordinates on its behalf. Through KfW Capital’s own programmes, around EUR 471 million was committed (2022: EUR 432 million) to 27 European VC funds to finance start-ups and innovative companies in Germany (via “ERP VC Funds Investments”, “ERP/Future Fund Growth Facility” and the new “Green Transition Facility”, which invests exclusively in Climate Tech funds). On average, the VC funds invest more than four times the capital contributed by KfW Capital in start-ups and innovative companies in Germany. KfW Capital is also an investment intermediary for the “Growth Fund Germany”, one of the largest umbrella funds in Europe at EUR 1 billion, which is a building block of the Future Fund and published its final closing in 2023 November. So far, the fund, two-thirds of which is fed with private capital, has already committed close to EUR 300 million in 18 VC funds in 2023.

4. KfW IPEX-Bank

KfW IPEX-Bank, which is responsible for the Export and Project Finance business sector and provides financing to support German and European companies on the global markets, has set a new record with its volume of business. New commitments totalling around EUR 24.2 billion were not only significantly higher than the previous year (2022: EUR 18.1 billion), they also represent a new record in the history of KfW IPEX-Bank. In doing so, it made an outstanding contribution to supporting the German and European economy – often in syndicate cooperation with partner banks.

In a market environment that continues to be strongly characterised by challenges (incomplete recovery after the coronavirus crisis in combination with geopolitical upheavals), the very good performance of all sector departments is primarily responsible for this. The main drivers of new business were major projects to transform and secure the supply of raw materials and energy in Germany, as well as a particular high demand in the areas of battery production and digital infrastructure.

In particular, KfW IPEX-Bank has contributed to the energy transition with financing of a total of EUR 2.1 billion for a number of on- and offshore wind farms, wind turbine installation vessels and photovoltaic systems. With financing for plants producing battery cells for electric mobility, and for charging infrastructure (together approx. EUR 0.5 billion), for rail transport (EUR 2.1 billion) and with funding for the world’s largest green hydrogen project, it has underlined its commitment to the transformation of the economy, and to environmental and climate action. Financings for fibre projects and data centres totalling EUR 2.8 billion, which are driving the expansion of digital infrastructure, also continue to play a significant role.

5. Promotion of developing countries and emerging economies

Commitments in the KfW Development Bank business sector decreased compared with the previous year (2022: EUR 11 billion) to around EUR 9 billion, roughly reaching the level of 2021 (EUR 8.6 billion).

Despite ongoing global crises, the promotion of a sustainable transformation remains the focus of Financial Cooperation. KfW Development Bank supported projects in the area of climate and environmental protection with EUR 6 billion in 2023, which corresponds to a share of 67% of total new commitments. In 2023, KfW, for example, signed contracts amounting to EUR 200 million with India for the German-Indian solar partnership. Since 2017, a total of around EUR 1 billion has been made available here to expand the generation capacity from solar energy.

New commitments amounting to EUR 456 million were made for Ukraine in 2023. Since the Russian invasion, the country has been supported in maintaining its state functions (e.g. energy and water supply) and in the care of internally displaced persons.

In 2023, numerous KfW Development Bank projects contributed to gender equality. With over EUR 414 million, strengthening gender equality is a main objective. In addition, numerous projects with a total financial volume of close to EUR 5.7 billion promote gender equality as an important secondary objective. One example: with EUR 150 million, KfW is supporting the Colombian government in strengthening the legal and political framework for preventing violence against women and other disadvantaged groups.

At around EUR 1.9 billion, DEG was able to commit a new record volume from its own funds for investments of private companies in developing countries and emerging economies in the 2023 financial year (2022: EUR 1.6 billion). In addition, EUR 613 million was mobilised from other investors under continuing challenging global framework conditions (2022: EUR 487 million). Advising the co-financed companies on their transformation path is an integral part of DEG’s offering.

Regionally, at EUR 839 million, most commitments were made to companies in Latin America in 2023, where additional opportunities were offered by economic developments in Brazil and Mexico, among others. For example, DEG provided a loan to a cooperative bank in Brazil to provide loans to small and medium-sized enterprises run by women. Commitments for Asia amounted to EUR 421 million, for Africa/MENA, they amounted to EUR 388 million. Other funds were allocated to the Europe/Caucasus region or used for supra-regional projects.

6. Financial markets

In the 2023 financial year, the Financial markets business sector supported climate and environmental protection and made investments in green bonds amounting to EUR 480 million.

Since 2015, KfW has been actively contributing to the development of the green bond market and the establishment of demanding market standards as part of a promotional mandate of the German Federal Government. Since the initial mandate by the Federal Ministry for the Environment, Nature Conservation, Nuclear Safety and Consumer Protection (BMUV), KfW has made 122 investments in this context, totalling around EUR 3.4 billion. Since the agreed targets were achieved, KfW and the Federal Ministry for the Environment, Nature Conservation, Nuclear Safety and Consumer Protection (BMUV) have now agreed not to continue the promotional mandate that expired at the end of 2023. However, KfW will continue to be active as a sustainable investor in the green bond market in the future and will continue to invest in green bonds as part of its liquidity portfolio.

In order to fund its promotional business, KfW raised funds in a record volume equalling EUR 90.2 billion on the international capital markets in 2023. One focus was on the issue of euro bonds, which accounted for 54% of KfW’s total capital market funding (2022: 65%). The USD share of funding was comparatively high with a volume equalling approximately EUR 26 billion and a funding share of 29%. The reason for this was that KfW made greater use of its USD programme in the second half of 2023 in order to exploit the positive market conditions and further diversify the investor base. A total of 186 transactions in 10 different currencies were carried out. KfW carried out 22 green transactions in nine currencies (EUR, AUD, NOK, GBP, CAD, CNY, SEK, USD and HKD) in the past financial year, for an equivalent of EUR 12.9 billion, of which around EUR 10 billion came from green EUR bonds. The total volume of all Green Bonds – Made by KfW issued since 2014 sits at over EUR 70 billion.

Following its successful D7 bond at the end of 2022, KfW made further progress in the area of digitalisation and issued its first commercial paper (securities for refinancing on the money market) via the Onbrane digital communications platform in the first half of 2023. The first transaction using the “transport currency” method in the derivatives business followed shortly thereafter in cooperation with LCH Swap Agent, a subsidiary of the London Stock Exchange. Further financial market innovations are planned for the 2024 financial year to contribute to successful funding.

In the 2024 financial year, KfW expects to raise funds in the amount of EUR 90 to 95 billion in the international capital markets for refinancing its promotional business. Of this, EUR 10 to 13 billion is to be raised via “Green Bonds – Made by KfW”.

At the end of January 2024, KfW had already raised EUR 18.6 billion in the international capital markets.

Further information on KfW’s promotional business figures can be found at the following links:

Start of the year press conference

Reporting Portal | KfW

Media contact:

Dr Charis Pöthig
+49 69 74 31 46 83
Charis.Poethig@kfw.de

SOURCE: KfW Entwicklungsbank GmbH