°Annual Report 2012 ˚Improving International Prospects

°Annual Report 2012 ˚Improving international prospects. That is what our work is all about.

We have been promoting Germany since 1948. We accompany large and small enterprises on the world market and offer them long-term support with tailor- made financing and comprehensive advice. The focus of this annual report is therefore on the international financing KfW Group provides.

Since KfW Group was founded, we have invested EUR 341 billion in improving international prospects by making loan commitments abroad. In 2012 we made new commitments of EUR 16 billion to promote different regions of the globe.

39 % Europe Caucasus

10 % North America ∆

9 % 23 % North Africa Asia Middle East Oceania 10 % 7 % Latin America Sub-Saharan Africa

1 % supra-regional ˚Responsible Banking We promote Germany We secure internationalisation secure We We promote development promote We Further topics Key figures of the KfW Group

Business activities of the KfW Group

2012 2011 2010 EUR in billions EUR in billions EUR in billions

KfW Group core business (consolidated)1) 73.4 70.4 81.4 Business area KfW Mittelstandsbank 24.1 22.4 28.6 Business area KfW Privatkundenbank 17.4 16.7 20.0 Business area KfW Kommunalbank 9.1 11.8 15.8 Capital market-related financings 3.6 1.1 2.1 Business area Export and project finance (KfW IPEX-Bank) 13.4 13.4 9.3 Trust activities 6.3 6.4 3.9 Market business 7.2 7.0 5.4 Promotion for developing and transition countries 6.2 5.8 5.7 Financial Cooperation (business area KfW Development Bank) 4.9 4.5 4.5 DEG 1.3 1.2 1.2 KfW Group total commitment volume (consolidated)1) 73.4 70.4 103.72)

1) Adjustment for commitments of Export and project finance with funding from KfW programme loans (2010 total: EUR 231 million, 2011: EUR 847 million, 2012: EUR 440 million). 2) KfW Group‘s total commitment volume includes special business from the loan granted to Greece under a mandate from the Federal Government in the amount of EUR 22.3 billion. Maximum disbursement amount in first year of EUR 8.4 billion.

4 | Annual Report 2012 Key figures of the KfW Group Key income statement figures

2012 2011 EUR in millions EUR in millions

Net interest income 2,933 2,399 thereof: Interest rate reductions –535 –557 Net commission income 228 226 Administrative expense 914 757 Operating result before valuation 2,246 1,869 Risk provisions for lending business –155 185 Net gains/losses from hedge accounting and other financial instruments at fair value through profit or loss 308 260 Net gains/losses from securities and investments and from investments accounted for using the equity method 74 –227 Operating result after valuation 2,472 2,086 Net other operating income –13 11 Profit/loss from operating activities 2,459 2,098 Taxes on income 75 30 Consolidated profit 2,384 2,068 Consolidated profit before IFRS effects from hedging 2,229 1,900 Change in revaluation reserves recognised directly in equity 211 –5 Cost/income ratio before interest rate reductions1) 24.7 % 23.8 % We promote Germany

Key figures of the statement of financial position

EUR in billions EUR in billions

Total assets 511.6 494.8 Volume of lending 437.0 436.7 Contingent liabilities 6.2 6.3 Irrevocable loan commitments 51.1 55.7 We secure internationalisation secure We Assets held in trust 18.6 16.7 Volume of business 587.5 573.6 Equity 20.7 17.8 Equity ratio 4.0 % 3.6 %

Key regulatory figures

EUR in billions EUR in billions development promote We

Risk position 109.2 113.3 Tier 1 capital 19.8 17.4 Total regulatory capital 22.5 20.2 Tier 1 ratio 18.2 % 15.4 % Total capital ratio 20.6 % 17.8 % Further topics

Employees of KfW Group2) 5,190 4,765

1) Administrative expense in relation to adjusted income. Adjusted income is calculated by adding net interest and commission income and interest rate reductions. 2) Average number of employees, including temporary staff, but without members of Executive Board and apprentices.

KfW Annual Report 2012 Key figures of the KfW Group | 5 Contents

˚Improving international prospects Looking beyond frontiers and opening new perspectives. This has been our mission since 1948. Page 8

Letter from the Executive Board Page 34

We promote Germany We secure internationalisation We promote development Page 39 Page 69 Page 81

˚Capital markets, The men and women on our staff, Financial reporting, Corporate Governance Page 101

6 | KfW Annual Report 2012 Contents Key figures of the KfW Group 4

Improving international prospects 8

Letter from the Executive Board 34

We promote Germany 39 At a glance: Domestic promotion in 2012 46 The promotional offering for commercial clients 53 The promotional offering for private clients 58 The promotional offering for municipalities 63 Capital market-related financings 66 Sales and client focus 67

We secure internationalisation 69 At a glance: Export and project finance in 2012 72 KfW IPEX-Bank 74

We promote development 81 At a glance: Projects in developing and transition countries in 2012 86 KfW Development Bank 88 DEG 97 We promote Germany

Capital markets 101

The men and women on our staff 111

Financial reporting 115

Corporate Governance 121 Report of the Board of Supervisory Directors 122 Corporate Governance Report 124 internationalisation secure We Executive Board, Directors and Managing Directors of KfW Group 133 Members and tasks of the Board of Supervisory Directors 134

Photographs 136 Imprint 137 We promote development promote We Further topics

KfW Annual Report 2012 Contents | 7 Taking responsibility means giving answers

We have been promoting Germany since 1948. We accompany large and small enterprises on the world market and offer them long-term support with tailor-made financing and comprehensive advice. We also help the German federal government to realise its objectives in the area of financial cooperation.

We now have offices in more than 70 countries – especially in developing, transition and emerging market countries. They pro Germany is more closely integrated in vide access for German entrepreneurs world trade than almost any other major to contacts in the local economy, in local industrialised nation. Large corporations associations and in government. and SMEs export, invest, create new sales markets, accumulate knowledge, secure With our subsidiaries KfW IPEX Bank and access to raw materials and generate DEG, and the business areas KfW Mittel- important dynamism. Around a third of standsbank and KfW Development Bank, Germany‘s current economic growth is we are available to help our clients and attributable to activity beyond the coun- partners in almost every country around try‘s borders. the world. We offer them long-term and dependable partnership – even in difficult Despite all the advantages, however, it is times. Personal contact is a key compo- not easy to make the step abroad. The nent of our activity. It is the basis for the desire to internationalise often fails due risk-sensitive solutions we devise and to insufficient information about the tar- structure. get country, a lack of contacts – or simply of financing. Many companies therefore This annual report focuses on the inter- regard the risk as too high. How can national financing the KfW Group pro- the leap into international business be a vides. With our broad spectrum of financ success? ing and advisory services, we focus on large German corporations and SMEs in This is where KfW comes into play. equal measure. We help them to take advantage of globalisation while we take the responsibility. Worldwide.

Dr Ulrich Schröder Chief Executive Officer

8 | KfW Annual Report 2012 Improving international prospects RESPONSIBILITY

˚Reinforcing growth The KfW Group boosts the competitive strength of the German economy by offering tailor-made advisory and financing offers to companies seeking to tap new markets. By offering financing in developing, emerging market and transition countries, KfW helps to promote improved standards of living, the establishment of the private sector and infrastructure expansion in these countries. In so doing, we assume responsibility for more growth on both sides – by offering long-term access to capital.

˚Boosting innovation The financing that the KfW Group provides for the foreign projects of German companies makes a key contribution to the exchange of knowledge, technologies and innovation –

and enables sustainable progress. We promote Germany By exchanging ideas with other cultures and showing a commitment to mutual knowledge and technology transfers, we assume responsibility for innovation.

˚Increasing stability The KfW Group is a reliable partner that shows a long-term commitment to German companies and foreign partners

alike – even in challenging conditions. internationalisation secure We By hedging and minimising risks and promoting social security systems, we take responsibility for more political and social stability and promote better opportunities. We promote development promote We Further topics

KfW Annual Report 2012 Improving international prospects | 9 You can find us wherever the world interacts.

On six continents With a tradition dating back over 64 years At more than 70 locations Further topics We promote development We secure internationalisation We promote Germany United States of America Mexico Honduras Guatemala

Nicaragua Colombia Ecuador

Peru Bolivia Brazil We promote Germany We secure internationalisation secure We We promote development promote We Further topics Morocco Senegal Mali Burkina Faso

Niger Ghana Benin

DR Congo Cameroon Ethiopia Kenya Uganda Rwanda Tanzania

Malawi Zambia Namibia

Mozambique South Afrika We promote Germany We secure internationalisation secure We We promote development promote We Further topics United Kingdom Belgium Germany Turkey

Montenegro Bosnia and Herzegovina Ukraine

Serbia Kosovo Albania Macedonia Egypt Jordan Yemen

Syria Palestinian Territories

United Arab Emirates We promote Germany We secure internationalisation secure We We promote development promote We Further topics Azerbaijan

Kyrgyzstan Russia Mongolia Georgia

Armenia Uzbekistan

Tajikistan Afghanistan Pakistan We promote Germany We secure internationalisation secure We We promote development promote We Further topics India Nepal Bangladesh

Vietnam Thailand Cambodia China

Singapore Indonesia Philippines Vietnam Thailand Cambodia China

Singapore Indonesia Philippines

Looking beyond frontiers and opening new perspectives. This has been our mission since 1948.

As one of the world’s leading and most experienced promotional banks, the KfW Group works hand-in-hand with its subsidiaries KfW IPEX-Bank and DEG, as well as with its business areas KfW Mittelstandsbank and KfW Development Bank, to finance and promote sustainable change in Germany and abroad. We support companies with global investments, export projects and

imports. But we offer a lot more than just financing and the We promote Germany associated advisory services. The varied nature of our projects and services in all areas and our commitment in numerous countries and sectors of the economy provide us with substantial market-specific expertise and a global network of cooperation partners. This allows us to offer services that are tailored to the needs of every area and every customer.

Our activities in developing, emerging market and transition

countries begin long before German companies start to invest. internationalisation secure We As part of our financial development cooperation work, we support the establishment of a favourable political and economic framework and the right infrastructure to go along with it. These activities allow us not only to combat poverty and protect the environment, but also to lay the foundation for investment, exports and German imports. But we are also committed to Europe and other industrialised nations. Our portfolio includes standardised programme loans and tailor-made corporate and project financing. We promote development promote We

We take responsibility for economic, social and environmental concerns worldwide. We measure our success by asking one key question: What have we achieved for the people?

In the following pages we answer this using three examples

from 2012 which we have selected from the many projects we Further topics were involved in last year.

KfW Annual Report 2012 Improving international prospects | 21 Reinforcing growth The global markets offer companies a wealth of exciting opportunities. Our aim is to help as many businesses as possible to benefit from them.

Almost half of Germany’s economic output is – Extensive sector and market expertise in key areas of the attributable to exports economy One in four jobs is secured by the success of German products – Highly skilled in structuring tailor-made financing solutions and services on the global markets. And these products and ser- with attractive conditions vices almost always help to promote modernisation and pros- – Comprehensive advisory services with personal contacts in perity in their destination countries, too. As a result, the financ Germany and partner countries ing of export business carries a great deal of responsibility. – Secure access to long-term capital Responsibility that we assume every day with knowledge, skills and commitment. We provide the business community with customised consultancy and financing packages to enable them to tap into new markets Supporting German companies in their export endeavours and and supply sources, to help them secure long-term supply agree- financing climate and environmental protection projects are per- ments and expand their presence on the world’s fast-growing manent features of the range of activities performed by our markets of the future – for the long term and without having to subsidiaries and business areas. worry about exchange rate fluctuations. At the same time, our financing aid in our partner countries helps to improve their From passenger aircraft to water treatment plants, wind turbines economic, social and environmental standards of living, estab- and state-of-the-art technologies to equip mobile telephony net- lish the private sector and enhance infrastructure. This allows works – we are the port of call for companies that export their us to facilitate equitable growth on both sides. products to every corner of the globe. With our knowledge, experience and medium and long-term financing solutions, we help to One key growth area within our bank is financing for renewable drive economic development in Germany, Europe and worldwide. energy sources, energy efficiency and environmental technologies.

˚But first and foremost – we ˚All around the world we are pro- are a reliable finance provider. moting technologically ambitious projects to make use of solar and A finance provider that is familiar with the sector in question wind energy. and can accurately assess the project risks. A finance provider that takes factors such as market development, the competitive environment and overall technical framework into For us, sustainability means much more than simply protect- account and uses this to offer tailor-made financing options. ing the environment. Our aim is to conduct business in a man- A financing provider with special qualities: ner that secures the livelihood and quality of life of future generations. – Regional expertise, presence and local contacts in more than 70 countries – in particular developing, transition and emerg- This is another aspect of our motto “Responsible Banking”. ing market countries – Long-standing networks across the globe

22 | KfW Annual Report 2012 Improving international prospects We promote Germany

˚No other bank could have better realised internationalisation secure We such complex financing for us in local currency. We promote development promote We

Hans-Dieter Kettwig, Managing Director Enercon GmbH Further topics ˚ Reinforcing growth

Bangladesh Egypt Indonesia

Iran

KfW location: Cairo WHERE WILL THE WORLD KfW location: Dhaka KfW location: Mexico ECONOMY GROW Jakarta SUCCESSFULLY? KfW location: Analysts at the investment bank NEXT Mexico City Nigeria Goldman Sachs have identified eleven countries with above-average growth KfW location: prospects for the years ahead. We 11 Islamabad have been represented in eight of KfW location: Pakistan these countries for many years. Manila

KfW location: Ankara, Istanbul KfW location: Hanoi Philippines

South Korea

Turkey Vietnam

ALMOST HALF OF ECONOMIC OUTPUT AND ONE IN FOUR JOBS IN GERMANY DEPEND ON EXPORTS

24 | KfW Annual Report 2012 Improving international prospects The fact that we committed a further EUR 29.2 billion to cli- realised five similar projects in Taiwan with our assistance mate and environment projects in 2012 is testimony to just since 2005. Tongyuan wind farm is scheduled to go into opera- how far we have already come in establishing ourselves as an tion in 2015. environmental and climate bank. This corresponds to 40 % of the total promotional volume. Tongyuan is a typical example of our particular expertise in the field of complex, multilateral financing projects. By supporting Project: the Tongyuan wind farm in Taiwan these projects, we allow the German economy to prove its The Tongyuan wind farm is located on the west coast of Taiwan, capabilities on a key global market of the future: the renewable around 120 kilometres south-west of the capital Taipei. It com- energy market. prises a total of 23 wind turbines. These turbines are supplied, erected and commissioned by the German wind turbine manu- This benefits not only the company that receives the funds, but facturer Enercon. all of the companies in its entire supply chain – often small and medium-sized enterprises that would not be able to access The company, based in Aurich, is also responsible for the long- international markets on their own. term servicing and maintenance of the turbines. The project was initiated by the German wind farm developers infraVest GmbH and Bremer wpd AG. The two companies have already We promote Germany

One issue that comes up time and again is the extent to which jobs can be safeguarded in Germany, an export nation. In other words, are jobs at risk of being moved abroad? One in two jobs in Germany is in an export-oriented industry. It is precisely the growing foreign trade volume that is serving to secure

and create jobs here in Germany; new jobs are also being created in internationalisation secure We the export countries. KfW has already been active in many of these countries for years and can provide companies with support in setting up new markets. This creates security for many employees both at home and abroad. What is more, it also takes account of the impact of demographic change. More than ever before, the specia- Brief interview with Thorsten Herdan, managing director at the lists that we urgently need come from all corners of the globe. And German Engineering Federation (VDMA), member of the Board of prospects are emerging for us in all corners of the globe, too. Directors of the European Wind Energy Association (EWEA), Vice-President of the German Offshore Wind Energy Foundation Germany is a showcase for renewable energy. Will we be able We promote development promote We (Stiftung OFFSHORE-WINDENERGIE) and Vice-President of the to maintain this status in the future? Is this another area in German Federal Bioenergy Association (Bundesverband BioEnergie) which we need tailwind from abroad? The German wind energy market reported continued stable growth in 2012 did actually come to a successful close after all, with 2012. Germany is one of the wind industry‘s towers of strength on a solid growth for the engineering sector. How are things look- turbulent global market. German companies are technology leaders in ing around the world? the bioenergy sector as well. KfW and KfW IPEX-Bank are playing a key The German engineering sector exports around 76 % of the goods it role in opening up the global market to many market participants with Further topics produces. So global growth is extremely important for us. Some specia- their projects to ensure that German companies can become even bet- list areas export as much as 90 % of the goods they manufacture. Our ter and more successful. But we need to rethink some aspects of rene- economy is becoming more and more international as a whole. Growing wable energy. We can only remain a role model for our export markets foreign trade creates economies of scale on the global markets, which if we can advance the overall framework by systematically revising the also translates into higher productivity levels, greater innovation capa- German Renewable Energies Act (EEG) and the structure of the electricity and, as a result, greater international competitiveness. city market in Germany.

KfW Annual Report 2012 Improving international prospects | 25 Boosting innovation The world is a treasure trove of pioneering ideas. We help to ensure that these ideas can be turned into reality.

We promote development cooperation projects around sonal and business contacts for potential future orders. And the world on behalf of the Federal Government very often, the specific issues being tackled in the partner coun- These projects are aimed not only at solving problems and try trigger innovation in Germany. fighting poverty – but also at exchanging knowledge and technology. The German economy benefits in many respects from In return, the knowledge transfer opens up employment pros- its, and our, activities in partner countries, as companies gain pects in Germany for foreign staff – either as part of employee access to the foreign market. These give rise to extensive per- and specialist exchange programmes, or in the form of perma-

26 | KfW Annual Report 2012 Improving international prospects ˚The clean water has brought tourists back to

Batumi – and that benefits We promote Germany everyone here.

Marika Gvianidze, Sewage plant manager in Batumi, Georgia We secure internationalisation secure We

nent employment with a German company. This can, in turn, ˚We remain committed benefit the German economy, not least against the backdrop of to the projects we promote demographic change and the shortage of skilled labour. At the same time, these activities help to promote Germany’s global for the long term. development promote We image as an innovation hub. Our promotional activities offer extremely positive mutual benefits for the economy and society in Germany and abroad. And we contribute our wealth of development policy experience. Together with other countries, organisations and institutions, – Knowledge transfer and, as a result, access to innovation we help to improve people’s living conditions and to protect the – Arranging partnerships for technology and expertise environment and climate. Most of the funds required for pro- – Promoting dialogue and understanding motion come from the federal budget. But we have also been Further topics – Exchange and recruitment of experts working for many years now under mandates granted by bilat- – Investments in the future viability of regions eral and multilateral donors, such as the European Commission, – Promoting sustainable economic development to manage and support development projects.

KfW Annual Report 2012 Improving international prospects | 27 One focus of our work is to support the use of renewable ener- A lighthouse project in the water sector: Batumi in Georgia gies and programmes to increase energy efficiency. We promote Water means life. Provided that it is clean, drinkable and avail environmentally friendly transport concepts and also waste able round the clock. None of these conditions applied to the management, water supply and sanitation projects. Georgian city of Batumi in the Southern Caucasus region when we launched the Rehabilitation of municipal infrastructure in Batumi programme in 2006.

Although the project to completely overhaul the water supply and sanitation system is still ongoing, people in Batumi can already clearly see the improvements: today, more than half of the city’s residents enjoy a round-the-clock supply of hygieni- cally safe drinking water. And all of a sudden, tourists are start- Wastewater was being pumped into the Black ing to show an interest in the “Pearl of the Black Sea” again. Sea without being treated – which was a risk not only to the environment, but also to the But we will not be satisfied until an independent evaluation has health of the population. confirmed that we have really made a sustainable difference Giorgi Mgeladze, Batumi to the lives of people in the region. Batumi is on the right track in this respect and, as such, is a good example of sustainable urban and regional development in the framework of development cooperation.

Nowadays, helping people to help themselves is recognised as the best form of development cooperation. Does this also include the promotion of innovation in developing countries? If developing countries want to be economically successful in the long term, they have to focus on innovation. Knowledge transfer, technology exchange and promotion of the local economy do not just create jobs. Success makes people more confident and the prospect of fair chances of success makes a society more just.

What importance does the German Bundestag attach to development cooperation? The German Bundestag is responsible for setting the budget. I am Brief interview with Dirk Niebel, Federal Minister for proud that our work was so convincing that the budget allocated to Economic Cooperation and Development the Federal Ministry for Economic Cooperation and Development has increased significantly since 2009. What particular role does KfW play in the field of development financing? What role does private industry play in driving development An important one. KfW is our modern development finance provider, and innovation? because it can contribute not only funds but also valuable advice. Ninety per cent of all jobs are created in the private sector. Foreign Furthermore, the combination of federal budget funds and funds direct investment in developing and emerging market countries from the private financial market allows us to substantially leverage accounts for several times the volume of funds provided by public- public-sector development services. The German federal government sector donors. So we can achieve our development objectives only if has enabled KfW Development Bank to expand its portfolio and has we have a private sector that works well. strengthened the role of the bank.

28 | KfW Annual Report 2012 Improving international prospects ˚ Boosting innovation

IS IT POSSIBLE TO MULTIPLY THE WORLD‘S MOST VALUABLE RESOURCE? Much of the key impetus provided both by us and by the enterprises we support in partner countries spreads to many different levels. For this reason we also promote knowledge, because knowledge begets knowledge.

Promotion of sustainable economic development Training and educational Partners in the KfW institutions promoted network that provide by KfW local advisory services (e. g. consultants)

Establishing stable local structures and thus a basis for further investment Trained staff

PARTNER COUNTRY We promote Germany

German suppliers who convey technical knowledge through Employees of German enterprises plant construction that supervise construction of a internationalisation secure We and maintenance local production site and convey knowledge Innovation and new impetus for German companies

DOES INNOVATION CREATE PROSPERITY? Patents granted per million inhabitants in 2009 development promote We

FRANCE 179 SWEDEN 397 EUROPEAN UNION 147

JAPAN 250 Further topics UNITED KINGDOM 133 GERMANY 368 UNITED STATES OF AMERICA 166 FINLAND 371 ITALY 95

Source: Federal Report on Research and Innovation 2012

KfW Annual Report 2012 Improving international prospects | 29 Increasing stability Investment always involves risk. We have the experience required to handle risk properly.

˚From our perspective, increasing stability is about financing private- sector investment in developing and emerging market countries.

There are already many entrepreneurs who tap new sales markets and customer groups in this way. These include, for instance, a German automotive supplier setting up a new plant in Mexico, a wind turbine manufacturer from Germany’s Swabian Alb that is looking to expand to Latin America, or a local juice producer in Kenya that buys guaranteed volumes from 30,000 small-scale farmers, ensuring that they can generate regular income. These are all good examples of entrepreneurial projects that help a country to make progress. After all, the private sector creates the most jobs and is a key driver of development.

Wherever we become involved, our aim is always to exploit entrepreneurial opportunities and minimise risks.

– Competent risk hedging and diversification – Ensuring the right overall conditions – Tailor-made financing – Long-term support through partnerships – Extensive knowledge of the local economic and political conditions and markets

30 | KfW Annual Report 2012 Improving international prospects We promote Germany We secure internationalisation secure We

˚We set an example development promote We and help to reduce poverty in Kenya. Further topics

Richard Kimani, Managing Director of Kevian Kenya Ltd., Kenya ˚ Increasing stability

HOW CAN THE DEVELOPMENT OF A COUNTRY BE ACTIVELY PROMOTED? Following the unrest in 2007, Kenya was no longer considered one of Africa’s most stable countries. The government and the opposition did not reach an agreement on a new constitution until 2010. The country still faces major challenges : though its economy is the largest and most successful in East Africa, poverty and social inequality continue to be widespread. We promote local investment plans in five areas in order to strengthen security and growth.

EDUCATION INFRASTRUCTURE ENTERPRISES

HEALTH PRIVATE SECTOR PROMOTION (E. G. AGRICULTURE)

Long-term WHICH FACTORS DOES project support KFW USE TO ENHANCE THE STABILITY OF SOCIETIES AROUND THE GLOBE? Local networks and partnerships with long histories

Support for social security systems Investments and advisory services in the field of education Funding of infrastructural projects

Financing of microloans Advisory services and financing management for private enterprises Profound sector knowledge at regional, national and international level

32 | KfW Annual Report 2012 Improving international prospects What sets us apart: we make long-term commitments and Example: fruit juice producer Richard Kimani finance accordingly: at least four or five years, usually longer. With his business Kevian Kenya Ltd., Richard Kimani is one of We also become involved in high-risk markets that commercial the first handful of people to respond to the increase in demand banks shy away from because the environment is too insecure for mineral water and juice in Kenya. He buys the fruit for his and complex. juice from small-scale farmers from the surrounding region. Richard Kimani’s convincing business model and the develop- Together with our subsidiaries and business areas, we assume mental impetus he is creating meant that Kevian received a risks like these – if the business idea is convincing and offers long-term loan totalling USD 7.5 million in April 2012. Because developmental benefits. Richard Kimani wants to expand further and, in the future, also produce the fruit juice concentrate which he currently imports. A total of 30,000 small-scale farmers from Kenya will supply the mangos, pineapples, tomatoes, carrots and passion fruit ˚We have excellent knowledge required for this purpose. of the local situation and Success hand in hand competitive environment. Most of the fruit juice concentrate will be destined for the Ger- man company Rudolf Wild, a leading manufacturer of natural ingredients for food and beverages. The necessary technology Over the past 50 years, we have helped to launch and sup- will come from Germany, too. Krones AG will supply Kevian with ported more than 2,700 investment projects in developing the state-of-the-art filling system and will provide on-site train- countries. The lion’s share of these funds went to Asia, closely ing to the local employees. followed by Eastern Europe, Latin America and Africa, which has made up considerable ground in recent years. Kevian Kenya Ltd. is not the only enterprise in Africa that has grown with our support. Over the past two years alone, we have Africa currently ranks among the regions with the made investments worth around EUR 500 million available to highest rates of growth overall entrepreneurs in Africa. Particularly in Sub-Saharan Africa, we Forecasts are pointing towards average growth of seven per cent are helping to boost entrepreneurial activity and, in doing so, over the next few years. The continent has potential; private con- improve people’s lives. We are committed to political and social sumption is on the rise and entrepreneurs are appearing every- stability - everywhere in the world. We promote Germany where with new business ideas that will create jobs and income.

My income has doubled since I started selling to Kevian instead of at local markets. Alois Mbogo, small-scale farmer We secure internationalisation secure We We promote development promote We

Kevian is an example of successful Kenyan-German cooperation – both to the benefit of companies in the two countries and in improving the livelihoods of many small-scale farmers in Kenya. Further topics The project also highlights the role that private-sector companies can play in promoting sustainable economic development.

Margit Hellwig-Bötte, Ambassador of the Federal Republic of Germany to Kenya

KfW Annual Report 2012 Improving international prospects | 33 Dear Readers,

2012 was a good year for KfW. We made around 500,000 loan commitments worldwide, supporting projects run by private individuals, public institutions, companies and governments, and achieved a total promotional business volume of EUR 73.4 billion. Following a figure of EUR 70.4 million in 2011, this reflectsmod - erate and long-term qualitative growth. In 2012 KfW committed EUR 50.6 billion to enterprises, municipalities and retail clients in Germany (2011: EUR 50.9 billion). Domestic SME promotion increased considerably by almost EUR 2 billion (+7 %) to EUR 24.1 billion (2011: EUR 22.4 billion). The proportion of domestic SME financing rose from 44 % to 48%.

KfW’s promotional result in 2012 shows that we offer stability for German companies, individuals and municipalities in a difficult financial and economic environment. This is particularly reflected by the increased demand for KfW corporate financing and the record demand for energy-efficient construction and rehabilitation programmes.

Besides SMEs, promotion of climate and environmental protection was another focus area in 2012. KfW’s total commitments in this area rose considerably in 2012, from EUR 22.8 billion to EUR 29.2 billion (+28 %). They make up a 40 % share of the total promotional volume (2011: 32 %). A share of between 35 % and 40 % is planned again in 2013, demonstrating KfW’s promotional focus on financing measures to tackle climate change and benefit environmental and resource protection.

Results of the activities of the individual business areas The volume of new business for the business area KfW Mittelstandsbank reached EUR 24.1 billion (2011: EUR 22.4 billion). Commitments grew strongly in the area of start-ups and general corporate financing, from EUR 9.4 billion to EUR 11.1 billion. The high demand for the “KfW Entrepreneur Loan” was a decisive factor here. Commitments in the area of environmental protection also increased considerably, from EUR 10.8 billion in 2011 to EUR 12 billion. The KfW “Renewable Energies” programme developed particularly well at EUR 7.9 billion (2011: EUR 7 billion). The financing volume for energy efficiency measures also showed pleasing development, rising from EUR 2.8 billion to EUR 3.6 billion.

The business area KfW Privatkundenbank achieved an overall promotional volume of EUR 17.4 billion. The year-on-year increase in commitments (2011: EUR 16.7 billion) was generated primarily through the energy efficient building and rehabilitation promotional programmes, which are essential to meeting environmental and climate protection targets. KfW achieved record commitments of EUR 9.9 billion in this segment – an increase of 52 % on the previous year (2011: EUR 6.5 billion).

34 | KfW Annual Report 2012 Letter from the Executive Board In order to continue the energy-efficient refurbishment of resi- the success of Germany’s export industry in global terms were dential buildings, further Federal Government budget funds of the basis for the stable level of commitments. EUR 300 million will be provided annually from 2013 until 2020 for grants under the “Energy-efficient Refurbishment” pro- The commitment volume in the business area dedicated to gramme. The terms of financing for the loan option will also be the promotion of developing and transition countries further improved. (KfW Development Bank) was EUR 6.2 billion (2011: EUR 5.8 billion). Commitments in the promotional focus area of education and social development totalled EUR 2.3 billion (2011: EUR 2.2 bil- KfW Development Bank increased its promotional volume lion). Demand for the “KfW Student Loan” increased particularly further; providing more than EUR 4.9 billion worldwide for strongly and was 11 % higher than in the previous year. In order development programmes in 2012 (2011: EUR 4.5 billion). The to promote lifelong learning, the terms of financing will be fur- amount of KfW’s own funds employed for international develop- ther improved. With effect from the summer semester 2013, ment finance totalled EUR 3.1 billion (2011: EUR 2.6 billion). KfW will expand promotion to second degrees and postgradu- KfW is thus lending considerable support to the Federal Govern- ate studies, including masters programmes and PhDs. The age ment in meeting its international commitments for develop- limit for eligibility will also be raised. ment financing. Around EUR 2.8 billion went to the area of “climate and environment”, comprising around 57 % of the new The business area KfW Kommunalbank reached a promo- commitment volume. tional business volume of EUR 9.1 billion in 2012, which was only slightly below expectations despite a decline in investment DEG, which is active in financing private enterprises in develop- propensity among municipalities. The commitment volume in ing and emerging market countries, committed EUR 1.3 billion We promote Germany the area of infrastructure financing was approximately of financing (2011: EUR 1.2 billion). It once more created a con- EUR 3.8 billion. This represents a slight year-on-year reduction siderable leverage effect and triggered a high level of private (2011: EUR 4.1 billion), however the number of loans granted corporate investment. Many DEG partner countries are also for municipal projects saw a large increase of 40 %. A total of future markets for German companies, a key target group of 2,500 individual commitments were made. Promotion also con- DEG. It provided these with around EUR 182 million in 2012 centrated more closely on the issues of climate change and (2011: EUR 99 million) to finance foreign investment. This was environmental protection, as well as demographic change. a major increase on the previous year. There was a major increase especially in the volume of commit-

ments for climate and environmental protection financing, from The business area of Capital market-related financings internationalisation secure We EUR 0.9 billion in 2011 to EUR 1.3 billion in 2012. This develop- achieved a commitment volume of about EUR 3.6 billion in ment, which was linked to the launch of new promotional pro- 2012. Under the programme for refinancing export loans cov- grammes dedicated to urban energy- efficient rehabilitation, ered by Federal guarantees KfW supported German exporters documents KfW’s substantial contribution to supporting the with long-term funding of around EUR 1.2 billion. Securitisation Federal Government’s energy turnaround at municipal level. instruments and global loans additionally provided leasing companies and banks with approximately EUR 2.4 billion to finance The volume of commitments for general funding of the promo- German SMEs. tional institutions of the federal states was reduced as planned in 2012. It totalled EUR 5.3 billion in the reporting year, com- KfW raised EUR 78.7 billion in long-term funds to finance its We promote development promote We pared to EUR 7.7 billion in the previous year. promotional business on the international capital markets in 2012 (2011: EUR 79.7 billion). For this purpose KfW issued With new commitments in the amount of EUR 13.4 billion, the more than 200 bonds in fifteen different currencies. Large-vol- Export and project finance business area managed by ume and highly liquid bonds in benchmark form were once KfW IPEX-Bank generated a promotional volume matching again the most important pillar of KfW’s total funding with a that of the previous year (2011: EUR 13.4 billion). The maritime share of 59 %. The main refinancing currencies were the euro at

industry (EUR 2.5 billion), energy and environment (EUR 2.1 bil- just under 49 % and the US dollar at almost 32 %. KfW’s refi- Further topics lion) and industry and services business sectors were especially nancing costs remained stable for the year as a whole at a his- significant here. A considerable portion of commitments in torically low level. For 2013, KfW is planning a smaller funding maritime industry related to cruise ships and investments in volume of between EUR 70 billion and EUR 75 billion. offshore projects. Companies’ positive investment appetite and

KfW Annual Report 2012 Letter from the Executive Board | 35 Operating result in financial year 2012 reductions granted by KfW in its promotional lending business KfW achieved a very good result in 2012. The combination of remain at a high level. The valuation result is positive over all extremely favourable financing opportunities and positive and further increased consolidated profit. Charges from risk extraordinary effects in the valuation result led to a consolidated provisioning in KfW’s core business, mainly for impairments profit of EUR 2.4 billion. This is significantly higher than sustain- recorded in the maritime industry segment in the export and able earnings potential and cannot be carried over to the future. project finance business area, were compensated by various positive extraordinary effects as well as a positive securities The pleasing development of the operating result before valua- portfolio performance. A cautious risk policy was maintained. tions, which increased by EUR 2.2 billion, was attributable to very favourable funding conditions for KfW. In addition to a sus- Given the continued uncertainty about future economic devel- tained favourable interest rate constellation, this was thanks in opment and not least the strict regulatory requirements, the particular to KfW’s first-class credit rating and its broad range capital base, which was improved by this result, ensures KfW’s of refinancing instruments. At EUR 535 million, the interest rate long-term promotional capability.

36 | KfW Annual Report 2012 Letter from the Executive Board The strong growth in consolidated total assets to EUR 511.6 bil- Moreover, KfW’s promotional volume has doubled since the year lion is largely attributable to market value changes in derivatives 2000. In core areas such as domestic environmental finance it used for hedging purposes and their recognition in hedge ac has actually grown sixfold. The systems designed to meet counting as well as to increased liquidity maintenance. Despite expected demand in the past are no longer adequate to deal new lending business, high unscheduled repayments in domestic with the increasing scale of the business. promotional lending business meant that there was only a mar- ginal increase in total loans and advances. In order to prepare responsibly for the changed requirements, KfW is continuing from its strong position to pursue the moder- Ensuring future viability nisation process it launched in 2009. This modernisation is KfW faces numerous challenges. The needs arising from the based upon four pillars: “strategic focus”, “professionalisation”, banking and financial crisis, growing demand for long-term, “efficiency” and “client orientation”. KfW is pursuing a stronger large-volume loans, changing customer requirements and new focus on the promotional offering with regard to socially rele- regulations demand new solutions, processes and structures. vant developments and a continuous improvement in promo We promote Germany We secure internationalisation secure We We promote development promote We

Dr Ulrich Schröder (Chief Executive Officer) Dr Günther Bräunig Dr Norbert Kloppenburg (upper row from left to right) Further topics Dr Edeltraud Leibrock Bernd Loewen Dr Axel Nawrath (lower row from left to right)

KfW Annual Report 2012 Letter from the Executive Board | 37 tional quality. It is also concentrating further still on the expecta- lending service. The many business processes that remain tions and needs of clients and distribution partners. KfW is non-uniform and often focused on final products will be stand- working in particular on comprehensive projects to improve client ardised so that they cover the whole life cycle of a loan in a focus, such as product transparency and the Internet viability of transparent form that is as uniform as possible. promotional loans, as well as to accelerate and standardise the lending processes. Finally, the transparency of our products and access to them have to be improved. The relaunch of our website puts client Extensive changes have already been initiated or successfully requirements even more firmly at the centre of our promotional implemented as part of the modernisation process. For example, offering and services. The guiding principle of our client orien- the Federal Cabinet resolved draft legislation in March 2013 to tation is the informed consumer. amend the KfW Law. The objective is to apply selected standards from the German banking Act to KfW, as well as the To enable KfW to continue fulfilling its promotional mandate granting of oversight by the Federal Ministry of Finance to the effectively in the future and to provide sufficient financing for Federal Financial Supervisory Authority. KfW welcomes these SMEs, renovators, students, municipalities, foreign business changes, which reflect its path towards modernisation and pro- partners and partner countries, we need to ensure our business fessionalisation. model is fit for the future. As a subsidiary promotional bank of the Federal Republic based on the on-lending principle, we aim Together with pilot partners, KfW is also developing a new to increase the effectiveness of our promotional funds with a online distribution platform On-lending 2.0. New tools coupled consistent focus on client needs. This includes the tried-and- with efficient, automated processes shall gradually improve tested KfW business model of investing profits in further pro- access to promotional lending and thus make it easier and motion rather than paying dividends. faster, both for clients and their banks. KfW proved once again in 2012 that it is indispensable as a The more efficient credit approval process is bringing changes modern, professional and client-oriented promotional bank. We to our structures and processes. The Copernicus project is have made sustainable promotion our guiding principle and help reducing the complexity of lending processes and aims for to meet the challenges of our time successfully. KfW continues standardisation and faster processing. It plans to bundle com- to take responsibility as a reliable partner – in Germany and petencies with clear roles for front and back office and the around the world.

Dr Ulrich Schröder (Chief Executive Officer)

Dr Günther Bräunig Dr Norbert Kloppenburg Dr Edeltraud Leibrock Bernd Loewen Dr Axel Nawrath

38 | KfW Annual Report 2012 Letter from the Executive Board ˚We promote Germany We finance investments in the future by people in Germany; we finance SMEs so that the German economy remains strong, and also municipal and social infrastructures in order to advance structural change and the common good. We promote Germany We secure internationalisation secure We We promote development promote We Further topics Less energy for heating – Learning is fun at our school! The district of Hof in Bavaria has more for learning undertaken extensive energy rehabilitation measures at the Naila secondary school in the past few years. Teachers and pupils are clearly thriving in the pleasant new environment and comfortable controlled climate. Municipalities also benefit from

40 | KfW Annual Report 2012 We promote Germany | Domestic promotion We promote Germany We secure internationalisation secure We We promote development promote We

the rehabilitation through significant savings in energy costs House status receive not only favourable interest rates but are Further topics The refurbishment project was financed by one of KfW’s promo- now also rewarded with a repayment bonus of up to 12.5 %. tional programmes. The IKK Urban Energy Efficiency Rehabilita- This programme is open to all non-residential buildings in the tion programme was significantly expanded in 2012; municipal municipal and social infrastructure. Financing is also available investors who rehabilitate their buildings to KfW Efficiency for alterations addressing accessibility requirements.

KfW Annual Report 2012 We promote Germany | Domestic promotion | 41 Start-ups get moving The brothers Patrik, Daniel and Philipp Tykesson founded e-bility GmbH in 2009 to sell retro-style electric scooters. For example, their “Kumpan electric 1954”, moves people about in street traffic with zero emissions. As is the case for many company

42 | KfW Annual Report 2012 We promote Germany | Domestic promotion We promote Germany We secure internationalisation secure We We promote development promote We

founders, their new ideas often also boost positive developments Further topics in business and other areas such as the environment. KfW provided total funding of EUR 2.6 billion for promoting start-ups in 2012.

KfW Annual Report 2012 We promote Germany | Domestic promotion | 43 Affordable student housing The Mainz student services received EUR 17.7 million in promotional loans under the Energy-efficient Refurbishment programme to make 543 flats energy-efficient. As all six student halls of residence reach the KfW Efficiency House standard, the student services are granted an additional repayment bonus of

44 | KfW Annual Report 2012 We promote Germany | Domestic promotion We promote Germany We secure internationalisation secure We We promote development promote We

EUR 2.9 million. KfW also promotes construction of new energy- cially important to her even if she is not eligible for a BAföG Further topics efficient student residences. It is thus an important partner in student grant. For this reason, she is taking advantage of the creating affordable student housing. Franziska Strutz, currently KfW Student Loan to fund her living expenses, and particularly enrolled in a master’s programme in International Economics, values the great flexibility in both the disbursement and the is also benefitting. Being independent from her parents is espe- repayment phase.

KfW Annual Report 2012 We promote Germany | Domestic promotion | 45 At a glance: Domestic promotion in 2012

KfW provided more than EUR 50 billion promotion with ERP funds now focuses Rehabilitation and new construction overall in promotional funds to its on start-up and innovation financing. measures undertaken with financing from German clients in 2012, focussing its KfW yielded around 360,000 energy-effi- activity on support to SMEs. Another Energy Turnaround Action Plan cient homes. Private builders were par- central focus was on protecting the KfW presented its Energy Turnaround ticularly active in implementing energy-ef- climate and the environment. This focal Action Plan bundling all its measures to ficient measures. Over 70 % of apartments point gained additional importance support the energy turnaround, on behalf of and single-family houses receiving funds with the energy turnaround introduced the Federal Government, at the beginning were modernised or newly constructed by by the German Federal Government of 2012. The action plan allows for larger owner-occupants or private landlords and in 2011. Building on its many years of enterprises which invest in energy effi- around 30 % by housing companies. One in expertise in this area, KfW expanded ciency measures or energy innovation pro- every two new flats is located in a building and intensified its promotional pro jects to also receive funding. The promo- promoted by the bank that meets the KfW grammes aimed at funding more tional terms of numerous programmes Energy House standard. renewable energy measures and were also improved. Raising promotional increasing energy efficiency in the funding caps in many relevant programmes, Important reasons for the heavy utilisa- past year. signal interest rates of only 1 % in some tion of the promotional programme were cases for companies or private clients the very favourable signal interest rate of New accents on reliable SME financing wishing to improve the energy efficiency of an effective 1 % and the additional repay- Traditionally, support of the SME sector is their buildings or homes, and also promo- ment bonuses of up to 12.5 %. Moreover, at the heart of KfW’s promotion. Around tional programmes to enable municipali- the programme was simplified and made 50 per cent of domestic promotion, or ties, for example, to modernise entire city even more attractive for clients and sales EUR 24.1 billion in funding, was granted districts to make them more energy-effi- partners. Thus, a major milestone was to the SME sector and start-ups in 2012. cient – all these are important building reached last year; since the summer of The commitment volume rose in 2012 in blocks in meeting the huge financing need 2012, bank and energy consultants have the area of start-ups and general corpo- to transform Germany’s energy supply. been able to check the KfW website prior rate financing, from EUR 9.4 billion to over to submitting an application for promo- EUR 11 billion, despite investment pro- Of the total commitment volume for com- tion to see if their project is eligible. This pensity generally declining in the second mercial clients, 50 % was granted for com- enables them to see immediately whether half of the year. Even in times of increas- mercial climate and environmental protec- the technical requirements for financing ing uncertainty, KfW continued to prove tion. For private clients, that figure stood have been met. that it is a reliable partner to SMEs. There at 57 %, while 14 % of commitments for was a much stronger focus in SME financ municipal clients was granted for energy Energy-efficient refurbishment ing on promoting climate and environmen- and environment-related measures. in city districts and accessibility tal protection. EUR 12 billion – signifi improvements cantly more than the previous year – was 360,000 additional energy-efficient Despite the fact that some municipalities granted for environmental protection homes and local authorities have strained budg- funding. In contrast, following extraordi- KfW’s private clients received promotional ets, KfW has made some enhancements nary effects in 2011, the volume of com- funding of EUR 17.4 billion in 2012 – to its programmes that also belong to the mitments in the promotional area of inno- around 4 % higher than the previous year. Energy Turnaround Action Plan in order to vation financing dropped to EUR 1 billion. KfW places strong emphasis in its promo- enable them to make future-oriented As demand for research and development tional offering on the tried-and-tested investments. Since the beginning of Feb- loans is highly cyclical, KfW’s offering programmes that fund energy-efficient ruary 2012, KfW has offered low-interest helps to stabilise the market. housing construction and rehabilitation. loans for investments in heating provision The promotional programmes which con- and energy-efficient water supply and Commercial promotion was restructured stitute the Energy Turnaround Action sanitation on a city district basis. This with effect from 1 January 2012 in order Plan were more successful than ever in offering has been further enhanced since to increase transparency. While the KfW 2012. With these flagship programmes, 1 June 2012 by financing the expansion programmes cover the areas of general KFW makes a valuable contribution to of municipal distribution grids as well as corporate financing and environment, implementing the energy turnaround.

46 | KfW Annual Report 2012 We promote Germany | Domestic promotion decentralised power generation and Further development of the KfW storage facilities. Student Loan Six years ago, KfW launched its KfW Stu- In addition to the necessity to invest in dent Loan, a programme that enables energy efficiency, social measures are young people to finance their living costs also very important for municipalities. In while studying their first degree, regard- this area too, KfW supports municipalities less of their parents’ income level. This and local authorities with funding oppor- enables them to fully concentrate on suc- tunities. Since September, municipalities, cessfully completing their studies. SMEs, private individuals and municipalities their enterprises and social organisations Demand has continuously risen since increasingly invested in the energy turn may take advantage of particularly launch. KfW granted more commitments around with help from KfW. low-interest loans in order to reduce than ever in 2012: 24,800 students mobility barriers in public areas such as received loans totalling EUR 1.1 billion. In transport systems, sports facilities and the summer semester of 2013, the scope buildings. The promotional programme of applicants is to be significantly IKK/IKU – Accessible City helps them to expanded to address the principle of life- adapt municipal and social infrastruc- long learning. Financing will not only be tures to address the requirements of granted for first degrees but also to oth- demographic change. Overall KfW has ers such as a second degree or a doctor- granted its municipal clients 2,500 com- ate, whether full or part-time courses. mitments totalling EUR 3.8 billion. We promote Germany

Volume of domestic promotional loans (EUR in billions)1)

23.5 2000 25.2 2001 27.3 2002

36.8 2003 internationalisation secure We 33.2 2004 33.5 2005 40.5 2006 47.4 2007 43.4 2008 49.2 2009 64.3 2010 50.9 2011

50.6 2012 development promote We

0 10 20 30 40 50 60 70

1) Excluding securitisation; from 2000 to 2002 excluding DtA promotional business Further topics

KfW Annual Report 2012 We promote Germany | Domestic promotion | 47 Responsibility for many issues

KfW is taking responsibility and above the prior-year level. This was due preparing for the major issues of our to strong demand from established time with a view to the future as it companies for investments and working fulfils its statutory mandate. This has capital, with many taking advantage of been reflected in its daily work for the current low interest rate. As KfW has years. Ensuring the future viability of introduced a 20-year fixed interest rate enterprises, addressing the globali- period under some programmes, SMEs sation process, climate and environ- benefit even more from current capital mental protection, as well as demo- market conditions. This and raising the graphic change requires solutions promotional financing limit cap has ena- and products that support economic, bled above all the industrial SME sector social and environmental development. to use globalisation as an opportunity and to invest accordingly. Enterprises The challenging issues in 2012 were the have invested a great deal primarily in energy turnaround and the euro crisis, environmental measures and have utilised both of which will continue to dominate promotional loans accordingly. The energy turnaround and the euro public discussion in the years to come. crisis are and will remain the most impor While KfW actively supports the German KfW has made promotion of entrepreneurs tant issues. Federal Government in accelerating the and innovation in companies a particular conversion of energy supply with its KfW focal point of activity. Start-ups and inno- Energy Turnaround Action Plan, it is also vations drive structural change and are helping to strengthen the German econ- thus of particular importance to the economy during the euro crisis by equipping omy. However, it is particularly difficult to companies for the future. find appropriate financing for such projects due to the risks that are often hard Ensuring the future viability to assess. Promotion through attractive of companies interest rates and assumption of risks Thus far, German enterprises have been thus becomes even more important. KfW affected comparatively little by the euro further optimised its promotion of start- crisis – new lending business in the first ups in 2012, enabling numerous busi- half of 2012 was still surprisingly robust. nesses to be started despite the overall Companies use the low interest rate drop in start-up momentum in Germany. on the German credit market to make KfW was also heavily involved in innova- investments. Demand declined overall in tion financing last year, helping SMEs to the second half of the year due to a slow- strengthen their competitive position down in economic momentum. Nonethe- through product and process innovations. less KfW’s commitment volume for SMEs The 2008 financial crisis resulted in a rose against the market trend. KfW con- dramatic slump in innovation activity in tinued to prove that it is a reliable part- the SME sector. As the economy recovers, KfW secures the supply of long-term ner to German SMEs in times of increas- innovation activity can be expected to credit to SMEs. ing uncertainty. resume. KfW will be available as a financing partner. KfW’s promotional programmes make an important contribution to securing the Almost half of funding goes to long-term credit supply for the German green projects SME sector. Nearly half of domestic Combating climate change and the con- promotion went to the commercial area. tinuing destruction of our natural environ KfW Mittelstandsbank’s commitment ment is becoming increasingly urgent. volume of more than EUR 24 billion was The challenge of the energy turnaround is

48 | KfW Annual Report 2012 We promote Germany | Domestic promotion major; however it also offers huge inno- EUR 3.6 billion was a very positive devel- vation potential for the German economy. opment. Many opportunities in this im KfW actively ensures investment in this portant area have yet to be seized. The potential with its promotional programmes. considerable expansion of promotion was The bank planned to allocate 36 % of its therefore all the more pleasing. total promotional business volume for climate and environmental protection Private clients have invested heavily in measures. It actually utilised 40 %. Of the energy efficiency measures in recent domestic promotional volume alone, 46 % years, with energy-efficient housing con- (which corresponds to EUR 23.3 billion) struction and refurbishment programmes was used for green projects. being more popular than ever in 2012. The commitment volume for energy-effi- The Energy Turnaround Action Plan, aimed cient refurbishment of existing properties at launching new programmes as well as increased significantly. The application improving and expanding tried-and-tested procedure was further simplified to make ones, was created at the beginning of the the programme – a key element in KfW’s year to provide financing for investments promotion of the energy turnaround – even in energy efficiency and renewable ener- more attractive. By means of an interac- gies to all domestic client groups. This tive assessment tool, energy consultants involved restructuring environmental pro- can now enter the technical data on con- tection financing for enterprises. The KfW struction projects or refurbishment mea We promote Germany Energy Turnaround Financing Initiative sures and receive immediate confirmation was launched as a new programme to of whether the desired KfW Efficiency finance bigger projects in areas relevant House standard can be achieved. This to the energy turnaround; credit ceilings enables end clients and sales partners to were also raised and financing opportuni- know immediately whether or not they Financing eligibility of refurbishment ties expanded in other programmes. Envi- are eligible for promotional financing. measures can now be checked online with ronmental protection measures were pro- immediate confirmation. moted in the commercial sector to the Rehabilitating listed historic buildings or

total tune of EUR 12 billion. The majority those worthy of preservation was prob- internationalisation secure We was granted for investments in renewa- lematic in the past. The requirements for ble energies. Promoting industrial energy energy-efficient refurbishment and those efficiency with commitments totalling for preservation seemed to be in opposi-

Development of promotional business volume in domestic environmental and climate protection (EUR in billions)

7 2005 development promote We 12.5 2006 12.9 2007 12.6 2008 16.5 2009 20.8 2010 18.4 2011

23.3 2012 Further topics

0 5 10 15 20 25

KfW Annual Report 2012 We promote Germany | Domestic promotion | 49 tion. A solution was facilitated by intro- Meeting the challenges of In the process, KfW introduced the senior- ducing the new KfW Efficiency House – an aging society friendly house/senior-friendly apartment Monument standard. This standard with As in many other industrialised countries, standard. This is to be further established simplified promotional requirements sets the German population is also increas- in the next year with the aim of creating the preservation of listed monuments and ingly aging. This demographic change a broader awareness among builders of buildings worth preserving on equal foot- has far-reaching consequences for social age, generation and family-related needs. ing with achievement of energy efficiency. and educational systems as well as for the economy. City dwelling is becoming Lifelong learning To create incentives for rehabilitating more and more attractive, above all for The demographic change is also having not only individual buildings but entire elderly people – a trend that has been an impact on young people, making good city districts to an energy-efficient stand- observed for some years now. They bene- vocational training opportunities more ard, KfW made municipalities and local fit from shorter distances to cover and an important than ever. A leading export authorities another attractive promo- extensive infrastructure. Municipalities country such as Germany cannot afford a tional offer in 2012: the new Urban Ener- and local authorities are making efforts shortage of skilled labour. KfW’s educa- gy-Efficient Refurbishment – City Dis- to modify the infrastructure to suit the tion and innovation promotion is a tool tricts programme. KfW offers grants for needs of older people and families and to address any potential skilled labour creating integrated district concepts and to make it physically accessible to all. shortage. It further modified its promo- for hiring refurbishment managers. More- KfW supports them in this process, even tional products in 2012 to meet the over, plans that serve to improve energy offering a special new promotional pro- needs of its clients. For example, it fur- efficiency in heating provision, water sup- gramme called IKK/IKU – Accessible City ther developed the KfW Student Loan, ply and sanitation as well as in buildings since September 2012. This programme which since 2006 has supported young can be financed with low-rate loans. offers financing for projects to improve people studying for their first degree accessibility in public buildings and to regardless of their parents’ income. The KfW also promotes investments in fu modify municipal infrastructures. bank introduced a fixed-rate option in ture-focused technologies for the energy 2012, which improves students’ security turnaround while simultaneously main- Private individuals also frequently make in planning; it now offers financing for a taining secure energy supply with the new investments in accessibility. KfW has second degree, while the age limit for Municipal Energy Supply programme. In created incentives to this end by offering borrowers has been raised to 44. All particular, promotion is focused on the inexpensive financing. Adapting homes these new measures are completely in expansion of highly efficient, decentral- not only means people can live longer in line with the idea of lifelong learning. ised gas-fired power plants, power grid their familiar surroundings and with distribution systems and energy storage fewer limitations and a higher level of As education begins very early, KfW also opportunities. Financing for investments comfort. It also clearly reduces the costs wants to extend its promotional range in climate and environmental protection for nursing care services and social this year to include young children by totalling EUR 1.3 billion was granted to security budgets. At the start of 2012, financing construction of new children’s municipalities and municipal enterprises. KfW replaced the former Senior-Friendly day-care centres and expansion of exist- Conversion Programme funded by the ing ones under its IKK/IKU Day-Care Federal Ministry of Transport, Building Expansion programme. and Urban Development with its own new and expanded programme. It was simplified in many areas and adapted to clients’ needs.

50 | KfW Annual Report 2012 We promote Germany | Domestic promotion Fitness programme for the future – KfW is modernising

KfW’s new strategies meet clients’ needs and strengthen its partners

Achieving promotional goals and promotional work should be as attractive meeting the continually evolving and straightforward as possible, for clients needs of clients and sales partners and sales partners alike. The key objective alike is a challenging mission. Only is to consistently raise awareness of KfW’s by continually developing our promo- promotional products, service quality and tional business can we respond to client and user friendliness in the years diverse social and economic develop- ahead. KfW client satisfaction is already ments while also addressing clients’ very high – above average in a comparison Client focus and efficient internal organisa- practices and sales partners’ policies. of German banks. Clients praise our ser- tion are at the heart of KfW’s modernisation vice, and especially the KfW Infocenter, in process. KfW made almost half a million financing regular client satisfaction surveys. How- commitments in Germany again in 2012. ever, this mainly applies to clients who Processing such a high number of financ- actually use our promotional services. It ing applications quickly and smoothly remains the case that too few people are requires extremely efficient internal aware of KfW’s offering, or fear that a organisation. The biggest challenge for financing application would be too compli- KfW, however, is to adapt to the chang- cated or take too long to process. KfW ing needs of end clients and on-lending aims to counter this perception with an banks. The expectations placed on a information and service initiative. We promote Germany government-owned promotional bank are different today than they were a few First of all, it is essential that we present years ago. This is partly due to the struc- our products in a contemporary way. We tural change in the banking landscape, aim to reach clients through a modern and partly to bank clients’ growing affin- website to a much greater extent than in ity with the Internet. KfW has begun a the past. KfW’s digital information provi- fundamental modernisation process of sion is continually updated and expanded. its domestic promotion in order to posi- In 2012 it launched two new areas on the

tion the bank closer to its clients to KfW website on the issues of energy sav- internationalisation secure We continue to meet its demanding promo- ing (www.kfw.de/energiesparen) and tional mandate. start-ups (www.kfw.de/gruenden), introducing further important and fundamen- KfW’s promotion always pursues the aim tal new developments. The revised layout of supporting economic, environmental of the website provides an improved and social change in Germany. It is there- overview and consistent navigation, ena- fore led by the great challenges of our bling users to better orient themselves time. These definitely include climate and and locate the information they are look- environmental protection, and ensuring ing for. The newly structured pages also We promote development promote We the future viability particularly of small enable visitors to check financing eligibil- and medium-sized enterprises in a glo- ity for selected products interactively. balised world, as well as dealing respon- KfW will continue to expand this service sibly with demographic change. in order to provide clearer information online about its promotional products. Keeping clients informed …

In order to familiarize clients with financ- KfW also plans to use targeted marketing Further topics ing opportunities in these challenging campaigns to generate client interest promotional areas, KfW will in future ori- and raise more widespread awareness of ent its products and service more strongly promotional opportunities in key areas. to the needs of its clients. The Group’s Greater use was made last year of vari-

KfW Annual Report 2012 We promote Germany | Domestic promotion | 51 ous media to reach clients, and the scope but also to request a consultation at their More transparent and comprehensive is to be further expanded this year. own bank directly from the KfW website. information, more efficient processes and In a further step, it is planned in future a modern on-lending system – all this is … accelerating processes … to enable immediate, binding conforma- possible only in close cooperation with In the medium term, KfW plans to be one tion of promotional loans through the sales partners. Only with their help can of the first promotional banks in Germany KfW marketing platform, initially for the KfW fulfil its statutory promotional man- to provide seamless, web-based market- popular promotional programmes Ener- date. Consistent and close cooperation ing and lending processes in the funding gy-Efficient Construction, Energy-Efficient with sales partners is thus particularly business. Client demands and behaviour Refurbishment and the KfW Home Own- important to strengthen the bank on-lend- have changed in recent years – also in ership Programme. Once a client has ing system that has proven itself for relation to promotional banks. Bank cus- submitted their plans electronically, the decades, and to keep it fit for the future. tomers are increasingly well informed customer advisor will be able to deter- and have a great affinity to the Internet. mine within seconds whether the specific This modernisation process will make KfW Around 70 % of all bank clients obtain project is eligible for financing and to even more professional, efficient and cli- extensive information from the Internet, confirm this to the client. This will give ent-focused – and will lay the foundation and almost half carry out their transac- clients a high level of planning security for continued support for clients in chal- tions online. at an early stage. KfW is planning to follow lenging promotional areas with attractive up the pilot project by expanding the Inter- and effective products. KfW therefore plans to further digitalise net-based marketing platform to further its promotional offering and services sales partners and financing products. for clients and sales partners. The key element is gradual introduction of Inter- … strengthening sales partners net-based marketing functions enabling The reorientation of our sales approaches a rapid consultation and decision-making provides a modern, future-ready founda- process involving the client’s own bank, tion for the proven principle of on-lending. which will ultimately enable financing The sales partners benefit from an im commitments to be approved in real time. proved level of service and efficiency, for At the end of 2012, KfW launched a pilot example the possibility of direct support project to build an Internet-based mar- from KfW staff in consulting and finalisa- keting platform together with sales part- tion. The end client benefits from fast and ners from all three banking sectors – straightforward processing. Ultimately, On-lending Online 2.0. In the first stage, eligibility for promotional financing is to clients should be enabled not only to be confirmed within a few minutes of the access extensive information online application being made. about the range of financing products,

52 | KfW Annual Report 2012 We promote Germany | Domestic promotion The promotional offering for commercial clients

KfW supports SMEs, start-up entre- Start-ups and general Ministry of Family Affairs, Senior Citizens, preneurs and the self-employed with corporate financing Women and Youth in January 2012. Together financing and advisory services. It KfW Entrepreneur Loan: the corner- with a partner investor, KfW is providing places emphasis on start-ups and stone of SME promotion equity to cover the financing needs of com- general investments, innovation and The KfW Entrepreneur Loan has a broad panies that contribute to solving social environmental protection. scope of application and remained the pro problems with innovative ideas. The programme through which KfW promoted the gramme promotes business models provid- Financing volume overview most companies in 2012. More than 33,000 ing services or products for social issues KfW Mittelstandsbank’s commitment KfW Entrepreneur Loans were granted that will be self-sustaining in the medium to volume was slightly above the prior-year last year alone, totalling EUR 7.8 billion. long term. The new financing offering is level at EUR 24.1 billion. This was espe- This exceeded the high levels already intended to provide them with the capital cially due to the strong demand from seen in the previous year by 1,400 com- they need to grow and implement effective established companies for investments mitments or EUR 1.5 billion. approaches on a broad scale. With this new and working capital as well as a signifi- provision of growth capital, KfW is also cant increase in demand for loans for The ongoing optimisation of the programme encouraging the establishment of a financ- environmental protection measures. also contributed to this. For example, ing market for social enterprises in Ger- 20-year fixed-interest periods have been many. The creation of such a market should Driven by the demand for general invest- available again since September 2012. close the existing financing gap. The first ment loans under the KfW Entrepreneur This enables SMEs to benefit even more investments were made in 2012. Loan, the promotional business volume in from the current low interest rates on start-ups and general corporate financing the capital market. Start-up financing as a special We promote Germany rose from EUR 9.4 billion to EUR 11.1 bil- focus of ERP promotion lion. This increase was achieved despite The financing limit was also raised from KfW has pooled its start-up financing in the fact that the number of start-ups fell EUR 10 million to EUR 25 million per pro- ERP programmes since the beginning of as the labour market improved, reducing ject. This will benefit industrial SMEs in 2012. Given the major economic signifi- demand for such credit. particular (which are often family-owned cance of start-ups, this provides considera- and run). It is precisely these companies ble resources to promote them. Start-ups In the promotional area of innovation that both want and need to make increas- are one of the primary drivers of long-term financing, meanwhile, commitments ing use of the opportunities and chal- economic growth, and supporting these and

dropped to EUR 1.0 billion. This repre- lenges provided by globalisation, and to other young companies is thus one of the internationalisation secure We sented a normalisation after the previous invest accordingly. main promotional areas at KfW. Start-up year in which a total commitment volume promotion was further optimised in 2012, of EUR 2.2 billion was driven by extraor- German SME Equity Fund for example by introducing a 20-year fixed dinary effects from individual high-vol- The German SME Equity Fund, initiated interest rate period. ume financing commitments. In response in 2010 together with Commerzbank, to good earnings in 2012, many compa- provides larger SMEs in Germany with ERP Start-Up Loan nies also used their own funds to finance access to a flexible and entrepreneur- The ERP Start-Up Loan – Universal offers innovation rather than taking out loans. friendly finance offering. The provision of especially attractive interest rates and real equity in the form of minority inter- can be used in a variety of ways. Commit- We promote development promote We In the promotional area of environ- ests ensures that businesses maintain a ments totalled EUR 2.1 billion in 2012 mental protection, total commitments high level of entrepreneurial autonomy. after EUR 0.7 billion the previous year. of EUR 12.0 billion exceeded the already The aim of the fund is to finance long- high EUR 10.8 billion of the previous term growth plans, as these make a Smaller start-up projects are promoted year. The primary drivers of this develop- major contribution to securing existing through the special programme ERP ment were corporate energy efficiency jobs and creating new ones in Germany. Start-Up Loan – StartGeld. In this pro-

measures and investment in facilities for gramme, KfW assumes 80 % of the credit Further topics use of renewable energies. KfW Programme to Finance risk from the start-ups’ own banks with the Social Enterprises help of a guarantee from the European KfW launched the Programme to finance Investment Fund, provided under the Euro- social enterprises on behalf of the Federal pean Union’s Competitiveness and Innova-

KfW Annual Report 2012 We promote Germany | Domestic promotion | 53 tion Framework Programme (CIP). This Innovation and equity finance demanding collateral from companies. By enables many start-ups to access loan High-Tech Start-Up Fund bearing the risk burden, KfW helps banks financing for the first time. The improve- The High-Tech Start-Up Fund II, launched to provide financing to companies with ments implemented in 2011, particularly in 2011, gained two further private inves- high-risk innovative projects. The very raising funding caps, have paid dividends. tors in 2012, taking the fund volume to a favourable interest rates at present are Against the trend of declining overall total of EUR 293.5 million. KfW has also providing incentives for companies demand for start-up financing, the commit invested EUR 40 million, which makes it to bring forward planned research and ment volume for the ERP Start-Up Loan – the second largest investor after the Fed- development, or to increase spending on StartGeld rose from just under EUR 250 eral Ministry for Economics and Technol- research and development projects in million to EUR 280 million. ogy. A total of 16 investors – of which 14 order to further develop existing products are internationally active German indus- or create new ones. This is making SMEs ERP Capital for Start-Ups trial companies – are involved in the more competitive and ready for the future. Our debt capital offering is completed by High-Tech Start-Up Fund. uncollateralised subordinated loans under The commitment volume was EUR 0.9 the long-proven mezzanine programme The High-Tech Start-Up Fund provides billion, compared to EUR 1.3 billion in the ERP Capital for Start-Ups. The funds are venture capital to young technology com- previous year. The healthy earnings situa- often used for succession plans. They panies in their seed phase (first year of tion meant that many SMEs were able to thus make an important contribution to existence). The aim of seed financing is finance innovation using their own funds the issue of generational succession in to finance the start-up’s technology until and so did not need to take out loans. companies, which is a pressing matter in it reaches at least the prototype stage Germany in particular, given the large (proof of concept) or even until it Corporate environmental financing number of SMEs and demographic devel- launches on the market (proof of market). KfW Renewable Energies programme opment. The ERP Capital for Start-Ups In addition to venture capital, the High- KfW is supporting the energy turnaround programme supported almost 900 start- Tech Start-Up Fund also provides tech- with various promotional programmes, ups in 2012 with subordinated capital nology companies with management sup- primarily in the commercial sector. Pro- totalling EUR 138 million in 2012. This port and a network of established motional activities in the area of renew did not quite match the previous year’s partners. able energies are an important component level (1,300 start-ups, EUR 168 million). of this, and KfW has a substantial market ERP Start Fund share here. Data available for 2011 KfW not only provides start-ups with debt As part of the ERP Start Fund, KfW shows that KfW programmes covered capital and subordinated loans, but also invests together with a private lead around a third of the investment made in equity capital to cover the financing investor, making an equal contribution Germany to build renewable-energy facil- needs of technology-focused and high- under the same terms, in young technol- ities for heat and electricity generation. tech start-ups. While established compa- ogy companies that have already com- Almost half of the new electricity-gener- nies can often finance their innovation pleted their first stages of development. ating capacity was promoted by KfW. projects internally, technology-focused, Lead investors may be venture capital A particularly large share of promotion innovative start-ups usually have insuffi- funds, private equity firms or business went to wind power. KfW was involved in cient funds and take a very high risk in angels, for example. The ERP Start Fund around three quarters of onshore wind establishing themselves. This means that can also match funding provided by the farms. private equity providers are usually European Investment Fund (EIF) and the unwilling to finance such projects. The European Angels Fund (EAF) launched by The positive trend continued in 2012. The High-Tech Start-Up Fund has assumed an the Federal Ministries of Economics and promotional business volume of EUR 7.9 important role here. Technology. In 2012, the ERP Start Fund billion for investments in renewable ener- made 153 investments with a volume of gies exceeded the previous year’s result KfW Film Financing EUR 58.2 million. of EUR 7 billion. As part of the cultural and creative economy, the German film industry has great ERP Innovation Programme Electricity generation from renewable innovative and commercial potential. KfW Established SMEs need to invest too – in energy sources is promoted in the KfW Film Financing is aimed at German film new products, in further developing and Renewable Energies Programme – Stan production companies, but also finances improving their products, or in optimising dard. The KfW Energy Turnaround Action productions by foreign film companies in production methods. KfW’s ERP Innova- Plan raised the maximum loan amounts Germany. KfW provides direct loans to tion Programme provides long-term considerably in order to promote the prefinance contractually agreed funding financing of this close-to-market expansion of onshore wind farms. A and also to close gaps in the film budget. research and development. Funds are 20-year fixed interest rate option was It thus serves to expand financing options provided through a financing package also introduced in the autumn. The pro- for the German film industry. consisting of a traditional loan and a sub- portion of wind power in the total volume ordinated loan. KfW assumes the full risk of the Renewable Energies – Standard for the subordinated tranche without programme increase dramatically last

54 | KfW Annual Report 2012 We promote Germany | Domestic promotion year to 38 % (2011: 26 %). Another pleas- The programme is part of the Energy banks for larger-scale corporate plans in ing development was the almost three- Efficiency in SMEs joint initiative between the areas of energy efficiency, innovation fold year-on-year increase in promotion KfW and the Federal Ministry of Econom- and renewable energies. The first such for modernisation of existing facilities – ics and Technology. SMEs receive special projects have already been completed. known as “repowering”. As in the previous promotion here to tap into potential for years, a large portion of KfW’s financing greater efficiency. Promotional programmes for went to the construction of photovoltaic business consultancy systems. With a commitment volume of EUR 3.5 In addition to its financing offerings, KfW billion, promotion of industrial energy also promotes advisory services for start- The KfW Renewable Energies – Premium efficiency reached a new high in 2012 ups and SMEs. programme is part of the market incen- (2011: EUR 2.8 billion). Promotion was tive programme of the Federal Ministry focused on new buildings with low energy Start-up coaching in Germany for the Environment, Nature Conservation consumption, and on modernising “Start-up coaching in Germany” is a joint and Nuclear Safety. With low interest machinery. initiative between the Federal Ministry of loans and reduced repayment amounts Economics and Technology, the German subsidised by Federal Government funds, Since the beginning of the year, general Federal Ministry of Labour and Social this promotes facilities for the genera- corporate environmental protection Affairs and KfW, and is financed from the tion, distribution and storage of renewa- measures have been eligible for financing European Social Fund. The promotional ble energy. In 2012, the terms of promo- at the signal interest rate of 1 % p. a. programme aims to secure the long-term tion were improved for some areas, for (lending rate) under many versions of the position of start-ups in Germany and pal- example deep geothermal systems. This KfW Environmental Protection Pro- pably improve their prospects of success. programme remained focused on heating gramme. In addition, resource efficiency As a result of the changed labour market networks last year, followed by biomass and resource-saving measures can now conditions, the number of commitments plants for heat generation. also be promoted. fell considerably on the previous year from around 29,000 to just under 21,000. Promoting the environment and The promotional business volume in gen- Because the statutory framework for energy efficiency eral environmental protection measures awarding the start-up grant has changed Even in the short term, energy efficiency was around EUR 0.5 billion in 2012, as in – as one of the main application require- measures can demonstrate impressive the previous year. Of this total, around ments in the version of the programme We promote Germany successes in reducing electricity con- 28 % was attributable to the newly intro- for start-ups following unemployment – sumption. Using these savings potentials duced measure. this decline was to be expected. This systematically is an important part of makes it all the more pleasing that the achieving the Federal Government’s KfW Offshore Wind Energy Start-up Coaching for Start-ups following energy and climate policy targets. To pro- programme Unemployment programme option mote investment with which to increase One of the first milestones of the KfW remained in strong demand. At just over energy efficiency, and environmental pro- Energy Turnaround Action Plan was the 60 %, a considerably larger share of com- jects, in a more targeted manner, KfW at launch in June 2011 of the KfW Offshore mitments went to this promotional pro-

the beginning of 2012 has moved these Wind Energy programme, which was gramme. KfW recorded almost 16 % more internationalisation secure We promotional areas into two separate pro- keenly anticipated in the offshore sector. commitments in the standard version of grammes, which operate as successors Project companies can obtain high-vol- the programme for start-ups. This strong to the ERP Environmental Protection and ume loans through the programme as increase not only helped to compensate Energy Efficiency Programme. part of banking syndicates in order to proportionately for the decline in com- build wind farms in the open sea. mitments in the programme variant for Thus, since the beginning of the year, the start-ups following unemployment, but KfW Energy Efficiency Programme has New offshore projects were postponed in also stabilised the number of commit- been bundling the promotion of all invest- 2012 due to the problems in connecting ments for Start-up Coaching Germany at ment measures in the area of energy effi- offshore wind farms to the power grid. a high level overall. We promote development promote We ciency, resulting in considerably improved programme conditions. As part of the KfW Energy Turnaround Round Table and Energy Turnaround Action Plan, the maxi- Financing Initiative Turnaround Consulting mum loan amounts were raised signifi- The “KfW Energy Turnaround Financing The Round Table and Turnaround Con- cantly. As an additional incentive, signal Initiative” was launched at the start of sulting promotional programmes are interest rates of 1 % p. a. (lending rate) the year as a further building block of the aimed at SMEs in economic difficulties that need help from external advisors in and the option of a 20-year fixed interest Energy Turnaround Action Plan to accel- Further topics rate were introduced in the course of erate the transformation of the energy order to overcome their crises. The the year. supply. KfW provides funds for syndicated grants towards the consultancy costs for financing at the invitation of commercial the Round Table are financed from KfW

KfW Annual Report 2012 We promote Germany | Domestic promotion | 55 funds, and for Turnaround Consulting funds from the Federal Ministry of Eco- vices through KfW last year. Qualified from the European Social Fund. A total of nomics and Technology, enabled SMEs energy efficiency consulting by an in 2,100 commitments were made under to benefit from KfW grants for expert ad dependent energy advisor focuses on Round Table and 1,400 under Turnaround vice on energy efficiency last year too. In identifying energy saving potential Consulting. These figures were similar to addition, the process of assessing appli- and demonstrating possible action to the previous year. cations was streamlined again consider increase the company’s energy effi- ably in comparison to the predecessor ciency in a targeted manner. It thus Energy Consulting for SMEs programme Energy Efficiency Consulting, offers a sound basis for investment The Energy Consulting for SMEs promo- which expired at the end of 2011. Approx decisions to reduce a company’s energy tional programme, which was launched imately 3,400 SMEs were able to fund costs and helps businesses to become on 1 March 2012 and is financed using qualified energy efficiency consulting ser- more competitive.

Volume of promotional financing of the KfW Mittelstandsbank business area as at 31 December 2012

Programme Financing volume Purpose 2012 2011 EUR in EUR in millions millions

Total KfW Mittelstandsbank 24,070 22,407 Start-ups and general investments 11,067 9,365 Corporate investments under the economic KfW Special Programme – 691 stimulus programme Investments by SMEs (including start-ups until restructuring of start-up promotion as of KfW Entrepreneur Loan 7,811 6,338 1 April 2011) Entrepreneur Capital – Capital for work Investments by SMEs with debt capital and and investments – 31 subordinated loans Start-ups and young companies, company ERP Capital for Start-Ups 138 168 succession through subordinate loans Start-ups and young companies, KfW Start-Up Loan (including KfW StartGeld) 373 943 company succession Start-ups and young companies, ERP Start-Up Loan 1,961 – company succession Investments to improve regional ERP Regional Promotion Programme 426 597 economic structure Private equity for small and ERP Participation Programme 69 83 medium-sized enterprises Other promotional programmes 194 137 Global loans – leasing – 250 Consultancy grants 95 127 Innovation 960 2,214 Research and development measures, market ERP Innovation Programme 879 1,309 launches with debt and subordinated capital Young innovative technology companies through ERP Start Fund 58 70 private equity Special financing R&D 22 835 Development costs in aviation Environment 12,043 10,828 ERP Environmental Protection and Environmental protection and energy Energy Efficiency Programme – 1,894 efficiency measures KfW Environmental Protection Programme 494 136 Environmental protection measures KfW Energy Efficiency Programme 3,519 1,178 Energy efficiency measures KfW Renewable Energies Programme 7,937 7,017 Investment in renewable energies KfW Offshore Wind Energy Programme – 542 Offshore wind farms High-volume investments in renewable energy KfW Energy Turnaround Financing Initiative 65 – sources and energy efficiency measures ERP Environment – Commercial Vehicles Acquisition of energy-efficient commercial vehicles (including grant programme) 19 26 above 12 tonnes BMU Environmental Innovation Programme Projects with demonstrative character in the area (including grants) 10 36 of environmental protection

Differences in the totals are due to rounding

56 | KfW Annual Report 2012 We promote Germany | Domestic promotion Commitments by the business area KfW Mittelstandsbank in 2012, by federal state*)

Schleswig-Holstein

Mecklenburg-Western Federal state Number 2012 volume Pomerania Hamburg (EUR in millions)

Bremen Baden-Württemberg 13,972 3,886 North Rhine-Westphalia 3,885 Lower Saxony Berlin 20,571 Bavaria 22,335 3,688 Lower Saxony 8,376 2,158 Brandenburg Hesse 5,140 1,592 Saxony-Anhalt North Rhine-Westphalia Brandenburg 1,424 1,302 Rhineland-Palatinate 4,381 1,081 Saxony Mecklenburg-Western Pomerania 1,115 1,066 Thuringia Hesse Schleswig-Holstein 3,032 1,021 Saxony-Anhalt 1,234 928 Rhineland- Saxony 2,255 764 Palatinate Thuringia 1,308 554

Saarland Hamburg 1,099 371 Berlin 1,319 305

Bavaria Saarland 977 213 Bremen 671 211 Baden-Württemberg Not indicated 3 16

Abroad 192 933 We promote Germany

You can access and analyse KfW’s promotional statistics online at www.kfw.de/foerderreport *) Excluding consultancy grants We secure internationalisation secure We We promote development promote We Further topics

KfW Annual Report 2012 We promote Germany | Domestic promotion | 57 The promotional offering for private clients

KfW supports private individuals in Improved conditions for energy-effi- purchasing homes, and owner-occu- cient construction and refurbishment pants, private landlords and housing KfW’s Energy-efficient Construction companies in energy rehabilitation and Energy-efficient Refurbishment pro- and construction of energy-efficient grammes promote all investment in houses and flats as well as improving refurbishment or construction of ener- accessibility in existing homes. It also gy-efficient owner-occupied or rented helps young people in its promotional homes on behalf of the Federal Ministry programmes to finance their voca- of Transport, Building and Urban Devel- tional training and degrees. opment. In these programmes, KfW only finances those projects that are better Promotional volume overview than the minimum standard prescribed by KfW funded private clients with a total law. The KfW Efficiency House concept of EUR 17.4 billion in 2012. This high developed by KfW lies at the heart of level of promotion is due, in part, to the energy-efficient construction and refur- increased use of federal budget funds for bishment. The KfW Efficiency House is Energy-efficient construction and refur- now well established on the market and Homes and education are main promo- bishment, and also to the systematic fur- has become a uniform national standard tional areas. ther development and improvement of for energy efficiency. the bank’s promotional programmes and processes. Homes and education remain KfW further improved the programme the key promotional areas for KfW, with a and the application procedure in 2012 to focus on the energy turnaround and orient the products more heavily on clients demographic change. and sales partners. The introduction of the online confirmation function via which the A total of EUR 15.1 billion was committed programme and the processes have been in the area of homes. KfW used these made much clearer and more efficient for funds in 2012 to promote the purchase, end clients, sales partners and energy con- construction, refurbishment or conversion sultants, is particularly noteworthy. of around 500,000 homes. A large and promising number of commitments were Around 70 % of newly built energy-efficient made in the Energy-efficient Construction homes under the Energy-efficient Con- and the Energy-efficient Refurbishment struction and Energy-efficient Refurbish- programmes. Energy efficiency was im ment programmes are constructed by proved in more than 242,000 homes. A private builders. Consequently, the bank total of 116,000 energy-efficient homes often focuses on private applicants in were newly built, of which around 30 % consideration for further improvements were highly demanding KfW Efficiency to programme access. For example, at the

Houses 40 and 55. Annual CO2 emissions beginning of 2012, investment grants in were reduced by around 6 million tonnes Energy-efficient Refurbishment were in under the Energy-efficient Construction creased by 2.5 percentage points to up and Energy-efficient Rehabilitation pro- to 20 % at every promotional level in order grammes. KfW promoted accessibility con- to also reach private owners with no need version for around 13,000 homes. Under for loans with the promotional offering. the KfW Home Ownership Programme, a commitment volume of EUR 4.9 billion was Energy planning and construction support Promotion is also extended to cover support made to purchase or construct own homes. for a building project may also be financed by energy efficiency experts during the plan- This enabled around 100,000 builders and to assure the quality of energy refurbish- ning and construction phases to assure refur- families to realise their dream of owning ment. A central list of registered energy bishment project quality. their own home. efficiency experts which KfW co-developed

58 | KfW Annual Report 2012 We promote Germany | Domestic promotion with the Federal Ministry of Transport, requirements having been simplified. Building and Urban Development, the Additional measures such as creation Federal Ministry of Economics and Tech- of accessible balconies and living nology and the Federal Office of Eco environment measures were promoted nomics and Export Control has simplified in 2012 at an effective interest rate clients’ access to qualified energy con- starting at 1 %. sultants since the beginning of 2012. The senior-friendly house / senior-friendly According to estimates, up to 25 % of flat standard was introduced. This stan buildings in Germany are heritage listed dard is to be further established as the Energy refurbishment of buildings deemed or deemed worthy of preservation. Until bank aims to better daily quality of living worthy of preservation can be promoted recently it was difficult to meet the high for all people and age groups through more easily under the new KfW Efficiency requirements for energy refurbishment improved accessibility measures. House – Monument standard. of these buildings. KfW solved the dilem ma of opposing requirements for build- Thinking of the future in ing preservation and energy efficiency home ownership by introducing its new KfW Efficiency The KfW Home Ownership Programme is House – Monument standard. Simplified an important basis for many real estate promotional requirements give equal financings. Promotion remained at the weight to the preservation of listed mon- previous year’s level of funded ownership uments and other buildings deemed wor- measures, enabling nearly 100,000 appli- We promote Germany thy of preservation and achievement of cants to purchase or build their own home. energy-efficiency goals. The federal government heavily supports this promotional funding in its efforts to Our cooperation with the promotional increase the proportion of owner-occupied institutions of the federal states (Landes- properties, which has stood at 46 % since förderinstitute – LFI) is key to the wide- 2010. The 30 to 50 age group – those spread success of Energy-efficient con- planning their future – takes particular struction and refurbishment. For example, advantage of this KfW promotion. Under

the L-Bank in Baden-Württemberg supple- the KfW Home Ownership Programme, internationalisation secure We mented our energy-efficient construction KfW ultimately also makes an important and refurbishment programmes with addi- contribution to creating secure individual tional federal state funds, implementing a old-age provision. commitment volume of EUR 700 million using federal and state support synergy. KfW continues its cooperation with the promotional institutions of the federal Better living at all ages states. Using programme-based global Besides the energy turnaround, demo- funds under the KfW Home Ownership graphic change is another important Programme, these institutions may select We promote development promote We future issue for KfW domestic promotion. their own focal points by adding funding, Increased funding for conversion measures In 2012, KfW replaced the former Senior- for example, for families with children. to improve accessibility addresses demo- Friendly Conversion programme funded Another example of the synergy between graphic change. by the Federal Ministry of Transport, KfW and state-level support is the newly Building and Urban Development with its introduced cooperation instrument LFI own newly expanded programme of the promotional refinancing – a hybrid prod-

same name. uct between programme-based global Further topics loans and general refinancing: With this The programme is now much more product KfW is committed to selected strongly geared to client needs, with the sustainable promotional issues, in the programme structure and promotional context of which it has no programme

KfW Annual Report 2012 We promote Germany | Domestic promotion | 59 offering of its own. In so doing, it grants solutions for energy-efficiency and acces- the LFIs a great deal of flexibility in sibility in converting their residential refinancing specific state programmes. properties. A special prize was addition- Examples of this include old-age provi- ally awarded for Monument Modernisa- sion through reverse mortgages or tion this anniversary year. A jury selected renewable energies in private house- the winners from a total of around 170 holds. Further key regional promotional entries. The winners received prizes total- effects are to be achieved in 2013 too ling EUR 30,000. Cooperation between KfW and promotional with this intelligent promotional instru- institutions of the federal states intensifies ment – not only for private but also for KfW is an established promoter in promotion. municipal and commercial clients. The education financing report on the promotional offering for The promotional area of education municipalities provides more informa- maintained the previous year’s high com tion on programme-related cooperation mitment volume of EUR 2.3 billion and with the LFIs. 110,000 commitments. The KfW Student Loan, in particular, was in greater de KfW award 2012 mand. A total of 24,800 commitments at The “Modernising with vision” motto a volume of EUR 1.1 billion were made of the KfW award for construction and under the KfW Student Loan. The Master housing was presented for the tenth time BAföG Programme supported more in 2012. The award recognised private than 56,000 individuals with a total of builders who came up with exemplary

Volume of promotional financing of KfW Privatkundenbank as at 31 December 2012

Programme Promotional business volume Purpose 2012 2011 EUR in EUR in millions millions

Total KfW Privatkundenbank 17,428 16,722 Housing 15,097 14,553 Energy-efficient Refurbishment and Construction 9,886 6,510 Energy modernisation and energy-efficient Energy-efficient Refurbishment 4,246 2,897 construction of residential buildings Energy-Efficient Construction 5,640 3,613 Conversion of residential accommodations Senior-Friendly Conversion 202 444 to improve accessibility Acquisition and construction of KfW Home Ownership Programme 4,879 5,891 owner-occupied property Housing Modernisation 10 1,707 Programme expired as of 31 December 2011 LFI Promotional Refinancing 120 – Education and Social Development 2,331 2,169 AFBG (Master BAföG) 267 269 Continuing professional development BAföG government loans 786 754 Education Loan 93 76 BAföG bank loans 27 25 Academic study KfW Student Loan 1,124 1,016 Tuition fee loans 32 31 Family caregiver leave loan 1 – Family caregiver leave

Differences in the totals are due to rounding

60 | KfW Annual Report 2012 We promote Germany | Domestic promotion EUR 267 million – a level similar to that dure. Information is available online con- of the previous year. cerning the amount of the fixed rates of interest based on the remainder of the KfW Student Loan makes lifelong loan term. learning possible The KfW Student Loan enables students Sweeping changes are to be made to the to cover their living costs regardless of KfW Student Loan in the summer semes- their parents’ income, with up to EUR 650 ter of 2013, further developing the life- per month. This gives many people their long-learning aspect of the product. In Further developing the KfW Student Loan first chance to study at all. The KfW Stu- addition to the first degree, additional now addresses and supports a broader dent Loan was further developed in 2012. academic degrees such as a second de target group. Financing terms are now even more strong gree, master’s degree, advanced or sup- ly geared to students’ needs. plementary studies and doctoral degrees may also be financed. Moreover, in future, KfW introduced a fixed-rate option in any degree can also be funded as a part- April for the repayment period thus con- time programme to address the work-life siderably improving students’ security in balance in the financing of education as planning. Graduates may apply to con- well. The age limit for the KfW Student clude a fixed-interest rate agreement for Loan programme has been raised to 44 the remainder of the loan’s term – maxi- for starting a degree course, in conjunc- mum ten years – effective either 1 April tion with the loan term. or 1 October, in a simplified online proce-

Commitments by KfW Privatkundenbank in the promotional area of housing in 2012, by federal state We promote Germany

Schleswig-Holstein

Mecklenburg-Western Federal state Number 2012 volume Hamburg Pomerania (EUR in millions)

Bremen North Rhine-Westphalia 60,750 3,173 Bavaria 48,850 2,635 Lower Saxony Berlin Baden-Württemberg 46,748 2,518 Brandenburg Lower Saxony 30,875 1,460 We secure internationalisation secure We Hesse 22,059 1,122 Saxony-Anhalt North Rhine-Westphalia Schleswig-Holstein 14,863 742 Rhineland-Palatinate 14,848 692

Saxony Berlin 5,649 494 Thuringia Hamburg 5,112 465 Hesse Brandenburg 5,898 439 Saxony 6,548 396 Rhineland- Palatinate Thuringia 3,434 215 Saxony-Anhalt 3,252 205 Saarland Mecklenburg-Western development promote We Pomerania 3,150 191 Bavaria Saarland 3,367 121

Baden-Württemberg Bremen 2,159 108 Not indicated 2 120 Further topics

You can access and analyse KfW’s promotional statistics online at www.kfw.de/foerderreport

KfW Annual Report 2012 We promote Germany | Domestic promotion | 61 Education financing beyond the KfW’s foundation business KfW Student Loan On the basis of an agency agreement, the KfW acts as a strong partner of the Fed- business of the Humanitarian Aid Founda- eral Government and the federal states tion for Persons Infected with HIV through in the field of education financing. The Blood Products has been conducted by KfW’s promotional volume in education Master BAföG (Upgrading Training Assis- KfW since 1995. The foundation was set financing has continued to rise significantly. tance Act) Programme supports individu- up by the Federal Government, federal als who are training to become master states, pharmaceutical companies and the craftsmen, master industrial technicians, German Red Cross. For humanitarian and trained specialists or the like. The Educa- social reasons, the foundation provides tion Loan gives low-interest financial financial aid in the form of a monthly pen- support to students in advanced stages sion to individuals who have been directly of training. BAföG recipients can claim or indirectly infected with HIV (human low-interest funding via a BAföG bank immunodeficiency virus) through blood loan or grants distributed by KfW after products, or who have AIDS as a result. In expiration of their aid in the form of certain circumstances, the affected per- interest-free government loans. In addi- son’s dependants may also receive aid. tion, KfW grants Tuition Fee Loans on behalf of Lower Saxony and Bavaria, to KfW supported around 620 affected indi- finance tuition fees in these federal states. viduals from foundation funds in 2012 Furthermore, KfW offers a programme on with monthly pension payments totalling behalf of the state of Bavaria, for work- around EUR 9.4 million. ing professionals on part-time bachelor’s degree courses.

Enabling family caregiving Since the beginning of 2012, support has been offered to enterprises in the form of interest-free loans to finance family care giver leave taken by its employees. KfW offers the combined refinancing of the family caregiver leave loans promoted by the Federal Ministry of Family Affairs, Senior Citizens, Women and Youth and granted by the Federal Office of Family Affairs and Civil Society Functions via a global loan. The promotional programme helps employees to balance their career with the care of family members.

62 | KfW Annual Report 2012 We promote Germany | Domestic promotion The promotional offering for municipalities

KfW gives public-sector clients a At the same time, the number of projects wide promotional offering for general and investment measures promoted investments and for special promo- increased considerably. For example, in tional purposes. Municipalities and 2012, more than 2,100 projects were local authorities, municipal associa financed through the lending programmes – tions, and municipal and social enter- around 40 % higher than that of the Promotion of municipalities and social insti- prises can receive promotional finan previous year, but which also reflects a tutions continued at a high level. cing for infrastructural investments. trend to piecemeal accomplishment of Municipalities apply directly to KfW goals by breaking them up into smaller while municipal and social enterprises measures requiring an even more de can apply for KfW financing via a manding form of financing support. bank. KfW also offers global loans to the promotional institutions of the Urban Energy Efficiency Rehabilita- federal states, either under its co- tion and Municipal Energy Supply operation agreement as general refi- KfW launched two lending programmes nancing of LFIs to meet their pro as part of the Energy Turnaround Action motional targets, or in the form of Plan: Urban Energy Efficiency Rehabilita- programme-based global loans in tion – Energy Supply for City Districts, accordance with the promotional and Municipal Energy Supply. These pro- requirements of the relevant KfW grammes complement the long-estab- programme. lished promotion of energy-efficient We promote Germany building refurbishment. Promotional volume overview The wide range of support available for The aim of this programme, in which infrastructure for municipalities as well the interest rate is reduced from federal as for municipal and social enterprises budget funds, is to sustainably improve was continued at a high level in 2012. heat generation from combined heat and Further improvements were made to power plants and its distribution to city promotion for municipal enterprises in districts, and to improve the energy effi-

that loan financing is now offered with a ciency of municipal water supply and internationalisation secure We 20-year fixed interest rate period. The sewage systems. implementation and further development of special programmes in support of the A grant option under the Urban Energy energy turnaround and to address the Efficiency Rehabilitation programme challenges of demographic development was launched in November 2011 and were given special focus. met with a very positive reception in 2012. Municipalities can obtain grants In terms of overall infrastructure financing, for developing integrated district con- commitment volume amounted to a total cepts and employing a refurbishment We promote development promote We of EUR 3.8 billion after the very strong manager in order to create holistic solu- previous year. The year-on-year decrease tions in energy efficiency for all buildings of EUR 0.3 billion is primarily due to the in a specific neighbourhood. This offer- volume ceiling of EUR 150 million per year ing was well received. Nearly 170 plans effective for the city-states and local with a total volume of EUR 8.1 million authorities. A decline in investment activ- were funded in 2012.

ity following expiration of the stimulus Further topics package was also noted. Real investments This offering is complemented by the by municipalities, for example, declined by Municipal Energy Supply programme. nearly 10 % over 2011. Thus, KfW also promotes investment in expanding municipal distribution grids

KfW Annual Report 2012 We promote Germany | Domestic promotion | 63 as well as decentralised power genera- financing window was launched in Sep- tion based on highly efficient gas and tember 2012. steam power plants and the creation of decentralised electricity storage facilities. Cities and municipalities, municipal enterprises and social organisations receive KfW has been promoting energy-effi- low-interest loans for projects to improve cient rehabilitation projects for several the accessibility of public buildings and to years, with the offering considerably modify municipal infrastructures. This will improved in 2012. Repayment subsidies help older people and families with young were introduced as a special component children alike. of infrastructure promotion as well as housing promotion. A further programme, launched in Febru- ary 2013, is aimed at the very young; the Accessible City IKK/IKU Day-Care Expansion programme KfW is also intensifying its commitments will fund construction of children’s day- KfW is intensifying its promotion of acces in this area to meet the challenges of care centres and expansion of existing sibility and reacting to demographic change demographic change in municipal areas. ones to create childcare places, especially at municipal level too. In addition, the IKK/IKU – Accessible City for children under the age of three.

Volume of promotional financing of the KfW Kommunalbank business area as at 31 December 2012

Programme Promotional business volume Purpose 2012 2011 EUR in EUR in millions millions

Total KfW Kommunalbank 9,131 11,798 Infrastructure 3,833 4,148 KfW Investment Loans for Municipalities 1,795 2,482 Investment in municipal and social infrastructures, KfW Investment Loans for Municipal Enterprises 1,201 938 also with special reduced rate of interest in this case KfW Investment Loans for Social Organisations 406 553 under the Infrastructure Investment Offensive within the regional promotional areas Infrastructure Investment Offensive – 57 Urban Energy Efficiency Rehabilitation – Municipalities 228 92 Energy-efficient refurbishment of schools, school gymna- Urban Energy Efficiency Rehabilitation – siums and swimming pools, children’s day-care centres Social Organisations 31 27 and buildings for work with children and young people Urban Energy Efficiency Rehabilitation – Municipal Enterprises 25 0 Urban Energy Efficiency Rehabilitation – Grants 8 – Financial guarantees to municipalities LFI Promotional Refinancing Municipal Infrastructure 140 – General refinancing of the promotional Global loans to refinance the promotional institutions institutions of the federal states (LFI) 5,298 7,650 of the federal states

Differences in the totals are due to rounding

64 | KfW Annual Report 2012 We promote Germany | Domestic promotion Global loans to the promotional be promoted and financed from a single In addition, KfW offers the promotional institutions of the federal states source, as also set out in the report on institutions of the federal states general KfW has been closely cooperating with the promotional offering for private refinancing, the funds from which are used the promotional institutions of the fed- costumers. The German promotional for joint statutory promotional respon eral states (Landesförderinstitute – LFI) in landscape is becoming clearer, while sibilities in the individual federal states. Germany for 15 years, concluding clients are benefiting from targeted programme-specific global loans with low-interest support. Global loan cooperation activities based them on the basis of KfW promotional on KfW programmes were also further programmes. The programme-based global loans expanded in 2012. The payout volume were complemented in 2012 for the first rose by EUR 2.9 billion year-on-year. At The level of funding and the conditions time by promotional refinancing, with around EUR 5.3 billion, the volume of in the individual federal states’ pro- which KfW supports country-specific business in general refinancing declined grammes have been further improved promotional issues in the areas of envi- slightly but remains at a high level. due to bundling the promotional services ronmental and climate protection and of KfW and the LFIs. As a result, invest- demographic change, as well as promo- ment measures in municipal infrastructure tional issues with social objectives in as well as SMEs, housing and energy- areas where it does not provide a spe- efficient refurbishment of buildings can cific programme.

Infrastructure financing commitments by the KfW Kommunalbank business area in 2012, by federal state

Schleswig-Holstein

Mecklenburg-Western Federal state Number 2012 volume

Pomerania We promote Germany Hamburg (EUR in millions)

Bremen North Rhine-Westphalia 533 915 Bavaria 617 481 Lower Saxony Berlin Lower Saxony 318 353 Baden-Württemberg 378 301 Brandenburg Hamburg 23 272 Saxony-Anhalt North Rhine-Westphalia Hesse 185 250 Thuringia 61 221 Saxony Saxony 138 195 We secure internationalisation secure We Thuringia Berlin 17 161 Hesse Schleswig-Holstein 174 112 Rhineland-Palatinate 171 97 Rhineland- Palatinate Bremen 15 86 Mecklenburg-Western Saarland Pomerania 71 84 Saxony-Anhalt 42 76 Bavaria Brandenburg 66 75 Saarland 20 15 Baden-Württemberg Not indicated 1 140 development promote We

Infrastructure financing commitment volume excluding general refinancing of the promotional institutions of the federal states

You can access and analyse KfW’s promotional statistics online at www.kfw.de/foerderreport Further topics

KfW Annual Report 2012 We promote Germany | Domestic promotion | 65 Capital market-related financings

The area of capital market-based However, the ongoing discussions about Promotion with capital financing provides medium to long- the future regulatory requirements for market-based refinancing term financing for commercial enter- banks (especially the Capital Requirements The business area of capital market-re- prises through a variety of instru- Directive IV, CRD IV) and insurance com- lated financings realised a commitment ments and promotes investments panies (Solvency II) continue to stand in volume of around EUR 3.55 billion in in energy efficiency and renewable the way of a broad recovery of the secu- 2012 (2011: EUR 1.15 billion). Due to the energy in the EU. In addition to securitisation market in Europe. difficult situation for long-term financings ritisation products, it also offers in foreign currencies, the Refinancing of global loans and the Refinancing of A positive development was the imple- Export Loans Covered by Federal Guaran- Export Loans Covered by Federal mentation of market initiatives at the end tees programme was in high demand in Guarantees programme. of the year to promote the securitisation 2012 and contributed EUR 1.2 billion market with the aim of winning back the to this result. KfW decided to extend the European securitisation market trust of market participants through programme by a further three years in The new issue volume placed with inves- greater transparency. An example of this consultation with the Federal Ministry of tors in Europe was almost unchanged is the Prime Collateralised Securities Economics and Technology. year-on-year at around EUR 71 billion standard (PCS), which is to be established (2011: EUR 75 billion), but saw a consid- as a European quality label for securitisa- Securitisation instruments and global loans erable increase in demand from the mar- tions. The first Norwegian auto-ABS provided leasing companies and banks with ket. Risk premiums on almost all asset transaction has already been successfully approximately EUR 2.3 billion to finance and risk classes also declined in the certified. European DataWarehouse GmbH German SMEs (2011: EUR 450 million). course of this development. This affected (ED), which was initiated by the ECB and both the primary and secondary markets. has been operational since 2013, also KfW plans to continue to promote Ger- Among other things, the increased inter- shares this objective. The loan level data man commercial enterprises, the German est among investors was a result of the provided by ED leads to considerably export industry and measures to raise extremely low interest rates. Thanks to more transparent securitisation portfo- efficiency and advance renewable energy their attractive risk-return profile at pres- lios. The initiative will make provision of in 2013. To this end, it will allocate a ent, securitisation products often offer loan-level data a binding ECB collateral total of EUR 2.4 billion through securiti- investors an interesting alternative to eligibility criterion for the various asset sations, global loans and the Refinancing other bond segments such as government classes in a step-by-step process starting of Export Loans Covered by Federal Guar- bonds or uncollateralised bank bonds. The from 2013. antees programme. performance of European securitisations in the fifth year of the financial market The new issue volume can be expected to crisis remains stable. The European primary be close to the prior-year level in 2013, market was dominated again in 2012 by with the market again characterised by Dutch and British collateralised mort- high-quality securitisations such as German gages, while the relatively small German auto-ABS and Dutch and British securiti- securitisation market by European stand- sations of real estate loans (residential ards was characterised almost exclusively mortgage backed securities (RMBS)). In by securitisation of German car financing the search for yields, the spread narrow- (auto-ABS (asset-backed securities)). ing especially in the secondary market Despite a difficult market environment, can be expected to continue. the volume of new issues placed was close to the prior-year level at around EUR 6.3 billion (2011: EUR 6.4 billion).

66 | KfW Annual Report 2012 We promote Germany | Domestic promotion Sales and client focus

KfW has made good progress in vided interested builders with informa- for commercial enterprises, for example, at providing more targeted and efficient tion and advice directly from KfW. The least three quarters of visitors were made support to its clients. It introduced a events were very well received – not aware of the microsite through these cam- modernisation process at the start least thanks to their support by local paigns. In addition, we conducted PR work of 2012 which aims to orient the bank sales partners and a visit by the Federal in relevant media for target-groups, for more closely to the needs of clients Minister Dr Peter Ramsauer to the KfW example a media cooperation with the and the market. info-house in Munich. best-selling German magazine for SMEs.

New campaigns Senior-Friendly Conversion and the envi- Marketing activities in the commercial KfW gave its product marketing a funda- ronmental programmes for commercial sector focused particularly on our mental overhaul in 2012. Cross-media enterprises were advertised with further start-up finance offering, along with pro- campaigns are at the heart of this and campaigns. Thematic microsites were grammes for financing corporate invest- enable KfW to inform its clients in a tar- also designed for these programmes. ments to increase energy efficiency, gen- geted manner about promotional issues eral environmental protection and the use and products using coordinated measures Optimised web presence of renewable energies. A campaign in in different media. Clients are also able We provided straightforward and client- widely distributed print media advertised to engage with promotional programmes friendly information through our state- the municipal programmes for energy interactively on the website. The aim of of-the-art website, which features new, supply, city district utilities, increasing the cross-media campaigns was to raise enhanced and optimised functions and energy efficiency and energy-saving product awareness, to draw greater atten content. The first step involved redevel- building refurbishment. tion to existing and new online offers and opment of the two special areas of the We promote Germany ultimately to raise the promotional vol- website www.kfw.de/energiesparen and The success of the new concept can be ume for selected issues. www.kfw.de/gruenden. The new layout seen in the number of times the new is easy to navigate and the pages have information offering was accessed. They placed special emphasis on KfW’s already been visited 1.8 million times. Increased demand in the KfW infocenters positioning as a “responsible bank”. The Their consistent navigation enables users and an above-average response rate to basic idea behind its promotional policies to orient themselves quickly and find the information provided demonstrate the was presented across all communication information they are looking for. The success of the measures. channels. Interested parties were direc clear structure, information tailored to

ted to newly developed web pages for target groups, good overview and practi- Interactive online offering internationalisation secure We selected programmes and issues. In addi- cal examples provide an excellent experi- The consistent focus of the cross-media tion to general measures, a total of six ence for customers. campaign on attracting visitors to the web- programmes were marketed with tar- site was successful – almost 11.5 million geted cross-media campaigns in 2012. An interactive assessment tool is also visits in the period from January to Decem- available for the first time for the Energy- ber with a total of around 63.3 million page An example is the campaign for the Ener- Efficient Construction and Energy-Efficient views proves the great interest in KfW’s gy-Efficient Construction and Energy-Effi- Refurbishment programmes. This enables promotional offerings. Of these hits, cient Refurbishment programmes. Adver- users to check a project’s eligibility for 43.6 million related to domestic promotional tisements in newspapers and magazines, promotion in technical terms with an expert programmes. The popularity of online tools We promote development promote We online banners and targeted search en energy consultant online. It simplifies the such as the repayment calculator and the gine marketing helped the relevant web processes considerably for on-lending terms viewer is notable. This shows that pages to record a total of 1.3 million banks, end clients and consultants and customers appreciate and make use of a visits in 2012. Website hits were also provides greater consulting security. well-designed online offering. increased through an online cooperation, leading sales partners to see a consider Successful promotion In future, we aim to go even further to

able increase in enquiries. of programmes meet the demand for informative and Further topics Search engine marketing and online dis- easily navigable websites, and especially As part of the campaign, KfW also carried play advertising enabled KfW to promote in interactive features. We are therefore out the “KfW at your doorstep” informa- its promotional programmes effectively. In continuing to modernise our marketing tion tour. Taking in three cities, it pro- the case of environmental programmes channels. KfW launched a pilot project at

KfW Annual Report 2012 We promote Germany | Domestic promotion | 67 the end of 2012 with sales partners banks, cooperative banks, building socie- with other associations. We produced from all three banking sectors, to create ties, direct banks and, since spring 2012, joint publications and online information an Internet-based marketing platform. also insurance companies. KfW’s Key and also organised events together with Further steps in the On-lending Online Account Management supports sales part- other associations such as the German project are to be implemented together ners with an intensive and efficient knowl- Confederation of Skilled Crafts, the Cen- with pilot partners this year and next. edge transfer. Information on product tral Association for Sanitation, Heating The aim is to significantly accelerate the and procedural adjustments reaches sales and Air Conditioning, the German Associ- sales process and make it future-viable. partners quickly. In return, Key Account ation of Housing and Real Estate Compa- The long-term objective is online pro- Management receives feedback and sug- nies, the German Association of Energy cessing for most lending decisions in gestions from the market, helping it to and Water Industries and the German which sales partner client advisors can develop promotional products in a mar- Association of Local Utilities. be given immediate approval for a pro- ket-oriented way. motional loan. These measures were supported by mod- To strengthen the proven strategy of ern dialogue marketing, with customers An integrated approach on-lending through banks and now also contacted directly by post. Several hun- In addition to the Internet, KfW contin- insurance companies, KfW is in continual dred thousand consultants who advise ues to inform clients using traditional close contact with sales partners through their clients about KfW programmes were media. We frequently distribute bro- its Key Account Management. KfW further sent special innovative information mate- chures and leaflets. we have revised the developed its communication formats in rials, communicating a broad range of content and presentation of the main 2012 with workshops and monthly infor- current developments in their promotional information material to ensure an inte- mation to sales partners, in order to pro- programmes. We also held over 50 inten- grated approach covering all media. vide sales partners with a comprehensive sive training events on KfW promotional More than a million brochures and flyers overview of current topics of domestic programmes for more than 2,500 consult- were handed out at events to clients and promotion. Key Account Management was ants and members of chambers. There sales partners in 2012. These communi- the central point of contact in over 9,700 was high participation in online seminars cate our promotional offerings in an cases in all. in cooperation with DATEV, and specialist appealing and straightforward way. events for financial advisors, skilled Working closely with multipliers craftsmen and innovation consultants. Personal consultation plays a particularly KfW significantly expanded its work with important role. Sixty advisors in three chambers, associations and advisors infocenters are on hand to help both in 2012. This is illustrated by numerous clients and sales partners. We received media collaborations implemented in around 890,000 written and telephone partnership with chambers and associa- enquiries in 2012 – 10 % more than in tions active at national level. The aim the previous year. Of the enquiries, 40 % was to better familiarise their staff and related to promotional housing pro- clients with KfW’s promotional programmes, 43 % to education and 17 % grammes. For example, we launched the to the promotional offering for start-ups joint initiative “Better with Architects – and enterprises. The level of complaints Energy-efficient Buildings” with the Fed- is reassuringly low, however we take them eral Chamber of German Architects. all very seriously. We respond quickly to Information events by the chambers of the clients’ concerns, and aim to provide architects at individual state level and a solution. a joint publication informed 131,000 architects about financing opportunities Sales partners are essential through KfW. Together with the Associa- The marketing of our promotional prod- tion of German Property Managers, we ucts hinges on our on-lending sales part- produced a compendium for energy refur- ners. These include banks and savings bishment by homeowner associations and

68 | KfW Annual Report 2012 We promote Germany | Domestic promotion ˚We secure internationalisation The global competitiveness of German exporters secures jobs and economic strength in Germany and Europe. We see it as our mission to support this structure in the long term; industry knowledge, structuring expertise and individually tailored We promote Germany products help us to meet this responsibility. We secure internationalisation secure We We promote development promote We Further topics A green success story – In the Tongyuan wind farm, KfW is financing another promising six wind farms for Taiwan project in Taiwan, a growth market for renewable energies. It is the sixth wind farm in succession that the bank has realised together with the German wind farm developer infraVest GmbH and Bremen-based company wpd AG. The Aurich-based com-

70 | KfW Annual Report 2012 We secure internationalisation | Export and project finance We promote Germany We secure internationalisation secure We We promote development promote We

pany Enercon has already constructed 143 wind turbines since financing climate and environmental protection projects – Further topics 2005 as part of these projects. Tongyuan will add a further 23. in this case in renewable energies – is a core element of From 2015, the wind farms will together produce almost 400 KfW IPEX-Bank’s activities. megawatts of green energy when operating at full load. Sup- porting German companies with their export business and

KfW Annual Report 2012 We secure internationalisation | Export and project finance | 71 At a glance: Export and project finance in 2012

KfW IPEX-Bank is responsible for international export and project finance within the KfW Group.

KfW IPEX-Bank provides medium- and receive funding through the ERP (Euro- long-term financing in the interests of pean Recovery Program) export financing the German and European economy. programme and therefore offers a favour The specialist financier lends to busi- able fixed rate of interest based on the nesses ranging from medium-sized Commercial Interest Reference Rate (CIRR). enterprises to major corporations and in so doing helps to maintain the New generation of more environ companies’ international competitive- mentally friendly engines ness. This secures jobs and economic KfW IPEX-Bank is supporting an extensive strength in Germany – part of KfW’s research project by Tognum AG, one of legal mandate. the leading suppliers of engines, drive and power generation systems. The funds are German equipment exports for India directed into research and development With an ECA-backed loan (export credit to improve the fuel efficiency of diesel en agency) totalling USD 2 billion, an inter- gines in ships, locomotives and land vehi- national banking consortium led by cles, and therefore to reduce emissions of

KfW IPEX-Bank is supporting the Indian CO2, NOx and fine particulates. Tognum is petrochemicals group Reliance Industries investing a total of EUR 400 million in Limited in a challenging expansion pro- the project over four years, which is being ject – the company is simultaneously put into practice at its German sites in Over 40 exporters: Indian expansion project expanding its production at four locations Friedrichshafen and Stuttgart and secur- delivering state-of-the-art plant engineering in India. The expansion involves major ing skilled jobs in those regions. The loan equipment from Germany is one of the larg- deliveries of state-of-the-art plant engi- will be used in analytical research and for est corporate financing projects ever carried neering equipment from Germany. Over developing serial production for all the out with Hermes cover. 40 exporters from the SME sector are manufacturer’s relevant engine series. contributing their expertise and products The loan from KfW IPEX-Bank will supple- to the mega project and generating an ment the funds provided for the project expected German supply volume of some by Tognum itself and the European Invest- EUR 1.6 billion. The transaction is one of ment Bank (EIB). the largest corporate financing projects ever carried out with Hermes cover. The financing has a term of 13 years and is structured in equal shares of euros and US dollars. Part of the financing will

72 | KfW Annual Report 2012 We secure internationalisation | Export and project finance Shipbuilding in Germany – Ten new Airbus A321s for Vietnam flourishing cruise industry KfW IPEX-Bank, as part of a banking con- Room for up to 4,200 passengers and sortium of five international commercial the highest technical standard: the cruise banks, is financing ten Airbus A321-200 ship built by the Meyer Werft shipyard in aircraft. Buyer of the medium-haul air- Papenburg, Lower Saxony for Norwegian planes, which will be largely manufac- Cruise Line, Miami (USA). The price of tured in Germany, is Vietnam Aircraft this latest generation ship, which the Leasing Joint Stock Company, which will yard is building under the project name lease the planes exclusively to state- The EUR 700 million order for a modern Breakaway Plus is around EUR 700 million. owned Vietnam Airlines. The financing cruise ship is the result of many years’ collab- It is set to enter service in autumn 2015 of over half a billion US dollars has a oration among the bank, shipyard and ship- and to offer its passengers the greatest term of twelve years and is covered by owner. possible on-board independence, freedom an export credit guarantee provided and flexibility. The structured financing by the Federal Republic of Germany. from KfW IPEX-Bank was disbursed in KfW IPEX-Bank is one of the world’s lead- US dollars. It is covered by an export ing aircraft financiers. The bank places credit guarantee provided by the Federal particular emphasis on financing modern We promote Germany Republic of Germany and tied into the aircraft with low fuel consumption. These favourable ship CIRR (commercial inter- protect the environment and also serve Deep-rooted experience in structuring chal- est reference rate) set by the OECD. The as good collateral for financing as their lenging aircraft finance projects and hedging large-volume order will strengthen the value is far less affected by cyclical specific risks makes KfW IPEX-Bank a reliable shipyard industry in northern Germany downturns than that of older aircraft. partner in the international aviation industry. – including its supply chain throughout Germany – and is the result of many years’ successful collaboration among the

bank, shipyard and shipowner. internationalisation secure We We promote development promote We Further topics

KfW Annual Report 2012 We secure internationalisation | Export and project finance | 73 Business performance KfW IPEX-Bank – we support internationalisation

KfW IPEX-Bank is responsible for the AKA, the small-ticket expert Northstar export and project finance business Europe and other platforms offer further area within the KfW Group, and is a means of export financing for SMEs. wholly-owned KfW subsidiary. KfW IPEX-Bank focuses on providing medi- Although Germany leads in many high-tech um-term and long-term financing to areas, it has few raw material resources support the export industry, granting of its own. Whether in basic industries, loans for environmental and climate information and communications technol- protection projects, and financing ogy or the transformation of the energy transport and infrastructure projects supply, German industry is dependent on as well as projects to secure Germany’s commodity imports in order to ensure supply of raw materials. domestic production. KfW IPEX-Bank therefore finances projects around the world The international competitiveness of the that are important to supplying the domestic export economy is essential to German economy. prosperity and employment in Germany KfW IPEX-Bank’s stated aim is to ensure and and Europe and is therefore at the heart The convergence of global sales markets develop German and European export com- of the KfW Group’s promotional mandate – is leading to a rapidly increasing ex panies’ ability to compete on the interna- and thus also KfW IPEX-Bank’s mission. change of goods and services. Global eco- tional stage. During its 60 years on the market, the nomic integration is causing the demands specialised bank has become a firmly on infrastructure and transport to rise established partner to medium-sized steadily. Loans from KfW IPEX-Bank sup- companies and major corporations in port the expansion of road, rail, energy Germany and Europe. It provides bespoke and data networks, and of seaports and financing to support its customers in indus airports. The bank also finances invest- trialised and emerging market countries. ments in aircraft, ships and rail vehicles. It grants loans for the expansion of social As a specialist financier, KfW IPEX-Bank con- The innovative strength and production infrastructure, as well as for public-pri- centrates on key industrial sectors and the expertise of German and European vate partnership (PPP) projects, for exam- areas of energy, environment, raw materials, companies are key success factors of ple the construction and modernisation transport and infrastructure. the domestic economy in international of hospitals, schools and administrative competition. In many cases it is precisely buildings. SMEs that have established a world-leading position in their specialist area. The issues of climate change, environmen- KfW IPEX-Bank offers tailor-made financ- tal protection and the energy turnaround ing to support them in marketing their are high on the German Government’s products successfully. SMEs also have an political agenda. The tragic nuclear melt- important indirect role in value creation down at Fukushima in Japan in March as suppliers to large corporations working 2011 led to a rethink around the world – on international projects. The loans from for a safer and better future. European KfW IPEX-Bank to finance major projects and especially German companies are therefore also make a significant contri- world leaders in many areas of energy and bution to supporting German SMEs. Col- environmental technology. To maintain laborations with the credit institution and expand this lead, KfW IPEX-Bank also

74 | KfW Annual Report 2012 We secure internationalisation | Export and project finance contributes to bespoke financing solutions. Excellent development Structuring expertise, extensive knowledge in new business of the relevant industries and regional In the market environment described, the The bank reinforced its position in 2012 as a presence in important growth markets for bank reinforced its position as a reliable reliable partner to the export economy. Germany’s export industry help the bank partner to the German and European to meet this responsibility. Market success export economy and a financing partner ensures jobs and economic strength – for investments in infrastructure and while also providing long-term climate transport, environmental and climate pro- protection. tection and raw materials supply projects in Germany. Stable demand for export and project finance The Export and Project Finance business New commitments from the original credit The global economy lost momentum over area, for which KfW IPEX-Bank is respon- business increased to EUR 12.9 billion. the course of 2012. This was primarily sible, generated a commitment volume due to the industrialised nations, and in of altogether EUR 12.9 billion in 2012, particular the euro area and the UK, plus loans of EUR 0.5 billion to refinance which found themselves in a period of banks under CIRR ship financing. New recession. The developing and emerging commitments from the original credit We promote Germany market countries remained the drivers of business were thus EUR 1.4 billion higher the world economy and continued their year-on-year. KfW IPEX-Bank’s business above-global-average growth. However, model, which focuses on the German they did not expand at the same dynamic economy’s key industries, has therefore pace as in previous years. It became fully proven its worth. increasingly clear that emerging market countries have home-grown weaknesses New commitments by business sector to overcome, such as deficient infrastruc- KfW IPEX-Bank supports German and Market success of German and European

ture, reform backlogs etc. Financing from European companies – from medium- companies secures jobs and economic internationalisation secure We European lending banks remained sub- sized enterprises to major corporations – strength – while also providing long-term ject to restrictions resulting from the in their business activities around the climate protection. financial and sovereign debt crisis, bal- world. It helps to maintain and expand ance sheet adjustments and the forth- their competitive position on international coming Basel III requirements. However, sales markets with bespoke financing. this was partly compensated by financing from non-European banks and capital The financial experts at KfW IPEX-Bank market products. have proven knowledge of the market and key economic sectors. These include We promote development promote We Overall, global demand for investment basic industries, automotive and plant goods from German and European manu- engineering, retail, pharmaceuticals, spe- facturers remained stable in 2012, ciality chemicals, health and telecommu- despite these developments. In a grow- nications, and also energy and the envi- ing number of individual cases, however, ronment. In the area of transport and the demand for financing was met with infrastructure, the bank’s business activi-

limited supply. ties focus on the maritime industries, rail, Further topics aviation, transport and social infrastruc-

KfW Annual Report 2012 We secure internationalisation | Export and project finance | 75 ture sectors. KfW IPEX-Bank is one of the ticular on growth markets in the develop- world’s leading providers of financing, ing and emerging market countries that particularly for ships, rail vehicles, air- are important to the German and Euro- craft, and energy projects, as well as for pean economy – both in terms of exports the basic industries. and direct investment. The bank also supports internationally oriented compa- All business sectors of KfW IPEX-Bank nies through financing in Germany, for made a positive contribution to the example investment and acquisition overall result in 2012. In terms of financ- financing. ing volume, the Maritime Industries (EUR 2.5 billion), Power, Renewables and Extensive knowledge of regional market Water (EUR 2.1 billion) and Industries and conditions and long-standing experience Services business sectors (EUR 2.1 billion) in structuring complex export and invest- were especially significant here. A con ment projects enable KfW IPEX-Bank to siderable portion of commitments in the become involved in countries where Regional knowledge and structuring expertise Maritime Industries sector consisted access to finance is difficult. To support enable the bank to become involved even in of financing for cruise ships and invest- its international activities, the bank has countries where access to finance is difficult. ments in the offshore industry. representative offices in Abu Dhabi, Bangkok, Istanbul, Johannesburg, Mos- A local presence on clients’ cow, Mumbai, New York, São Paulo and target markets Singapore, and a branch office in London. Products from Europe and especially Germany are in high demand internation- In 2012, 26 % of new loan commitments ally. KfW IPEX-Bank provides individual were in Germany (EUR 3.4 billion), 38 % financing solutions to market domestic in the rest of Europe (EUR 4.9 billion) goods and services, generate orders, and 36 % in countries outside Europe boost production and create value. It (EUR 4.6 billion). The high proportion of supports its customers and their projects new business in emerging markets (29 %) throughout the world, focusing in par- clearly underlines their major relevance

New commitments by business sector (in EUR billions)1) Total: EUR 12.9 billion2)

2.5 2.1 2.1 1.8 1.7 1.6 1.1

0 0.5 1.0 1.5 2.0 2.5

Maritime Industries Power, Renewables and Water Industries and Services Aviation and Rail Financial Institutions, Trade & Commodity Finance Basic Industries Transport and Social Infrastructure

1) Excluding bank refinancing from CIRR ship financing 2) Differences in the totals are due to rounding

76 | KfW Annual Report 2012 We secure internationalisation | Export and project finance for the export sector. These markets have Bank Group’s Environmental, Health, and shown themselves to be largely crisis- Safety Guidelines (EHS). The Equator proof growth drivers in the real economy. banks maintain a continuous dialogue in German companies will be expanding which KfW IPEX-Bank actively partici- their business outside Europe and generat- pates in order to further enhance these ing more new business – KfW IPEX-Bank, high standards. with its long-term approach, will be supporting them in this. For KfW IPEX-Bank, one aspect of acting responsibly is rendering its own office

Environmental and operations CO2-neutral. For example, the social responsibility bank’s head office in Frankfurt is one of KfW IPEX-Bank acts responsibly. When the most energy-efficient office buildings KfW IPEX-Bank meets its global environmen- considering export and finance projects, in the world. The West Arcade building’s tal, social and economic responsibility. it aims to provide particular support to primary energy consumption of 98 kWh/m2 those projects that will have a positive per year is well below existing standard impact on the environment and climate. levels. Together with its parent company, In view of the international nature of its KfW IPEX-Bank also uses 100 % green lending business and the global environ- electricity generated from hydropower. mental, social and economic relevance of Since 2006, KfW IPEX-Bank has rendered its actions, KfW IPEX-Bank joined the remaining emissions, such as those Equator Principles Financial Institutions resulting from necessary business trips,

(EPFI) in 2008. The so-called Equator CO2-neutral through the purchase and Banks, which now number more than 70, retirement of emission certificates. adhere to an extensive set of regulations in order to meet environmental The ABCs of environmental and social standards when financing and social assessment projects. This includes compliance with In addition to the Equator principles International Finance Corporation (IFC) – i. e. not limited to project finance

Performance Standards and the World – KfW IPEX-Bank classifies every project it We promote Germany

KfW IPEX-Bank abroad We secure internationalisation secure We ˚Moscow ˚London

˚New York ˚Istanbul

˚Abu Dhabi

˚Mumbai ˚Bangkok

˚Singapore We promote development promote We

˚São Paulo ˚Johannesburg

Branch office Representative offices Further topics

KfW Annual Report 2012 We secure internationalisation | Export and project finance | 77 finances into one of three categories “A”, protection targets. The main focus was “B” or “C” as part of its lending process. the provision of financing in the Indus- Category A is for projects that could have tries and Services business sector for considerable, wide-ranging and to some investment in energy-efficient production extent irreversible environmental and facilities which use modern technology All financing projects are also assessed to social impacts. This includes for instance to achieve high levels of efficiency, ensure they are environmentally and socially projects with a major invasive impact on thereby protecting the environment. The acceptable. the ecosystem, such as raw materials bank also provided finance for projects projects or dams. Category B is for pro- promoting the use of renewable energy jects which have a more limited impact and environmentally friendly transport on the environment and society and are such as rail vehicles. usually technologically manageable; this applies to many industrial projects. Pro- As one of the world’s largest ship financi- jects with negligible or no negative envi- ers, KfW IPEX-Bank performed its first- ronmental and social impact are classi- ever ship energy efficiency assessments fied under category C. Projects to be in 2012. The bank comprehensively implemented in an EU country or OECD examined its merchant shipping portfolio country are excluded from in-depth in collaboration with FutureShip, a Ger- assessment. It is assumed that these manischer Lloyd subsidiary. The assess- countries have established environmen- ment method uses the Energy Efficiency tal and social approval and monitoring Design Index (EEDI), which is based on practices comparable to Germany’s. the requirements of the International Maritime Organisation (a special United Green shipping: KfW IPEX-Bank performed its Opinions of internal experts on environ- Nations organisation), and is an indicator first-ever ship energy efficiency assessments mental and social impacts are included of a vessel’s energy efficiency and 2CO in 2012. in the assessments of project risks. emissions. Mandatory EEDI upper limits KfW IPEX-Bank only grants financing in were introduced in 2013 for newly built the cases it assesses in depth if the merchant shipping vessels; however, the internationally accepted environmental energy efficiency of existing ships is also and social standards, or in the special an increasingly important criterion for case of project finance the Equator Prin- charter decisions. ciples, have been applied. Using the criteria, 88 % of the ships in In 2012 KfW IPEX-Bank assessed 8 % KfW IPEX-Bank’s portfolio were assessed of its nearly 300 newly concluded loan for their energy efficiency with positive agreements. Four of these agreements, results; the merchant shipping portfolio which relate to projects in non-OECD was rated higher than the global fleet countries were subject to own compre- average. hensive assessments. Two of these agreements were from category A and KfW IPEX-Bank will focus on “green ship- two from category B. KfW IPEX-Bank ping” in the future: this newly developed primarily supports projects carried out in assessment method enables the bank countries with environmental and social to take the energy efficiency of a vessel approval and monitoring practices that into account as an additional criterion ensure sufficient protection against nega- when making its financing decision and tive environmental and social impacts. to favour “green”, energy-efficient ships over traditionally built vessels. This under- Environmental and climate protection scores that, as a bank, KfW IPEX-Bank projects in the core business accepts responsibility and is committed KfW IPEX-Bank funded projects and to improving ecological living conditions – measures with a clear and measurable both in Germany and in the destination positive impact on climate and the envi- countries of exports around the globe. ronment totalling EUR 2.6 billion in Of the bank’s total volume of new commit- 2012. This corresponds to 19 % of the Economic and financial results ments, 19 % supported projects that have bank’s total volume of new commitments for 2012 a positive impact on the environment and also represents an important contri- The operating result of the Export and and climate. bution to achieving the KfW Group’s Project Finance business area, for which ambitious climate and environmental KfW IPEX-Bank is responsible, was

78 | KfW Annual Report 2012 We secure internationalisation | Export and project finance slightly higher than in the previous year They will also continue to adjust their Despite difficult circumstances, the Export at EUR 646 million. It largely comprised portfolio structures with a view to the and Project Finance business area confirmed net interest and commission income, after Basel III requirements, implementation its role as a major source of income for the deduction of administrative expenses. of which starts this year. Therefore, KfW Group and actively contributed to KfW’s The merchant shipping crisis led to higher there will continue to be a selective promotional capacity for the long term. charges against the valuation result than offering of long-term financings in the normal in the reporting year, with the banking market in 2013. result from operating activities thus at EUR 307 million. The Export and Project In this environment, KfW IPEX-Bank aims Finance business area contributed to strengthen its position as a leading EUR 298 million to KfW’s consolidated specialist financier of, and reliable partner earnings. This confirms its role as an to, the German and European economy. important source of revenue for the KfW The continuing growth trend in develop- Group and allowed it to make an active ing and emerging market countries offers contribution to securing KfW’s long-term further business potential for German promotional capacity, despite adverse cir- and European companies. cumstances. However, the competition faced by The legally independent KfW IPEX-Bank these companies in emerging markets is GmbH, which prepares separate financial growing, and value creation is increas- KfW IPEX-Bank will continue to focus on sup- statements and in which the market ingly shifting to these countries from porting German and European companies transactions in export and project finance Germany and Europe. KfW IPEX-Bank through financing exports and foreign invest- are exclusively bundled, was harder hit by will continue to focus on accompanying ment. the merchant shipping crisis than the companies through financing exports business area overall. Thus financial year and foreign investment. Moreover, with 2012 recorded only a slight profit. the continuation of the strategic focus, a large share of tailored financing and The volume of lending in the Export and an increasing amount of new business

Project Finance business area amounted will relate to climate change and the We promote Germany to EUR 60.9 billion as at 31 December 2012, environment. The Export and Project and was thus the same as the previous Finance business area plans new busi- year’s figure. ness of EUR 13.1 billion for 2013, slightly higher than the prior-year level. Outlook for 2013: KfW IPEX-Bank is Based on the forecast economic condi- Germany’s specialist financier tions, the bank continues to anticipate a After the world economy weakened in need for more support for existing com- 2011 and 2012, a slight recovery is mitments in 2013. This is due to the

expected in 2013. This forecast is based persistently problematic earnings posi- internationalisation secure We on the assumption that economic output tion, particularly for the merchant ship- in the euro area will not shrink any fur- ping portfolio. ther in 2013 and that certain risks to the world economy in industrialised nations, such as public debt in Japan, will no longer have negative impacts. The developing and emerging market countries will remain the drivers of the world economy in 2013 and are continuing We promote development promote We their above-average growth. However, they are far from the dynamism seen in earlier years.

In this respect, the demand for exports from Germany and Europe and for

financing them is likely to remain stable. Further topics Due to the persisting sovereign debt crisis and financial crisis, some competi- tors of KfW IPEX-Bank will, however, continue to have refinancing difficulties.

KfW Annual Report 2012 We secure internationalisation | Export and project finance | 79

˚We promote development We finance economic and social progress in developing and transition countries to improve people’s quality of life. KfW Development Bank and the KfW subsidiary DEG promote establishment of infrastruc ture, environmental and climate We promote Germany protection as well as private sector initiatives and investments as driv- We secure internationalisation secure We ers of sustainable development. We promote development promote We Further topics Clean water makes income Batumi is an industrial city on the Black Sea and also an impor- sources flow tant holiday resort in Georgia. The city has great economic potential, which it was unable to exploit for a long time due to an ailing infrastructure. Just a few years ago, water was avail

82 | KfW Annual Report 2012 We promote development | Development finance We promote Germany We secure internationalisation secure We We promote development promote We

able to households for only three hours a day. However, the commissioned to sustainably protect the sea and the coast. Further topics period of deprivation is over. With KfW’s help, safe drinking Thus not only water but also other sources of income – such as water is now available round the clock; the sewer system tourism – should flow as well. has been rehabilitated; and in 2012 a new sewage plant was

KfW Annual Report 2012 We promote development | Development finance | 83 Entrepreneurial initiative as a In the Kenyan town of Thika, the employees of Kevian Kenya connective force – for example, Ltd. process fruit such as mangoes into fruit juices and juice concentrates. The goods come from small-scale farmers in the between kenya and germany region. The successful enterprise is investing in its production

84 | KfW Annual Report 2012 We promote development | Development finance We promote Germany We secure internationalisation secure We We promote development promote We

and wants to export more. One main buyer of the juice concen- nology but also trains local staff in Kenya. This has all been Further topics trates is the German enterprise Rudolf Wild. The newly acquired made possible through a long-term loan from KfW subsidiary state-of-the-art filling system which Kevian uses was made by DEG, enabling Kevian to finance its investments. Krones AG in Bavaria. The enterprise not only supplies the tech-

KfW Annual Report 2012 We promote development | Development finance | 85 At a glance: Projects in developing and transition countries in 2012

KfW and DEG support their partner Moreover, KfW has committed EUR 25 mil- ally be trained to alleviate the critical countries in achieving economic lion to Jordan’s education system, particu- staff shortage in East Africa’s health- progress, combating poverty and larly in order to fund the expansion and care sector. also protecting the environment and equipping of schools, via UNICEF, both the climate. This should enable them inside and outside the refugee camps. New fund for female entrepreneurs to markedly improve people’s living The aim of the support is to quickly return When women found a small enterprise conditions. They should have sufficient as many children as possible to a normal and make a profit they usually invest it in access to food, water, education and school routine. their family, for example to provide a bet- basic medical care without burdening ter education for their children. This has their natural environment. To achieve In much the same way as Jordan, KfW been the conclusion of studies time and this KfW finances, for example, the is also supporting schools in Lebanon, again. In order to further advance this very expansion of renewable energies such where thousands of Syrian refugees effect, KfW participated in a new fund as solar and hydroelectric power. On have also fled. The bank has committed in 2012 which provides microloans to behalf of the German Federal Govern- EUR 3.9 million here – again to be imple- women. It has contributed USD 6 million ment, KfW supports microbanks and mented via UNICEF. The measures serve to the “WWB Isis Fund”. This fund invests “green” lines of credit. It also builds as more than just direct aid to refugees in microbanks that are members of the sewage treatment plants, schools as they will remain in use even after the WWB network (Women’s World Banking) and hospitals and helps to train their conflict ends. and that specialise in financing women. personnel. In serious crises it also looks after refugees and other dis More nurses for East Africa A total of 39 microbanks from 27 coun- placed persons. Midwives and nurses are needed in East tries belong to the network. Together they Africa. Up to as many as 60 % of all posi- serve 26 million clients, 80 % of whom are Help for Syrian refugees in tions in the healthcare sector are unfilled women. Ultimately, the fund aims to have neighbouring countries in Kenya and Tanzania alone; the need for a volume totalling USD 60 million, and The civil war in Syria has caused several qualified staff exceeds current training thus to give even more women access to hundred thousand people to flee their capacities several times over. This means financial services. homes. The majority of the refugees have that many people receive no basic medical sought protection in neighbouring coun- care at all. To provide assistance, KfW on New era dawns for Uganda with a tries – Jordan, Turkey and Lebanon. How- behalf of the German Government finances new hydroelectric power plant ever, all three countries have now training measures in East African countries Until recently, Uganda has suffered from reached their capacity limits and have for more healthcare professionals. extreme energy poverty and has not asked for international support. KfW is generated electricity beyond that which providing swift and unbureaucratic aid in Via the East African Community, the a medium-sized German city consumes. two of the host countries. It also commit- recipient of this financial contribution of However, 2012 hails the dawn of a new ted EUR 8.5 million to Jordan in August an initial EUR 10 million, an innovative energy era for the country, as a new 2012 for its water sector – and Jordan is healthcare training centre is being built hydroelectric power plant on the Nile has one of the most arid regions in the world as part of the private Aga Khan Univer- instantly boosted Uganda’s electricity that has to fight against drought anyway. sity. The university’s part-time study and generation capacities by more than 100 %. More people means more need for water. vocational preparation offering is also “Bujagali”, with an installed capacity of The aim of the new commitment is to to be expanded and improved. The pro- 250 megawatts, is the largest privately help further stabilise the water supply in ject includes a new university building, financed hydroelectric power plant in this difficult situation so that the violent improvements to further training courses, Sub-Saharan Africa. It is located in the clashes in neighbouring Syria do not new qualification programmes and southeast of Uganda, not far from exacerbate Jordan’s own problems. offers in state-funded partner hospitals the source of the Nile on the shores of in poorer regions. Over the next few Lake Victoria. years, thousands of nurses will addition-

86 | KfW Annual Report 2012 We promote development | Development finance The power plant divides the river into German companies to promote such so successful that it is being continued. A two halves like a huge elephant. The measures relevant to development. total of USD 73 million is available for wide river flows behind the dam then the second phase, which is scheduled to squeezes with tremendous pressure into Creating prospects in future markets run until 2015. Around 650,000 small- narrow cement channels, cascading Global economic performance is no scale farmers and their families in ten dif- down the spillway over 50 metres. The longer based solely on the traditional ferent African countries will benefit from water power drives five large turbines. industrialised countries. New economic the programme. The power plant has made a key contri- powers have emerged in recent years – bution to alleviating Uganda’s energy such as the major emerging market 50 years of DEG crisis. Total costs for the project amount countries China, India and Brazil. The “Courage to develop.” This was the to around USD 870 million. An interna- investment climate in other developing motto DEG chose to celebrate the 50th tional consortium, which also includes countries is increasingly improving – an anniversary of its foundation in 2012. the KfW Group with KfW Development important prerequisite for entrepreneur- DEG informed the public of its objectives, Bank and the subsidiary DEG, has ial initiative. Such countries include activities, history and future prospects assumed the financing of “Bujagali”. Indonesia and Peru, but with potential through events, films, online offers and prospects for African countries such as an anniversary magazine. DEG invited For development: Zambia, Uganda and Tanzania, and customers and partners from around the DEG and German enterprises Asian countries such as Bangladesh, world, and local residents and institu- Emerging market and developing coun- Cambodia and Sri Lanka. tions in Cologne and the surrounding tries offer major opportunities, also for area to become better acquainted with German SMEs. German companies can DEG plans to boost its commitment in the company. DEG’s open day in spring also make important contributions to these future markets and in so doing alone attracted more than 1,200 visitors development – with their innovative prod- improve people’s opportunities in educa- who had the opportunity to “experience ucts and expertise, but also with a view tion, income and finding employment. In India”. The year of celebration concluded to their international leadership in compli- 2012, DEG granted long-term financings with a dialogue forum on the issue of ance with standards. For these reasons, of around EUR 70 million to local enter- “Responsible enterprises – courage to DEG finances and supports German SMEs prises in Southeast Asia alone (excluding shape the future” and a ceremonial event in their activities in emerging market and India). It invests, among other businesses, featuring keynote speaker former president developing countries, which it significantly in banks that provide loans to local small of Germany Dr Horst Köhler and attended We promote Germany expanded in 2012. It committed long- and medium-sized enterprises. by around 200 international guests. term loans of EUR 180 million – a new record – to German businesses. Tackling African rural poverty DEG was founded on 14 September 1962 by the roots under the name Deutsche Gesellschaft für The financings are primarily for projects Around 20 million people in Sub-Saha- wirtschaftliche Zusammenarbeit mbH. Its in the manufacturing industry, in Mexico ran Africa live from cotton growing. mission: to promote entrepreneurial initia- and Indonesia among other places. DEG The objective of the “Competitive Afri- tives in developing countries. In 50 years, committed loans from EUR 2 million to can Cotton Initiative” (COMPACI) is to DEG has financed more than 2,600 invest-

around EUR 20 million, depending on improve the living conditions of African ment projects of around 1,800 companies internationalisation secure We the size of the project. The enterprises small-scale farmers and to enable them with EUR 15 billion. receiving co-financing construct and to earn a regular income. The programme operate wind farms or produce packaging is implemented by DEG and the Deutsche DEG has been a member of the KfW Group material and components for automotive Gesellschaft für Internationale Zusam- since 2001 and is part of KfW’s interna- manufacturers, for example. Their invest- menarbeit (GIZ), using funding from the tional financing. In that time it has more ments create skilled jobs and contribute Bill & Melinda Gates Foundation and the than tripled its annual promotional busi- to technology and knowledge transfer in German Federal Ministry for Economic ness – from EUR 412 million to more than developing countries. Cooperation and Development (BMZ). EUR 1.3 billion today. The first phase was successfully con- We promote development promote We Entrepreneurial commitment often begins cluded in 2012. in the form of pilot or demonstration projects or feasibility studies. DEG co-fi- Cotton farmers receive comprehensive nances these initial stages through pro- support and training, which enables them grammes such as develoPPP.de, utilising to upgrade their equipment, increase their funds provided by the Federal Ministry for income from cotton growing and also produce more food. Another benefit is the Economic Cooperation and Development Further topics (BMZ). It committed support to more than global marketing of the cotton under the 70 new develoPPP.de projects last year social and sustainability label “Cotton alone. DEG collaborated with over 80 made in Africa”. The programme has been

KfW Annual Report 2012 We promote development | Development finance | 87 KfW Development Bank – impetus for progress and development

KfW Development Bank finances meeting international obligations, for and promotes development projects example, in environmental protection and all over the world on behalf of the in combating poverty and climate change. German Federal Government. Its This also includes the political target of primary aim is to give people the increasing the proportion of financing for prospect of a better life. It supports development cooperation to 0.7 % of investments and reform projects to gross national income by 2015. KfW’s use benefit people in need. To this end, of own funds is a major contributing fac- KfW helps many countries to estab- tor in increasing Germany’s ODA pay- lish a sustainable public infrastruc- ments without straining the federal ture, protect the environment and budget. More than half of this now comes climate, satisfy basic needs, above from KfW’s own funds. This means that all of the poorer sections of society, more of the Federal Government’s tight build stable financial systems, secure budget funds can be used as grants to peace and overcome acute crises. benefit people in the “least developed KfW contributes its many years of countries” (LDC), especially in Sub-Saha- experience and expertise to Germa- ran Africa. FC commitments from budget ny’s Financial Cooperation (FC) with funds to this group of countries rose by developing and transition countries, an average of 8 % per year between 2005 thus providing a valuable impetus and 2011. for progress and development. Global landscape in flux The Federal Government’s strategic With this flexible approach, KfW is also guidelines and policies determine addressing the changed global economic KfW Development Bank’s scope of activ landscape in which the boundaries ities. KfW is equally a bank and a devel between traditional lender and borrower opment institution, as it has significant countries are becoming increasingly KfW is a bank and development institution financing expertise, an understanding blurred. Countries that not so long ago with a wealth of experience, specialist know of development policy issues and com were considered developing countries are ledge and financing expertise. prehensive international experience. It now regarded as “middle income” or uses this special combination of skills to emerging market countries. Such coun- develop conceptual plans, and to achieve tries are almost always distinguished by the greatest impact possible with its pro- very high growth rates but must still fight grammes and projects. poverty and environmental problems for which they continue to require interna- To this end, KfW employs not only funds tional support. budgeted by the Federal Government, but also to a great extent own funds it has At the other end of the spectrum there raised on the capital market. In 2012 it are an increasing number of poor coun- used these funds to commit around tries known as “fragile states”, which EUR 4.9 billion for new projects, nearly face major crises and conflicts. Fragile quadrupling its new commitment volume states are plagued by precarious security within ten years. The lion’s share of own and political instability and can destabi- funds is counted as German Official lise entire regions. Such crisis countries Development Assistance (ODA). In this need special attention and a special way, KfW aids the Federal Government in approach to support.

88 | KfW Annual Report 2012 We promote development | Development finance KfW Development Bank commitments 2008–2012

2012 2011 2010 2009 2008 EUR in EUR in EUR in EUR in EUR in millions millions millions millions millions

KfW Development Bank FC grants 1,347 1,336 1,036 1,112 882 FC standard loans 179 145 179 230 351 FC development loans 1,600 1,713 2,142 878 1,033 of which budget funds 112 134 215 106 213 of which KfW funds 1,487 1,579 1,927 772 821 FC promotional loans 1,603 996 913 1,151 1,314 Delegated funds 187 343 183 111 68 Total FC 4,916 4,532 4,452 3,482 3,648

Differences in the totals are due to rounding We promote Germany The group of “traditional” developing commitment from the partner country. countries is also very mixed; many coun- More advanced countries may also tries make good development progress receive grants for certain projects. Such while others tend to lag further behind for projects frequently contribute directly to a variety of reasons such as poor govern- combating poverty or preserving global ance. public goods such as tropical rain forests.

KfW takes all of these factors into consid- More economically viable countries usu-

eration. As a result of its wide variety of ally receive loans – particularly develop- internationalisation secure We financing instruments and its many years ment and promotional loans – that are of practical experience, KfW has sufficient closer to capital market terms. The scope to react appropriately to changes in choice of financing instrument to be used the international system of coordinates. depends on the individual case; factors In those areas where existing instruments include the amount of debt, economic are insufficient for finding suitable solu- strength, development status, project tions, KfW further develops them or seeks partner capacity and also the type of pro- new forms of cooperation. ject. All these criteria are taken into account when it comes to determining We promote development promote We Financing instruments made the details of financing. Accordingly, pro- to measure grammes are supported either through Normally poor and weakly developed pure grants, a combination of grants, low Tailor-made financing programmes ensure countries receive grants under German interest loans with long repayment terms, the biggest development impacts. FC; they do not have to be repaid. These loans on terms close to the going market funds are intended to benefit the coun- rate, or equity investments. KfW designs

tries directly and promote their progress. tailor-made financing for each project, Further topics However, this does not happen without thus maximising its development impacts. observing fixed development policy criteria which include self-responsibility and

KfW Annual Report 2012 We promote development | Development finance | 89 On behalf of the German ple, with the “Mutual Reliance Initiative” Federal Government for mutual recognition of procedures, KfW performs its activities primarily on KfW, together with Agence Française de behalf of the Federal Ministry for Econom Développement (AFD) and the European ic Cooperation and Development (BMZ). Investment Bank (EIB), has initiated a It also operates on behalf of other federal globally unique model for improved coor- Long-term partnerships and intensive dia- ministries, such as the Federal Foreign dination and division of tasks between logues enable knowledge transfer and skill Office, the Federal Ministry for theEn vi development banks. Under this model, development of the partners. ronment, Nature Conservation and Nu one of the three players assumes leader- clear Safety (BMU), the Federal Ministry ship for each joint project and acts as of Economics and Technology (BMWi), the main contact. This simplifies work, and the Federal Ministry of Education reduces the burden on partner countries, and Research (BMBF). increases efficiency and generates capacities for new projects elsewhere. Moreover, KfW is also cooperating to an increasing extent with EU institutions, Mutual responsibility particularly the European Commission and Programme responsibility always lies with the European Investment Bank (EIB), as a partner country institution – generally well as with other EU member states’ ministries, government authorities or other development organisations and develop- government institutions – regardless of ment banks. In close consultation with the which institution has contracted the pro- Federal Government, it advocates innova- ject and the financing partners. KfW also tive methods of development finance at works with NGOs or indirectly with private European level, in order to raise more enterprises via banks. The requirement is, funds and – much as it does at national however, that the joint project meets the level – to make more efficient use of EU development policy criteria of the Federal budget funds. Government and of the partner country.

Blending strengths The following principle applies to KfW’s “Blending”, a process whereby EU budget relationship to its partners: The pro- funds are combined with development grammes must be proposed by the part- bank loans, is playing an increasingly im ner country in the course of government Combining EU budget funds with KfW loans portant role in the EU context. This type negotiations and be in line with the coun- creates low-interest financing packages. of financing corresponds to the method try’s own development strategy. Even if of blending own funds, which KfW has the cooperation partners are primarily been practicing for over a decade, with responsible for project planning and man- German federal budget funds. This pro- agement, KfW analyses each project cess also blends strengths, this time at carefully on behalf of the Federal Govern- European level. For example, EUR 10 mil- ment to also establish whether it is lion in EU budget funds are combined worthwhile also in terms of development with loans from KfW and other European policy. If so, KfW monitors the project development banks for the wind farm throughout its duration. KfW professionals project on the Gulf of Suez. This results in are available for advice and to perform a low-interest financing package totalling services for the partners during this time, around EUR 275 million, which no single contributing their experience and devel- participant could have offered for such a opment expertise. project. KfW’s long-term commitment But it is about more than just money. The If difficulties arise during the course of EU and development banks blend and the project despite careful planning and also expand their experience and expertise preparation, KfW continues its involve- in such cooperation projects, thus jointly ment, seeking solutions together with contributing to their success. It is a gen- partners. This partnership-based dialogue eral concern of KfW that there be stronger even in difficult times is important to a cooperation among donors and more project’s progress, simultaneously en alignment of their approaches. For exam- abling knowledge transfer and thus sup-

90 | KfW Annual Report 2012 We promote development | Development finance porting the partner in establishing addi- finances the development of water supply tional capacities and skills. and sewage systems in large cities, thus enabling an increased number of people Projects are not shelved and forgotten to have clean drinking water. It commit- once the actual project phase has ended. ted a total volume of EUR 1.1 billion to KfW’s independent evaluation department new projects in this sector in 2012. makes sure of that. It evaluates KfW projects several years after their conclusion Particular strength in to see if the agreed goals have also been climate protection achieved for the long term. Only when Commitment to climate protection is a this fact has been established are pro- further focus; approaches to adapt to jects deemed successful to achieve sus- climate change – for example, flood pro- tainable development. tection measures – are becoming in creasingly important. Reduction of carbon Globally active emissions remains a high priority with KfW is globally active, continuously ex the use of renewable energies playing a The use of renewable energies enables panding its international presence in significant role. Renewable energies can low-carbon development to mitigate order to be closer to projects in its part- enable partner countries to pursue low- global warming. ner countries. It now has offices in over carbon development in order to mitigate 60 countries, in addition to the Frankfurt, global warming. Consequently, the sus- Berlin and Brussels locations. The num- tainable development approach is key to ber of staff in established offices also KfW’s activities. With its variety of pro- continues to increase with the growing grammes for climate and environmental need for international cooperation. KfW protection as well as water supply, food offices are located, for example, in Kabul, security and energy generation, KfW has Afghanistan; Nairobi, Kenya; Accra, been supporting for many years already Ghana; Brasília, Brazil; Lima, Peru; Baku, environmentally-friendly, socially fair and Azerbaijan; New Delhi, India and Hanoi, economically feasible development that

Vietnam. creates future prospects for generations We promote Germany to come. KfW feels committed to this The work performed by KfW-seconded approach in Financial Cooperation with a staff meshes with that of local profes- view to the future as well. The bank’s rep- sionals in all these locations. Maintaining resentatives at the UN “Green Economy” a local presence enables better collabora- summit Rio+20 in June 2012 – two dec- tion with partners as well as with other ades after the first major global confer- donors. It also allows the progress made ence on environment and development Local professionals shape the collaboration by the projects promoted to be contin also held in Rio de Janeiro – reiterated with partners and other donors.

ually supervised and evaluated. this commitment. KfW Chief Executive internationalisation secure We Officer Dr Ulrich Schröder along with the KfW’s core competencies members of the “International Develop- KfW possesses internationally recognised ment Finance Club” (IDFC) spoke of the expertise. Over the course of time it has key role played by national development developed special core competencies and banks in financing a green economy in priority areas of cooperation on the basis line with social and environmental of this expertise. These include climate requirements. and environmental protection, energy and the finance and water sectors. In financial For this reason, KfW Development Bank We promote development promote We system development, KfW’s promotion also continued its climate protection New transparency portal on the Internet pro- extends among other activities to further commitment in 2012 as well as its provides information on utilisation of tax reve- expansion of microfinance as well as to motion of climate change adaptation nue and comprehensive financial data. “green” credit lines, under which loans are with innovative instruments and projects implemented as a management instru- on behalf of the Federal Government. ment for more environmental protection. These include, for example, environmen-

In 2012 alone, KfW made commitments tal credit lines, structured funds for Further topics to such projects totalling EUR 1.2 billion. renewable energies and energy efficiency, In the water sector, for example, KfW establishing foundations and additional

KfW Annual Report 2012 We promote development | Development finance | 91 financing models for international forest new portal created in cooperation with conservation and insurance solutions. the Open Knowledge Foundation Deutsch Moreover, KfW has systematically ex land combines all data and figures from panded its portfolio with adaptation pro- the past five years, which were previously jects in Africa, Latin America and Asia. stored in various sources, in a user- friendly format. The portal presents It also implemented a variety of different KfW Development Bank’s financial data climate protection initiatives on behalf of graphically by country and sector and is the Federal Government, including the open to all interested parties (www.kfw- Initiative for Climate and Environmental entwicklungsbank.de/transparenz). Protection (IKLU) for the BMZ, the Inter- A variety of climate and environmental pro- national Climate Initiative (IKI) for the New record level for commitments tection initiatives have been implemented on BMU and the German Climate Technology KfW Development Bank has clearly behalf of the Federal Government. Initiative (DKTI) on behalf of both minis- exceeded its 2011 record – by some tries. Moreover, KfW has established a EUR 400 million. In 2012, KfW committed facility to finance Nationally Appropriate more than EUR 4.9 billion to development Mitigation Actions (NAMAs) on behalf of programmes around the world. KfW the BMU and the UK’s Department of raised the largest portion of these funds Energy and Climate Change and is sup- in the capital market. KfW’s own funds porting an initial pilot project on build- used for international development ings in Mexico. NAMAs enable developing financing amounted to around EUR 3.1 countries to jump start ambitious climate billion in comparison to EUR 2.6 billion protection programmes with the help of the previous year. Around 63 % of the industrialised nations. money KfW employs on behalf of the Federal Government in developing and KfW Development Bank committed a transition countries currently comes from total of EUR 2.8 billion in 2012 to the KfW’s own funds. KfW thus continues to area of climate and environment. This lend support to the Federal Government corresponds to 57 % of the total new in meeting its international commit- commitment volume. Based on calcula- ments. The BMZ remains KfW Develop- tions by KfW, these commitments will ment Bank ‘s most important client, with

save around 15.9 million tonnes of CO2 just under EUR 1.6 billion in budget funds. emissions per year in the years to come. Commitments by region Through these and other activities in cli- In its projects in Africa, Latin American, mate protection and adaptation to climate Asia and Europe, KfW normally uses its change, KfW further honed its profile in own funds in the more advanced countries, this area in 2012. The bank is not only so the grants from budget funds can go one of the largest financiers in this area to particularly poor countries. The largest but also an internationally renowned and portion of budget funds, EUR 742 million, respected expert und consultant. or 45 %, was accordingly granted to Sub- Saharan Africa. The previous year this KfW’s new transparency initiative figure stood at ERU 626 million, or 39 %. KfW Development Bank launched a new Total commitments to Sub-Saharan Internet transparency portal at the end of Africa amounted to around EUR 870 mil- 2012. This underscores KfW’s determina- lion, thus corresponding roughly to the tion to use tax monies responsibly and to 2011 figure (EUR 874 million). render account of its actions to the public. In the past, KfW has also provided As in 2011, Asia and Oceania received regular information on its operations in the second largest share of federal developing and transition countries. For budget funds (EUR 378 million), a slightly example, it has published articles, annual smaller amount than in the previous reports, evaluation reports, early informa year (EUR 417 million). In total commit- tion to the German economy, and tender ments, the region again ranked first, documents on its projects, topics and with EUR 1.6 billion (previous year: focal areas of promotion. However, the EUR 1.4 billion). In this part of the world,

92 | KfW Annual Report 2012 We promote development | Development finance KfW Development Bank’s commitments by region in 2012

Federal budget funds Total commitments EUR in EUR in millions % millions %

Sub-Saharan Africa 742 45 870 18 Asia and Oceania 378 23 1,623 33 Europe and Caucasus 100 6 1,120 23 Latin America 187 11 396 8 North Africa / Middle East 191 12 686 14 Supraregional 41 3 221 5 Total 1,639 100 4,916 100

Differences in the totals are due to rounding

KfW finances climate and environmental KfW’s priority sectors programmes in particular. In Afghanistan KfW continued to actively support the and Pakistan, moreover, high priority is improvement of people’s quality of life in given to the crisis and conflict prevention its partner countries in 2012, for exam- programmes, which received EUR 165 mil- ple, by providing basic services to cover lion in support. daily requirements. Most of the promo- Improvement of social infrastructure and tional funds (around EUR 2.0 billion) went healthcare remained priority areas in 2012. Projects and programmes in Europe and to finance social infrastructure (previous the Caucasus received EUR 1.1 billion year: EUR 1.4 billion). KfW supports part- compared to EUR 812 million in 2011. ner governments in supplying people with This region thus ranked second after Asia clean drinking water and building schools in total commitments. This is largely due and healthcare facilities. Reproductive to a significant increase in own funds, health is an important priority area in We promote Germany which constituted around EUR 922 million healthcare. in 2012. The commitment volume for North Africa and the Middle East rose Promoting the financial sector has tradi- considerably in 2012 as well, to a total tionally been a high priority for KfW. The of EUR 686 million (previous year: second highest commitment volume of EUR 400 million), EUR 495 million of EUR 1.2 billion was provided in this area which was granted from KfW’s own funds. again in 2012 (previous year: EUR 1.1 bil- The larger German commitment was a lion). Of this amount, around 40 % was

result of the Arab Spring and the political provided to the microfinance sector. internationalisation secure We upheavals in the Middle Eastern region. Support for Latin America thus amounted Economic infrastructure received around to a total commitment volume of EUR 396 EUR 1.1 billion in promotional financing million in 2012, lower than in 2011 in 2012. The lion’s share of these pro- (EUR 535 million). Around EUR 187 million grammes focused on renewable energy of this came from the federal budget. use and efficient – and thus also environmentally-friendly – energy consumption. We promote development promote We Further topics

KfW Annual Report 2012 We promote development | Development finance | 93 Commitments by priority sector in 2012/2011

2012 2011 EUR in EUR in millions % millions %

Social infrastructure 1,955 40 1,392 31 Financial sector 1,159 24 1,130 25 Economic infrastructure 1,092 22 1,044 23 Producing sector 208 4 180 4 Other 503 10 785 17 Total 4,916 100 4,532 100

Differences in the totals are due to rounding

Disbursements cellation totalling EUR 143 million. Ger- In 2012 KfW disbursed a total of many also cancelled debts of partner EUR 2.9 billion for projects and pro- countries totalling EUR 155 million on the grammes in its partner countries. Of this basis of previously concluded agree- sum, EUR 1.5 billion came from federal ments, after the funds had been used for budget funds. The total disbursed was development programmes. thus somewhat lower than the prior-year level (EUR 3.3 billion). KfW also participated in the preparation and implementation of international debt Debt conversion, cancellation agreements in the Paris Club in 2012. and restructuring Under the Heavily Indebted Poor Coun- Debt conversion has proven to be an tries Initiative (HIPC) to combat poverty important development policy instrument in such countries, KfW concluded a debt for partner countries with particularly restructuring agreement for the Demo- high external debt. The system works cratic Republic of the Congo. Outstanding based on the following principle: a part- debt from Financial Cooperation totalling ner country promises Germany it will use EUR 133 million was subsequently can- funds for development projects in its own celled for that country. country. In return, Germany waives debt Debt conversion is an important instrument for of at least that amount. KfW collaborates countries with extremely high levels of debt. on behalf of Germany in such cases. It examines and assesses the proposed projects. It then concludes an agreement with the partner country that governs the details of the debt conversion.

In 2012, KfW signed new debt conversion agreements with Egypt, Bosnia and Herzegovina, Côte d’Ivoire, El Salvador, Kyrgyzstan and Tunisia. These agreements secured the prospect of debt can-

94 | KfW Annual Report 2012 We promote development | Development finance Commitment volume by country in 2012

Rank Country BMZ budget KfW funds “Funds from Total funds1) other departments/donors2)” EUR in millions EUR in millions EUR in millions EUR in millions

1 Afghanistan 151.51 0.00 0.03 151.54 2 Tanzania 79.00 0.00 52.32 131.32 3 Ethiopia 74.00 0.00 3.65 77.65 4 DR Congo 71.05 0.00 6.50 77.55 5 India 69.13 562.48 0.00 631.61 6 Brazil 65.42 20.00 0.00 85.42 7 Mozambique 57.00 0.00 0.00 57.00 8 Zambia 47.53 0.00 0.00 47.53 9 Palestinian territories 46.50 0.00 0.00 46.50 10 Jordan 41.40 79.50 0.00 120.90 11 Yemen 39.00 0.00 0.00 39.00 12 Liberia 36.00 0.00 0.00 36.00 13 Morocco 35.60 361.60 0.00 397.20 14 Bangladesh 34.98 0.00 0.00 34.98 15 Namibia 30.98 0.00 0.00 30.98 16 Rwanda 30.27 0.00 0.00 30.27 17 Honduras 30.00 0.00 0.00 30.00 18 Kenya 29.00 0.00 0.54 29.54 19 Peru 27.45 7.50 0.00 34.95 20 Mauritania 26.60 0.00 0.00 26.60 21 Uganda 22.25 0.00 0.00 22.25 22 Burkina Faso 21.00 0.00 0.00 21.00

23 Egypt 19.35 54.35 0.00 73.69 We promote Germany 24 Niger 19.08 0.00 0.00 19.08 25 Vietnam 18.00 44.00 0.00 62.00 26 Ghana 17.50 0.00 0.00 17.50 27 Zimbabwe 17.00 0.00 0.00 17.00 28 Georgia 16.99 25.00 0.00 41.99 29 Nigeria 16.78 0.00 0.00 16.78 30 Guatemala 16.25 0.00 0.00 16.25 31 PR of China 15.70 589.91 0.00 605.61 32 Pakistan 13.03 0.00 0.00 13.03 We secure internationalisation secure We 33 Mongolia 13.00 0.00 0.00 13.00 34 Ukraine 12.00 0.00 1.80 13.80 35 Republic of Kosovo 12.00 20.00 4.90 36.90 36 Albania 11.80 12.00 34.99 58.79 37 Laos 11.60 0.00 0.00 11.60 38 Bolivia 10.38 0.00 0.00 10.38 39 Serbia 10.00 289.00 15.83 314.83 40 Nepal 10.00 0.00 0.00 10.00 41 Cameroon 10.00 0.00 0.00 10.00 We promote development promote We 42 Malawi 8.50 0.00 0.00 8.50 43 South Africa 8.00 0.00 0.00 8.00 44 Cambodia 8.00 1.52 0.00 9.52 45 Nicaragua 7.00 0.00 0.00 7.00

1) Budget funds (AA, BMU, BMZ) 2) Mandatary funds (also other budget funds) Further topics

KfW Annual Report 2012 We promote development | Development finance | 95 Commitment volume by country in 2012

Rank Country BMZ budget KfW funds “Funds from Total funds1) other departments/donors2)” EUR in millions EUR in millions EUR in millions EUR in millions

46 Kyrgyzstan 6.00 0.00 0.00 6.00 47 Azerbaijan 5.67 124.14 0.00 129.81 48 Tajikistan 5.00 0.00 0.00 5.00 49 Lesotho 5.00 0.00 0.00 5.00 50 El Salvador 5.00 57.89 0.00 62.89 51 Guyana 4.80 0.00 0.00 4.80 52 Armenia 4.50 55.00 0.00 59.50 53 Lebanon 3.90 0.00 0.00 3.90 54 DR Congo 3.58 0.00 0.00 3.58 55 Uzbekistan 3.50 0.00 0.00 3.50 56 Sri Lanka 3.00 28.00 0.00 31.00 57 Burundi 3.00 0.00 3.00 6.00 58 South Sudan (SSD) 2.99 0.00 0.00 2.99 59 Mexico 1.00 39.26 0.00 40.26 60 Madagascar 0.50 0.00 0.00 0.50 61 Indonesia 0.14 0.00 0.00 0.14 62 Turkey 0.00 151.19 20.00 171.19 63 Belarus 0.00 0.30 0.00 0.30 64 Bosnia and Herzegovina 0.00 0.00 17.47 17.47 65 Benin 0.00 0.00 5.37 5.37 Supraregional 213.50 431.81 20.13 665.44 Other 0.08 136.34 0.00 136.42 Total commitment volume 1,638.78 3,090.78 186.54 4,916.10

Differences in the totals are due to rounding 1) Budget funds (AA, BMU, BMZ) 2) Mandatary funds (also other budget funds)

96 | KfW Annual Report 2012 We promote development | Development finance DEG – entrepreneurial development cooperation generates prospects

DEG has promoted the private sector proximity to customers and permanent in developing and emerging market local presence are key requirements to countries with its entrepreneurial effectively fulfilling the promotional man- development cooperation for the past date. DEG was represented at 13 loca- 50 years. Employment and income are tions in 2012; moreover, it can also share the main basis for improving people’s use of KfW’s foreign representative living conditions and overcoming offices, which can be found at more than poverty. Entrepreneurial initiative is 70 locations. an important driver; most jobs are created in the private sector. For this 2012: Record-setting anniversary year reason, DEG finances sustainable DEG’s 50th anniversary year was a particu private sector projects that make larly successful financial year. Financing business sense and are appropriate commitments totalling EUR 1,328 million DEG made financing commitments amount- under development policy, by offering set a new record high. These financings ing to more than EUR 1.3 billion in 2012 long-term loans, equity investments enabled entrepreneurial investments with and quasi-equity loans. a total volume of some EUR 12 billion – a significant increase on the good result

As a specialist in promoting the private of the previous year, due in particular to We promote Germany sector in developing and emerging market renewable energy projects. countries, DEG is a pillar of KfW’s international financing. As a partner to the pri- Disbursements rose to EUR 1,094 million. vate sector, DEG thinks and acts with The portfolio increased to almost entrepreneurial insight. This includes gen- EUR 6 billion – EUR 5,958 million. The erating risk-appropriate returns and aim- total volume was spread over 570 coming for a return on equity that enables panies in 82 partner countries. opportunities for qualitative and quantita-

tive growth to be exploited. As a promo- Focus: Africa, climate protection, SMEs internationalisation secure We tional institution with a development pol- As a pioneer investor, DEG is committed icy mandate, DEG operates on the in regions significant to development pol- principle of subsidiarity. It provides icy. In Africa alone, DEG’s financing com- financing to companies where it is not mitment totalled around EUR 235 million offered by the market or not to a suffi- in 2012, EUR 204 million of which went cient degree. As one of the leading Euro- to Sub-Saharan Africa. pean development finance institutions, DEG values international networks. Climate and environmental protection is another strategic objective for DEG. We promote development promote We Sustainable entrepreneurial success does Overall, around EUR 578 million, or 43 % not depend only on economic but also on of the total 2012 volume, financed pro- environmental and social factors. To this jects that promote climate and environ- end, DEG promotes high environmental mental protection, and adaptation to and social standards and advises compa- climate change. nies receiving financing on project imple-

mentation. Through its promotional activities, DEG Further topics also contributed to improving the offering Sound knowledge of the economic and of long-term financings for SMEs in 2012. political conditions in the host countries, Around EUR 465 million went to SMEs.

KfW Annual Report 2012 We promote development | Development finance | 97 DEG provided more than EUR 210 million for A commitment volume of EUR 506 million tor. Commitments for service providers investments in agriculture. was granted for equity participations and also reached a new high at EUR 102 mil- quasi-equity loans in 2012, the same high lion, with primarily tourism projects level as the previous year. receiving financing.

DEG provided around EUR 182 million on DEG committed almost EUR 381 million market-based terms to German enter- to the financial sector in 2012. These prises that invest in developing and funds serve to improve financing opportu- emerging market countries, setting a new nities for SMEs in developing countries. record in this segment. It mainly co-financed manufacturing industry projects. Commitment to sustainability To qualify for DEG support, investment Regionally well positioned projects must essentially be environmen- Financing commitments were spread tally and socially sound, while co-financed across a total of 40 countries in 2012. enterprises must agree to act according Ethiopia, Bangladesh, and Uganda are to the same principles. Controversial among the least developed countries business activities such as arms produc- (LDC) to which DEG provided funds. tion, tobacco and conversion of protected forests are not eligible for financing. At almost EUR 497 million, the largest portion of commitments was granted to A sound environmental and social basis is projects in Latin America. Asia followed essential for projects to have long-term with EUR 388 million. EUR 204 million of success. For all projects that DEG com- commitments to Africa were provided for mitted financing to in 2012, the compa- investments in Sub-Saharan Africa and nies must agree to comply with national EUR 31 million for North Africa. The requirements as well as international Europe/Caucasus region received a total environmental and social standards. Such of EUR 205 million, of which EUR 188 mil- standards include the International lion was destined for eastern and south- Finance Corporation (IFC) Performance eastern Europe. Around EUR 3 million Standards as revised in 2012 and the went to a supra-regional project. core labour standards of the International Labour Organization (ILO). Focus on skilled jobs Companies in the manufacturing industry DEG increased its financing of investments By agreeing environmental and social offer skilled jobs and enable transfers of for industry and the manufacturing sector action plans, DEG has once again assumed knowledge and technology. in 2012; it provided EUR 352 million, an important role in projects with poten- including for automotive suppliers, recy- tially higher environmental and social cling companies and textile producers. risks, in order to improve the situation in The companies create skilled jobs and companies and to promote compliance contribute to the transfer of knowledge with international standards in partner and technology. countries. DEG closely supported the companies in implementing action plan The need for infrastructural investments requirements and jointly worked with is extremely high in many developing and them on solving any issues that arose. transition countries. Projects are thus DEG will monitor the agreed activities increasingly realised in cooperation with and steps for the entire project duration. private companies. DEG provided approximately EUR 280 million for investments DEG also supported companies in in infrastructure in 2012, with a focus on strengthening internal structures renewable energies. to achieve responsible and transparent corporate governance. The agriculture and foodstuffs industry is an important sector in many developing International network countries, from which many people earn DEG values international networks. For their living. DEG considerably increased example, it cooperates particularly closely its commitment, providing just under with European partner institutions in the EUR 213 million to the agricultural sec- European Development Finance Institu-

98 | KfW Annual Report 2012 We promote development | Development finance tions (EDFI) association. EDFI has further areas resource and climate protection, The measures supported together with expanded European financing partner- and energy. In order to further increase develoPPP.de focused on resource and ships with a view to the growing signifi- the development impacts in projects, DEG climate protection as well as energy. cance of private sector development carries out complementary measures to cooperation. improve, for example, energy efficiency or to set up risk-adequate environment and DEG and twelve other EDFI members are social management systems. In 2012, promoting investments in the African, BMZ funds of EUR 2.2 million and DEG Caribbean and Pacific Group of States own funds of EUR 2.5 million were utilised (ACP) along with European Financing to support 80 complementary measures. Partners (EFP) – the European Investment Bank’s (EIB) co-financing instrument. DEG also employs funds from other insti- Around EUR 164 million was committed tutions; for example, the Bill & Melinda for investments in Africa in 2012. Eleven Gates Foundation supports an extensive EDFI members, the European Investment initiative to promote the sale of African Bank (EIB) and Agence Française de cotton and secure the income of around Développement (AFD) are partners in the 470,000 cotton farmers in several African Interact Climate Change Facility (ICCF) to countries. DEG received an additional finance projects with a positive impact on mandate from the Gates Foundation in the climate. The facility set up in 2011 2012 to finance the Coffee Partnership for has funds of around EUR 305 million; Tanzania (CPT) project. This project sup- USD 108 million was committed for six ports 85,000 coffee growers in Tanzania, Foundations and corporate initiatives also projects in 2012. and has a volume of USD 25.7 million. rely on DEG’s expertise.

The three major EFDI members, DEG, Private sector development coopera- FMO from the Netherlands and Proparco tion is effective from France have worked together for a A total of 435,000 jobs were created or number of years. They have signed a secured through investments co-financed cooperation agreement to intensify this by DEG in 2012; around 164,000 jobs at We promote Germany relationship. The Friendship Facility Co the companies plus around 271,000 in operation Agreement entered into force supplier businesses and at borrowers in 2012. The members committed a from banks that DEG finances. More than total of EUR 736 million in 2012 to aid half of the jobs are created in agricultural 19 co-financed projects. projects that integrate small-scale farmers and suppliers into the value chain. Impetus through promotional programmes Through tax payments in developing coun-

The promotional programmes carried out tries, the companies contribute around internationalisation secure We by DEG on behalf of other institutions EUR 827 million to annual public revenues serve to support private enterprise meas- and generate annual net foreign exchange ures that are worthwhile in terms of revenues of around EUR 4.1 billion. These development. They combine public funds considerable contributions can reduce More jobs, public revenues and net foreign and those of the private enterprises. In household deficits, strengthen foreign exchange revenues are important effects of addition, DEG uses own funds for comple- exchange revenues in the long term and DEG promotion. mentary measures to increase develop- enable investments. ment impacts. Overall, commitments were made to support 172 projects and The projects with new funds committed We promote development promote We measures in the year under review. in 2012 earned an average rating of 2.0 under the corporate policy project rating German and other European companies system. realised measures that promote development via the develoPPP.de programme Of those projects, 73 % contribute directly sponsored by the Federal Ministry for to the Millennium Development Goals

Economic Cooperation and Development (MDG), above all to ensure environmental Further topics (BMZ). DEG committed funds to 73 new sustainability, combat poverty and pro- develoPPP.de projects, nearly two thirds mote gender equality. Many of the com- of which was earmarked for the priority panies also assume comprehensive social

KfW Annual Report 2012 We promote development | Development finance | 99 responsibility. They pay above-average It has defined five focal areas reflecting wages, offer pension and health insurance these trends in its business strategy. DEG benefits, and build healthcare facilities, aims to further strengthen its commit- kindergartens and schools. ment as a provider of venture capital and promoter of SMEs. Three goals rest on DEG: financially successful too this foundation. As a pioneer investor, DEG’s economic success constitutes the The operating result before risk provision- DEG wants to increase its involvement in basis for further expansion of its promo ing amounted to EUR 222 million. Net Africa and tap additional future markets. tional business. income after risk provisioning and tax It is expanding its leading role among amounted to EUR 129 million. Net re European development finance institu- tained profits amounted to EUR 132 mil- tions in climate and environmental pro- lion. The capital boosted by the net re tection. As a partner to German compa- tained profits constitutes the necessary nies, it will continue to expand its base for expanding DEG promotional financing and support for investment in business as planned in the next few years. developing and transitional markets.

Good development prospects Long-term achievement of its develop- The basic conditions for private entre- ment and business policy mandate and preneurial initiatives in many developing future-oriented, risk-adequate portfolio countries are improving. New future management will remain central man- markets are emerging that are also of agement factors in the future. With the particular importance to development strategic goals system established in policy. The need for investment remains 2012 for the next five years, DEG has very high in many developing countries. created the framework for sustainable There is a particularly high demand for further development of its promotional SME financings and risk capital there. activities. DEG plans to expand its business further on this basis, both quantitatively and qualitatively.

100 | KfW Annual Report 2012 We promote development | Development finance ˚Capital markets KFW is guided by the principles of sustainability, responsibility and continuity in its capital market business. These attributes have a positive effect on demand for KfW bonds, particularly in uncertain market phases. We promote Germany We secure internationalisation secure We We promote development promote We Further topics KfW: a sought-after partner on the international capital markets

KfW combines its funding with its liquidity, currency and interest rate management for the entire KfW Group in its Capital Markets business area. This is also where the bank performs its capital market-related tasks commissioned by the Federal Government. These include executing holding arrangements in the privatisation of Deutsche Telekom and Deutsche Post.

KfW is one of the most active and largest bond issuers in the world. It funds its business activities almost completely via the international money and capital markets, whose environment was once again marked by the European sovereign debt crisis in financial year 2012. Despite periods of recovery, nervousness, volatility and uncertainty dominated the markets. This led to increased risk awareness among investors. As KfW bonds are both safe and liquid, they were particularly sought after by institutional investors.

Capitalisation of the KfW Group 2012 (2011), total: EUR 474.5 (463.1) billion

1 % (1 %) 4 % (4 %) 6 % (7 %) 5 % (7 %)

84 % (82 %)

Capital market funds (original maturity >1 year) Money market funds (original maturity ≤ 1 year) Other liabilities Subordinated liabilities Equity

Differences in the totals are due to rounding

102 | KfW Annual Report 2012 Capital markets KfW refinancing: continuity + stability = success

Its diversified and reliable funding strategy ensures KfW an excellent reputation on the international capital markets. This reputation and the explicit direct guarantee provided by the Federal Republic of Germany form the foundation for the KfW Group’s successful issuing activity.

KfW has a wide range of options for setting up its bonds in terms of structure and currencies, enabling it to address the many different investor requirements. KfW issued 213 bonds in a total of 15 different currencies in 2012, thereby raising long- term funding with a value of EUR 78.7 billion.

KfW’s capital market presence is regularly commended by the international financial media. “Euroweek” magazine presented the KfW team responsible for the issue business an award for the fourth time in a row in 2012. The US finance magazine “Global Finance” declared KfW the “World’s Safest Bank” – like- wise for the fourth time in a row. Australian “KangaNews” chose KfW as “Kangaroo Issuer of the Year 2012”, recognising its successful market launch with its bonds denominated in Australian

dollars. We promote Germany We secure internationalisation secure We

Prime credit rating The Federal Republic of Germany has been explicitly liable for the bonds issued by KfW since 1998 pursuant to section 1 a of the KfW Law. KfW’s credit rating is thus primarily based on the creditworthiness of the Federal Republic of Germany and reflects its rating awarded by rating agencies.

KfW’s credit quality is assessed by the international ratings We promote development promote We agencies Fitch Ratings, Moody’s Investors Service and Standard & Poor’s. KfW’s credit rating was also subject to the regular review in 2012. All three agencies confirmed their best possible assessments for both KfW’s short-term and long-term rating. July 2012 was the first time that Moody’s Investors Service changed KfW’s long-term rating outlook from “stable” to “nega-

tive”. The reason for this was KfW’s close ties to the Federal Further topics Republic of Germany, whose sovereign long-term rating had

KfW Annual Report 2012 Capital markets | 103 just been changed to “negative”. This move was undertaken in Sustainalytics assigned KfW second place out of the 66 non- direct connection with the European sovereign debt crisis and listed banks it rated. Oekom Research ranked KfW as a “prime” the potential resulting risks for Germany. investment within the group of best-rated financial institutions.

At year end, KfW’s ratings were as follows:

As at Fitch Ratings Moody’s Standard & 31 Dec. 2012 Investors Poor’s Service

Short-term rating F1+ P-1 A-1+ Long-term rating AAA Aaa AAA Outlook Stable Negative Stable

Excellent sustainability rating Liquid bonds trump KfW bonds also offer attractive investment opportunities for KfW’s funding concept rests on three pillars. The first pillar con- socially responsible investors, as they combine the best credit sists of high-volume benchmark bonds denominated in euros and quality with an exceptional sense of responsibility. This is con- US dollars with particularly high liquidity. In the reporting year, firmed by independent rating agencies that specialise in the they had maturities of three, five, seven and ten years. Thus KfW sustainable investment sector. They analyse and rate environ- was the only issuer able to offer its investors bonds along the mental, social and governance aspects of equity and bond issu- entire yield curve in 2012 as well. The choice of favourable issue ers for institutional investors. Such ratings take into account a timing and a systematic focus on the predominant demand from number of other aspects in addition to environmental manage- investors in the areas of currency, maturity and volume were once ment and the company’s offering of products and services. again the guarantees for a successful placement and stable per- These aspects include working-time models for employees, formance by these KfW benchmark bonds in 2012. organisational measures to combat corruption, and principles of corporate governance and business practice. KfW has been The proportion of bonds in the benchmark programmes repre- rated “very good” by the Oekom Research and Sustainalytics senting long-term KfW financing continued to increase during the rating agencies for many years, and has been assigned a top reporting year, from 54 % to 59 %. This underlines the fact that ranking by each in their international sector comparisons. investors continue to prefer liquid bonds.

Funding in 2012/2011 by instrument

2012 2011 EUR in % EUR in % billions billions

Securities 78.2 100 77.8 98 Benchmark bonds 46.1 59 42.5 53 Other public bonds 280 36 32.5 41 Private placements 4.1 5 2.7 3 Loans 0.4 <1 1.9 2 Credit-linked notes 0.2 <1 0 0 Other 0.2 <1 1.9 2 Total 78.7 100 79.7 100

Differences in the totals are due to rounding

104 | KfW Annual Report 2012 Capital markets Institutional investors, particularly from Europe and Asia, in ling, Australian dollar, Swedish krona, Norwegian krone and addition to central banks and national and international asset Japanese yen. The proportion of these public KfW bonds managers, were the dominant investor groups for benchmark declined in 2012 due to the preference for more liquid bonds bonds in euros. Banks topped the other groups at 50 % (previ- from the benchmark programmes. ous year: 54 %). There was balanced demand from all regions of the world for KfW’s benchmark bonds in US dollars. Central The third pillar of KfW’s funding comprises the issuance of banks emerged as the largest group for KfW benchmark bonds KfW securities and promissory note loans that are individually in US dollars at 46 % (previous year: 37 %). tailored to the requirements of institutional investors in currency, structure and maturity. The third pillar’s share in the total The second pillar of KfW’s funding strategy comprises all public volume of funding remained stable. transactions outside the benchmark programmes. These include low-volume bonds in the core currencies euro and US dollar, as well as in other major currencies such as the British pound ster-

EUR Benchmark Programme 2012 USD Programme 2012

2012 2012 EUR in Maturity Interest USD in Maturity Interest billions rate as % billions rate as %

KfW EUR Benchmark I/2012 4.0 10 years 2.5 KfW USD Benchmark I/2012 4.5 3 years 1.000 KfW EUR Benchmark II/2012 5.0 5 years 1.375 KfW USD Benchmark II/2012 3.0 10 years 2.625 KfW EUR Benchmark III/2012 5.0 7 years 1.875 KfW USD Benchmark III/2012 5.0 5 years 1.250 KfW EUR Benchmark IV/2012 5.0 3 years 0.625 KfW USD Benchmark IV/2012 4.0 3 years 0.625 KfW EUR Benchmark V/2012 5.0 5 years 0.875 KfW USD Benchmark V/2012 3.0 5 years 0.875 KfW EUR Benchmark VI/2012 5.0 7 years 1.250 KfW USD Benchmark VI/2012 3.0 10 years 2.000 We promote Germany

Placement of KfW EUR Benchmark bonds Placement of KfW USD Benchmark bonds 2012 (2011) 2012 (2011)

2 % (2 %) 2 % (2 %) 9 % (4 %) 0 % (2 %)

27 % (16 %) We secure internationalisation secure We 24 % (28 %) 35 % (34 %) 42 % (56 %)

28 % (25 %) 33 % (32 %)

Europe (excluding Germany) Germany Asia Asia Europe North and South America North America Other regions Middle East and Africa Other regions We promote development promote We

Differences in the totals are due to rounding Differences in the totals are due to rounding Further topics

KfW Annual Report 2012 Capital markets | 105 Variety of currencies: Adding strategic value for KfW KfW issued a bond in Chinese renminbi for the first time in 2012. KfW places a great deal of importance on issuing bonds in dif- With this “Dim Sum” bond, KfW positioned itself early on in a ferent currencies. This enables it to react to global changes in market that is predicted to have considerable growth potential. demand and market conditions at any time and to address a International investors expect the Chinese currency to grow in broader investor base. Currency risks which may arise when importance and are carefully following the development of the KfW issues foreign currency bonds are excluded by simultane- Chinese capital market. ously concluding hedging transactions. KfW issued new bonds on the market in 15 currencies in 2012 The euro and the US dollar remained the core currencies of (2011: 11). At the end of the financial year KfW had bonds KfW’s funding in 2012. KfW raised more than four fifths of its outstanding in 23 different currencies. capital market funds in these two currencies. Other important currencies were the British pound, the Australian dollar and the Japanese yen.

Funding in 2012/2011 by currency

2012 2011 EUR in EUR in billions % billions %

EUR 38.4 49 39.9 50 USD 25.0 32 23.3 29 GBP 5.2 7 4.8 6 AUD 4.3 6 5.8 7 JPY 1.6 2 1.7 2 Other currencies 4.1 5 4.3 5 European currencies (SEK, NOK, TRY, CHF, RUB) 2.1 3 4.0 5 American currencies (BRL, CAD) 1.4 2 0.2 < 1 Asian currencies (CNY) 0.2 < 1 – – Oceanic currencies (NZD) 0.2 < 1 – – African currencies (ZAR) <0.1 < 1 <0.1 < 1 Total 78.7 100 79.7 100

Differenzen in den Summen durch Rundungen

Currency mix of KfW funding: euro remains at the top lent to EUR 5.2 billion in this currency in 2012. This represented EUR just under 7 % of its funding volume. As in the preceding years, the euro was KfW’s most important funding currency. With a volume of EUR 38.4 billion in 2012, AUD KfW raised 49 % of its total funding volume in this currency KfW issued bonds in Australian dollars in an amount equivalent (2011: 50 %). To that end, it issued six large-volume benchmark to EUR 4.3 billion in 2012. This corresponded to a share of the bonds. KfW raised additional funds of EUR 8.6 billion via other total funding volume just short of 6 % (2011: 7 %). Thus KfW was EUR bonds and promissory note loans. once again the largest issuer in its segment of the “kangaroo” market. USD The US dollar remained in second place among KfW’s most JPY important funding currencies. KfW raised funds with an equiva- The Japanese capital market has traditionally been a key source lent value of EUR 25 billion in the year under review. This of funding. KfW issued a total of 35 yen bonds with an equiva- included a total of six high-volume benchmark bonds with three, lent value close to that of the previous year at EUR 1.6 billion in five and ten-year maturities. This corresponds to 32 % of the 2012 (2011: EUR 1.7 billion). This corresponded to 2 % of fund- funding volume (2011: 29 %). ing volume.

GBP KfW has also been a very active issuer with a solid market position in pounds sterling for years now. KfW raised funds equiva-

106 | KfW Annual Report 2012 Capital markets Other The proportion of other currencies to the total funding volume amounted to over 5 %. These other currencies included around 1 % each of the Swedish krona, Norwegian krone, Canadian dollar and Brazilian real. Other currencies in the reporting year were the Turkish lira, Russian ruble, New Zealand dollar, Chi- nese renminbi, South African rand and Swiss franc. The value of other currencies to KfW’s total funding volume amounted to EUR 4.1 billion.

Successful strategy to continue in 2013 KfW expects a moderate decline in the funding requirement to around EUR 70 to 75 billion for financial year 2013. The main determinants of the planned funding requirement are the promotional volume, which will remain at a high level according to KfW’s projection, unscheduled repayments from current lending business, and the repayment structure of outstanding bonds.

KfW anticipates that the European sovereign debt crisis will continue to dominate sentiment on the capital markets in 2013. Renewed setbacks are therefore not excluded, even in the event of a temporary easing of the situation. However, sustained uncertainty and volatility on the international capital markets that would have a material impact on KfW’s funding activities is not expected. KfW considers itself well-equipped for difficult times as well with the explicit, direct guarantee by the Federal Government and a long-term issuing strategy.

Offers throughout the maturity range and high flexibility in We promote Germany format and currency will remain the successful foundation for issuing activity tailored to investors’ needs. KfW’s main refinan cing currencies will remain the euro and US dollar. Moreover, along with the already established currencies such as the British pound sterling, the Australian dollar and Japanese yen, Asian currencies, in particular the Chinese renminbi, can be expected to play an increasingly important role in KfW’s refinancing blend. Overall, KfW expects to continue to benefit from the increasing

currency diversification of central banks and major investors. internationalisation secure We Banks looking for greater low-risk, liquid investment opportunities to secure liquidity for regulatory reasons will also become more important as long-term investors. We promote development promote We Further topics

KfW Annual Report 2012 Capital markets | 107 Short-term funding – commercial paper for liquidity management

Many investors showed only a limited risk appetite in 2012, and focused on safe and, in particular, short-term investment options when making investment decisions. The KfW commercial paper, which is well-established on the international money markets, is an ideal instrument in this respect.

KfW’s business activities developed very encouragingly in the money market segment in 2012. Although the demand for safe and short-term investments in KfW commercial paper remained high, the issue volume was down on the previous year on the whole due to the bank’s very solid liquidity resources in the reporting year.

KfW provides commercial paper in all major currencies. This gives investors the opportunity to acquire short-term securities with German sovereign risk that are not denominated in euros. In the short-term market segment, KfW has been successfully defending its position among the world’s largest commercial paper issuers with its two programmes for years now.

KfW uses its two commercial paper programmes to raise short- term funds for a term of up to twelve months.

The Multicurrency Commercial Paper Programme designed for global investors is the most important short-term source of funding for KfW. It provides investors with investment opportunities in all major currencies. Commercial paper was issued in twelve different currencies in 2012, the main issue currencies being the US dollar and the British pound. The US Commercial Paper Programme, on the other hand, was specially designed for the US market. The bank maintained the issue volume at a high level that was slightly above that of the previous year. KfW uses this programme to cover the majority of its need for short-term funds in US dollars.

The Multicurrency Commercial Paper Programme accounts for a programme volume of EUR 40 billion, with an average outstanding volume of EUR 18.6 billion. The volume of the US Commer- cial Paper Programme totals USD 10 billion, with an average outstanding volume of USD 6.5 billion in the year under review. Taking both commercial paper programmes together, KfW issued securities in 1,029 transactions (previous year: 1,505).

108 | KfW Annual Report 2012 Capital markets KfW’s securities transactions are sustainable

At KfW, securities business involves first and foremost As a signatory of the United Nations “Principles for Responsible managing financial investments to control liquidity across Investments” (PRI) and faced with issues such as dwindling the Group in the form of a liquidity portfolio. This is resources and climate change, KfW is committed to the further designed to ensure that KfW remains capable of taking development of sustainable investment. The bank therefore action even if it has no access to the capital market. took part in a PRI working group in 2012, which dealt with ESG risks and the integration of ESG criteria in bonds. KfW also KfW pursues a conservative investment policy and invests exclu- supported a project by the United Nations (E-RISC), which high- sively in fixed-income securities with good (i. e. investment grade) lights the necessity of integrating environmental risks into the credit ratings. It invests in the “Pfandbriefe” (German covered valuation/comparison of government bonds. KfW is also active bonds), “public sector”, “bank bonds”, and “supranational institu- in the global Carbon Disclosure Project. This project’s database tions and agencies” asset classes. Furthermore, a large portion gives institutional investors climate-relevant information on of the bonds must be eligible for the European Central Bank individual issuers of securities. This makes it a valuable decision- (ECB) collateral pool, giving KfW access to the equivalent volume making aid for investors who want to analyse not only the of ECB primary liquidity. In addition to the liquidity portfolio, KfW profitability of their investment decisions, but also their envi- has a separate portfolio for the market management of its own ronmental impact. KfW bonds. KfW manages both portfolios in-house.

In addition to its securities business, KfW is also involved in lending business in the form of securities. These transactions are allocated to the promotional lending business. Furthermore, the bank holds securities in a phase-out portfolio that KfW classi- We promote Germany fied as being of non-strategic significance during the financial crisis and now plans to phase out in the medium term. As at the end of 2012, KfW’s liquidity portfolio accounted for a volume of EUR 21.1 billion. Combined, all of the securities items on KfW’s balance sheet corresponded to a volume of EUR 28.0 billion (previous year: EUR 29.2 billion).

Since early 2008, KfW has been assessing not only the credit

rating of the securities investments that it holds to secure internationalisation secure We liquidity, but also compliance with sustainability criteria (ESG: environmental, social and governance). For this purpose, the bank created its own definition of sustainability, which encom- passes the criteria of “environment”, “social responsibility” and “corporate governance”. KfW communicates the results of its sustainability assessment to the issuers of the securities in its portfolio. Furthermore, exclusion criteria also apply to non-gov- ernmental issuers in the portfolio based on the World Bank Group debarment list. The bank also stepped up the communication We promote development promote We of its sustainability activities on the capital market overall, in order to make “sustainable financial investments” and “responsible investment” more mainstream issues for other capital market participants. Further topics

KfW Annual Report 2012 Capital markets | 109 Special capital market-related tasks commissioned by the federal government

Privatisation of Deutsche Telekom and Deutsche Post As part of the privatisation of Deutsche Telekom AG and Deutsche Post AG, and the special transactions commissioned by the German Federal Government, KfW had been buying shares from the Federal Government, and selling some of them in various capital market transactions in several stages from 1997 onward.

September of the year under review saw another step taken in the privatisation process, with 60 million shares (5 %) in Deutsche Post AG being successfully placed on the market with institutional investors.

KfW holdings in Deutsche Telekom AG and Deutsche Post AG as at the end of 2012 stood at 735.7 million and 308.3 million shares respectively. This represented 17.0 % and 25.5 % respectively of the companies’ share capital as at 31 December 2012. Complete conversion of two exchangeable bonds issued for shares in Deutsche Telekom AG (issued in 2008; matures in 2013) and Deutsche Post AG (issued in 2009; matures in 2014) will reduce the respective KfW holdings of shares by 5.7 % for Deutsche Telekom AG and by 4.5 % for Deutsche Post AG.

KfW and the Federal Government have agreed that the privatisation of Deutsche Telekom and Deutsche Post will be continued for the long term. Where the market situation is deemed appropriate, KfW will be exploiting suitable capital market windows for further privatisation measures in close consultation with the Federal Government.

Financial support measures for Greece KfW is supporting the Federal Republic of Germany in the im plementation of EU-wide financial support measures for Greece. As part of a mandated transaction, the Federal Government commissioned KfW in 2010 to provide the German share of the bilateral loans granted to Greece by the euro member states. All of the risks associated with this mandated transaction are hedged by a Federal Government guarantee. KfW’s credit facility was reduced during the year under review, from the original amount promised of EUR 22.3 billion to the amount actually drawn EUR 15.2 billion.

KfW is not involved in any of the other financial aid measures provided by the eurozone countries to Greece or other EMU states.

110 | KfW Annual Report 2012 Capital markets ˚The men and women on our staff In fulfilling our promotional mandate and achieving business success, there is one aspect that is particularly important to us: being a responsible and attractive employer. After all, only a strong workforce can provide the key competitive advantage for We promote Germany future success. We secure internationalisation secure We We promote development promote We Further topics KfW achieves success in conjunction with its staff

High demands continued to be placed on KfW and its – Support and advice for managers in performing their duties employees in financial year 2012. In addition to a high within the context of the change processes volume of business, there were also important projects – Cooperative collaboration with the employee representative for change to pursue with a view to the future. Managers bodies and non-managerial staff together delivered impressive performance. This was based on the high level of mutual The same sustainability requirements apply in shaping the mod- respect between KfW’s managers and non-managerial ernisation process as apply to KfW’s personnel policy as a whole. staff. As a bank, we are committed to achieving a healthy As a result, KfW has ruled out any redundancies as part of the balance between focusing on performance and social modernisation measures as well. This is, however, subject to responsibility. We place a high value on equal opportuni- employees’ willingness to react to changes in their duties with ties across the Group. Our employees acknowledge this the necessary flexibility. by identifying strongly with KfW. The first projects were successfully implemented and concluded Personnel in 2012. Projects that have already been launched will be con- As at the end of 2012, KfW Bankengruppe employed a total of tinued, and new projects initiated, in 2013. 5,440 people (previous year: 5,063) at KfW, DEG and IPEX, 4,318 of whom worked at the KfW parent company (previous Change of culture year: 4,010). The modernisation of KfW is essentially aimed at ensuring professional, efficient and sustainable working methods. But it can The growth of the workforce seen in 2012 was in line with the only succeed if implemented along with a bank-wide further expectations at the turn of the previous year and had a positive development of KfW’s culture. The objective is to establish a impact on the ongoing modernisation process at KfW. In the culture based on openness and transparency, appreciation, trust credit departments, the area that expanded the most was the and a cooperative willingness to perform, a culture that brings Financial Cooperation (FC) area. the diversity of KfW’s employees to the fore.

The proportion of KfW employees not covered by collective With this aim in mind, the Executive Board adopted the Gender agreements remained constant at around two-thirds. At the end Balance Concept in 2012, the idea being to first of all focus on of the year 21.3 % of employees were part-time employees, an gender-sensitive leadership and cooperation. The concept ques- increase on the previous year (20.2 %). tions long-standing behavioural patterns and initiates necessary changes in the corporate culture involving both managers The average age of the bank’s employees was just under 42.2, and non-managerial staff. Implementation of the concept is meaning that it has barely increased over a two-year period. scheduled for completion in mid-2015 with sustainable results. This shows that KfW is getting younger. The current modernisation process also shows that employees identify very strongly Raising the proportion of women in management positions to with their responsibilities and with KfW. This is reflected in the 33.3 % by mid-2015 will also help to achieve this change in cul- staff turnover rate – after adjustments to reflect those leaving ture. In its systematic pursuit of this objective, KfW expects to for age-related reasons – of 1.4 % (previous year: 1.6 %). be able to develop a balanced proportion of male and female managers on the whole. Recruitment decisions will continue to Change Management Office (CMO) established to support be based on qualifications. the modernisation projects A dedicated Change Management Office (CMO) was set up in Women accounted for 28.2 % of management positions in 2012. the HR department to support the KfW modernisation projects The development over the course of the year was more subdued launched in 2012 for strategic focus, further professionalisa- than planned, because organisational changes limited the oppor- tion, increased efficiency and client focus. The CMO coordinates tunities available for new positions. A controlling system that has and orchestrates all change, communication and HR manage- been implemented for the Executive Board and managers will, ment duties resulting from the individual projects: however, help KfW to achieve its objectives. More employees – Coordination, quality assurance and reporting of change and with leadership potential were approached in 2012 and involved HR management measures in the recruitment process. Enhanced coaching and mentoring – Involvement in internal KfW communications planning and programmes now give women more opportunities to consider implementation their personal goals and develop their own career strategies.

112 | KfW Annual Report 2012 The men and women on our staff Work-life balance remains an important issue at KfW, and a Promoting young talent second crèche opened in Frankfurt in 2012. Throughout the As at the end of 2012, 150 young people were undergoing their bank, KfW staff confirmed in an employee survey that they gen- first vocational training course, of whom 93 were on sandwich erally felt able to juggle career and childcare commitments. degree programmes involving work placements (in 2011 the figure was 163, of whom were doing 104 sandwich degrees). Regular employee satisfaction survey to be introduced The number of graduate trainees stood at 62 as at 31 Decem- KfW is in the midst of a far-reaching modernisation and trans- ber 2012 (previous year: 46). In the course of the year 127 stu- formation process. This is the bank’s response to changes in the dents completed internships at KfW (previous year: 90). As at market environment and their impact on KfW. 31 December 2012, the total number of vocational and graduate trainees, sandwich students and interns was 238 (previous Changes at large organisations can only succeed if all of the year: 228). This equated to a training rate of 5.5 % (previous affected individuals understand that these changes are necessary year: 5.7 %). and make a constructive contribution to the change process. There is no better example of this than the KfW modernisation Thank you process, which comes hand-in-hand with a range of challenging In financial year 2012, KfW’s employees once again handled a and complex change projects. high business and promotional volume. Many of them were involved in the modernisation process at the same time. They As a result, KfW has decided to conduct a largely standardised put in a substantial amount of extra work in order to boost effi- employee survey at regular intervals, asking staff to voice their ciency in the future. opinions on important issues relating to all aspects of KfW and their work. The questions will focus on the workplace, duties New KfW staff representatives were appointed in the reporting We promote Germany and personal development, change and modernisation, coopera- year. They were quick to assume their role in terms of co-deter- tion and decision-making processes, management and commu- mination and collaboration with the management, and also pro- nication, identity and values, and client focus. vided constructive support for the current change processes. We would like to thank all members of staff, as well as the The idea behind the employee survey is to allow KfW to evalu- employee representatives, equal opportunities officers and rep- ate satisfaction levels and the willingness to embrace change resentatives for employees with severe disabilities for the good among its staff on an ongoing basis, also with a view to ensur- working relationship we enjoyed with them in 2012. ing their active involvement in the current cultural changes. The

findings will lead to specific recommendations for action which internationalisation secure We will be discussed in a dialogue process with the individual departments in order to develop specific goals and measures.

The first KfW employee survey in this series was conducted from 5 to 16 November 2012. The survey was conducted online with the support of an external market research company. An initial glance at the results confirms the staff’s strong sense of identi- fication with KfW. It shows that employees are highly satisfied with KfW as an employer and also that they are willing to We promote development promote We embrace the changes initiated to date.

High need for graduate trainees KfW’s positive image as an employer is also evident not least in the healthy positions it occupies in relevant employer ranking systems. The demand for our graduate trainee programme

among university graduates remains high as a result. This means Further topics that we were able to address the increased need for graduate trainees in the different departments in both qualitative and quantitative terms.

KfW Annual Report 2012 The men and women on our staff | 113 In memoriam

We mourn the loss of the former KfW Executive Board member who passed away in 2012: Dr Friedrich Voss

We also mourn the deaths of the following colleagues: Bettina Arens Regine Henkel Raimund Herold Heiko Jannermann

We further mourn the deaths of the following retired members of our staff: Elisabeth Adler Rita Jung Dietmar Penzler Irene Berg Klara Keune Helene Platek Rosi Born Ursula Klose Anita Reichhold Ursula Froese Hans-Jürgen von Köller Dr. Gerhard Reuter Dietrich Geidel Getraut Kühner Christel Riedl Karl Haag Christa Loos Peter Sauder Aloysia Hagen Hermann Menningen Annemarie Schlempp Regine Hedderich Christine Mossler Joachim Wilken Rosamunde Herbert Gerhard Münster Ernst Zickler Birgit Hofmann Doris Nowak Ilse Zingrebe Angelika Hohmann Gerhard Nowak Minna Hohnroth Horst Paetzel

We will remember with gratitude Dr Voss and all of our colleagues and retired members of staff who have passed away.

114 | KfW Annual Report 2012 The men and women on our staff ˚Financial reporting Very solid earnings situation for KfW thanks to a combination of extremely favourable refinancing opportunities and positive one-off effects in the valuation result. Given the growing expectations facing promotional activities as well as more stringent We promote Germany regulatory requirements, KfW’s promotional capability will be secured We secure internationalisation secure We in the long term by the improved capital base. We promote development promote We Further topics Financial reporting

The complete consolidated financial statements including the group management report are included in our Financial Report, which is available for download from our website. The annual financial statements and the management report of KfW are also available for download. The auditing firm KPMG AG Wirtschaftsprüfungsgesellschaft issued an unqualified opinion on both the consolidated and the individual financial statements as at 12 March 2013.

General economic environment The global economy lost some momentum in the course of 2012, primarily due to the industrialised nations, and in particular the euro area which, like the UK, found itself in a period of recession. The developing and emerging market countries remained the drivers of the global economy, although they were far from the sort of momentum seen in previous years. Fortunately, the inflationary trend receded worldwide. This gave industrialised countries more scope for monetary policy measures, which they did indeed take advantage of. In the developing and emerging market countries, the damper on inflation also had positive effects on prosperity and social aspects, although the level of inflation was still too high. The ongoing reduction in global imbalances was another positive aspect.

The euro crisis was the dominant issue on the financial markets. The market did not calm down until the president of the Euro- pean Central Bank (ECB) confirmed the central bank’s resolve to do everything in its power to preserve the euro. Moreover, political decision-makers set important institutional courses for a more stable foundation for the euro area in the future. Concerns about the continued existence of the euro declined significantly as a result of these developments. Money market rates continued to fall against the backdrop of very expansionary monetary policy. There was also a considerable decline in annual average interest rates for longer-term maturities. Overall, the average slope of the yield curve fell compared with the previous year.

Soft global demand, stabilising recessions in southern Europe and high levels of crisis uncertainty remaining in the euro area despite material advances had a dampening effect on the Ger- man real economy. Economic momentum slowed further over

116 | KfW Annual Report 2012 Financial reporting the course of the year with activity at the end of 2012 even Operating result before valuation, consolidated profit, receding over the previous quarter. Despite this development, consolidated profit before IFRS effects from hedging however, Germany is well positioned on an international scale figures in EUR millions in view of the crisis environment. Positive domestic growth impetus was provided by consumption, which benefited from 2,302 the robust labour market and the development in real wages, 2,631 2010 and from residential construction. Net exports also made a con- 3,061 siderable positive contribution to growth. This, however, should not be misinterpreted as a reflection of strong foreign trade 1,869 momentum. The fact that net exports made a high positive con- 2,068 2011 tribution to growth was solely due to a much smaller increase 1,900 in imports.

2,246 Germany achieved a slight budget surplus corresponding to 2,384 2012 We promote Germany 0.2 % of its GDP. The high employment intensity thanks to the 2,229 growth in recent years has been a major contributing factor to this success in consolidation. However, there is a limit to the 0 500 1,000 1,500 2,000 2,500 3,000 3,500 positive effects of the development in government finance. The Operating result before valuation Consolidated profit consolidation has thus far heavily burdened public investment Consolidated profit before IFRS effects from hedging on the expenditure side and has thus been at the expense of infrastructure and long-term growth potential.

Major financial developments for the KfW Group internationalisation secure We KfW can look back on a successful financial year 2012. The very positive earnings situation was shaped by various extraordinary effects. KfW continued to generate a consolidated profit, totalling EUR 2.4 billion (previous year: EUR 2.1 billion), which lies considerably above its long-term potential. Given the increasing expectations of KfW’s financial support, continued uncertainty about future economic development and not least the strict regulatory requirements, the capital base, which was sustainably improved by this result, ensures KfW’s long-term promo- We promote development promote We tional capability. Further topics

KfW Annual Report 2012 Financial reporting | 117 Earnings in 2012 were largely characterised by the following The earnings contribution from the equity investment portfolio developments: in the amount of EUR 135 million (previous year: EUR 54 million) was largely a result of transactions mandated by the Federal Net interest income at historic high has positive impact Government to acquire shares in EADS N. V., Netherlands. In this on operating result context, a reversal of impairment losses on shares already held The operating result before valuation improved significantly and indirectly by KfW was undertaken at historical cost; the impair- stands at EUR 2,246 million (previous year: EUR 1,869 million), ment losses that were necessary in the previous years were thus a very high level. recovered through profit or loss.

The strong improvement is due in particular to a record net in Valuation of derivatives at EUR 155 million in financial year terest income of EUR 2,933 million (previous year: EUR 2,399 mil- 2012 had a positive impact on earnings in an amount similar to lion), which continues to represent the main source of income the previous year (EUR 167 million). As a non-trading book for the Group. The above-average contribution to earnings is a institution, KfW uses derivatives exclusively to hedge risks that result of KfW’s excellent financing opportunities, which are arise in connection with refinancing. Accordingly, the resulting thanks to an unusual interest rate structure in this constellation – effects on earnings were not economically meaningful, as they particularly for short-term maturities – in addition to the top- will offset each other again in the future. notch credit rating. The interest rate reductions as a component of KfW’s promotional business stand at EUR 535 million (previous Development of net assets and financial position year: EUR 557 million). The consolidated total assets of the KfW Group rose by EUR 16.8 billion to EUR 511.6 billion in 2012. The increase is While net commission income remained at the prior-year level, largely attributable to market value changes in derivatives used administrative expenses of EUR 914 million showed a clear for hedging purposes and their recognition in hedge accounting increase (previous year: EUR 757 million). This is particularly as well as to increased liquidity maintenance. New lending busi- due to the continuation of KfW’s modernisation measures ness resulted in a rise in total loans by EUR 1.8 billion to including charges in personnel and non-personnel expenses. EUR 366.8 billion. This contains high unscheduled repayments in the domestic promotional loans business. As in previous Risk provisions in core business partially compensated by years, growth in total assets was funded by issuing activities. extraordinary effects At EUR 410.9 billion, the volume of own issues reported under The Group’s risk situation showed negative development, par- securitised liabilities was EUR 12.0 billion higher than in the ticularly in the export and project finance’s “maritime industry” previous year. segment, where it resulted in high net risk provisions for immediate credit risks. Risk provision in domestic promotional lending Development of the risk situation as well as in promotion of developing and transition countries A worsening economic environment, together with the challenges remained at a moderate level. These charges were offset by of the European sovereign debt crisis and the financial crisis positive one-time effects in other segments as well as reversals continue to put a damper on any recovery in the banking sector. of portfolio impairments. This meant that the earnings situation of the banks did not improve in 2012. The situation for the banks in the crisis-hit In all, risk provisioning resulted in moderately negative effects European countries remains particularly difficult as these insti- on earnings of EUR 155 million, after positive effects the previ- tutions are still unable to cover their refinancing needs on the ous year of EUR 185 million. capital markets and in some cases are still hugely dependent on state capital measures. The banking sector faces enormous Positive developments in the securities and equity challenges again in 2013. The difficulties remain manifold – the investment portfolios as well as in reporting of hedging European sovereign debt crisis, global economic cooldown, relationships growing problems in Eastern Europe and implementing the in The situation on the financial markets with a view to problems creased capital requirements. Due to weakening economic con- in the European sovereign debt sector stabilised considerably in ditions, prospects can also be expected to deteriorate further the second half of the year as a result of important institutional for some banking markets that have not yet been the focus of courses set and the announcement of ECB euro support meas- attention. ures. The KfW Group securities portfolio performed well as a result of improved surrounding conditions, resulting in a contri- The euro crisis is now also hampering the German economy. bution to earnings on the income statement of EUR 77 million Nevertheless, economic activity in Germany remains more (previous year: EUR 255 million). Positive performance was also robust than in most European countries. In the corporate sector, reported directly in equity. Differences to market values were KfW expects lean times in 2013, particularly in cyclically sensi- considerably less for those securities and investment not car- tive industries such as automotive supplies, engineering and ried at fair value. steel. However, in a base scenario, the prospects for these industries should brighten again in 2014. Companies’ financial

118 | KfW Annual Report 2012 Financial reporting reserves should, on average, be sufficient to bridge the difficult The KfW Group’s projected new business volume for 2013 of year 2013, especially as high liquidity is still expected on the EUR 72 billion is similar to that of 2012. Measures have been market. An exception to this is merchant shipping, which will introduced across the group placing strategic focus on promo- continue to be hit hard in 2013 and will probably not reach tional quality and the orientation of business activities on the key recovery in 2014 either. areas of climate and environmental protection, globalisation and technical progress and demographic development. These are re- KfW Bankengruppe has also been affected by these develop- flected in the planning of the business areas. The focus in the ments due to its international promotional mandate. Risk provi- domestic promotional business of the KfW Mittelstandsbank, sions were increased during the year, primarily in merchant KfW Privatkundenbank and KfW Kommunalbank business areas shipping. Overall, however, the effects on the group portfolio with a planned promotional business volume of EUR 49.4 bil- were easily manageable. All recognisable risks are measured lion will remain on SME financing and ensuring the future via- using conservative standards and are taken into account in the bility of companies. For capital market-related products such new business management through systematic establishment as participation in securitisation transactions, granting global of risk guidelines. The regular calculations of risk-bearing loans and refinancing export loans covered by federal guaran- capacity show that the KfW Group can bear the risks assumed tees, KfW is planning a new business volume to the tune of in the context of its mandate – even based on conservative EUR 2.4 billion. The internationally-active business areas of stress scenarios. KfW are looking to achieve disproportionately strong growth in the medium term compared with domestic business in order to Risk management within the KfW Group chiefly serves to pre- support the internationalisation of German companies as part serve the group’s risk-bearing capacity. For the risk-bearing of globalisation, with a total promotional business volume of capacity analysis, risk is measured and compared to risk-cover- EUR 20.3 billion planned for the coming year. ing potential by means of a capital requirement calculation. KfW Development Bank also aims, with its growth, to make a contribution to realising the development aid pledged by Ger- As at 31 December 2012, KfW had sufficient economic risk- many (ODA quota). For the next two years, KfW expects the bearing capacity to satisfy a solvency level of 99.99 %. Any funding volume to be at a high level, with a funding require- additional capital requirements for stress scenarios are covered ment of between EUR 70 billion and EUR 75 billion expected by the unrestricted portion of the risk-covering potential, ensur- in financial year 2013. ing that risk-bearing capacity at a solvency level of 99.99 % would be attained even if unfavourable macroeconomic condi- In its current earnings projections for the Group, KfW expects to We promote Germany tions were to occur. achieve total earnings of slightly above the EUR 1 billion mark in financial year 2013. The key assumption for this earnings The regulatory capital ratios improved greatly on the previous forecast is a gradual stabilisation of the euro crisis combined year. As at 31 December 2012, the total capital ratio taking with moderate economic growth on the 2012 level. Against this into account consolidated comprehensive income was 20.6 % backdrop, a slight increase in interest rates is anticipated. Sig- (previous year: 17.8 %), and the core capital ratio was 18.2 % nificant earnings contributions are expected from net interest (previous year: 15.4 %). income for 2013, too. This comprises margins, the interest structure result (which is expected to be lower than in 2012)

The international money and capital markets were shaped by and KfW’s funding opportunities which are expected to remain internationalisation secure We the European government debt crisis again in 2012. Despite favourable. Risk provisions have a negative effect on earnings periods of recovery, nervousness, volatility and uncertainty and are planned at a slightly higher level than in 2012 due to dominated the markets. This led to increased risk awareness the expected losses. There will also be a renewed increase in among investors. As KfW bonds are both safe and liquid, they administrative expenses due to several measures implementing were particularly sought-after by institutional investors. regulatory requirements as well initiatives and major projects to modernise KfW that were launched in the previous years. Outlook KfW’s earnings projections remain highly uncertain given the After the world economy weakened in 2011 and 2012, a slight current developments in the euro zone, which may mean that recovery is expected in 2013. This forecast is based on the actual results differ from the projected results. This uncertainty We promote development promote We assumption that economic output in the euro area will not shrink applies in particular with respect the development of interest any further. The main risks to the global economy continue to lie and exchange rates, which considerably influence the earnings in the industrialised nations. The developing and emerging mar- contribution of net interest income, but also to the future devel- ket countries remain the drivers of the world economy and are opment of KfW’s funding conditions and credit risks. There may continuing their above-average growth. However, they are far also be fluctuations in earnings from IFRS-compliant hedge from the dynamism seen in the past. The emerging market accounting in the future.

countries in particular are not only affected by the impact of the Further topics euro crisis on their exports, but also by home-grown weaknesses such as deficient infrastructure, a backlog of reform etc.

KfW Annual Report 2012 Financial reporting | 119

˚Corporate Governance We promote Germany We secure internationalisation secure We We promote development promote We Further topics Report of the Board of Supervisory Directors

– the status of the creation of an independent Compliance Department to consolidate and expand the existing compliance functions and – KfW’s risk and business strategy for 2013.

In the reports on the activities of the individual fields of business, the primary focus was on the following developments: – In regard to the domestic promotion activities, the Executive Board reported on the improvements to the financing schemes in order to support the energy turnaround adopted by the Federal Government and the qualitative focus of promotional business. The aim is a stronger focus on the key promotional challenges such as climate change and environment, globalisation and technical progress, as well as demographic develop- Dr Wolfgang Schäuble, Federal Minister of Finance ment. Further key areas include promotional products such as the programme to promote social enterprises, new programmes to finance municipal energy supply, the launch of the “Family Meetings of the Board of Supervisory Directors Care Leave Loan”, changes in refinancing at the promotional The Board of Supervisory Directors and its committees con- institutions of the federal states, as well as the planned new stantly monitored the conduct of KfW’s business activities and Venture Capital Programme for enterprises in the post-start up the management of its assets. It has taken the necessary deci- phase. In the process of improving customer orientation, sions on the provision of financing and the conduct of other domestic promotion will in future be supported through an business in accordance with the conditions set forth in the KfW online distribution process via clients’ own banks to KfW. Law and the By-Laws. The Board of Supervisory Directors, the – With a view to the business area of the promotion for develop- Executive Committee and the Credit Committee each held three ing and transition countries, the Executive Board reported meetings and the Audit Committee two meetings for this pur- on the increase of Germany’s ODA commitments through the pose in 2012. expansion of development finance based on the bank’s own funds, continued commitment to financing climate and environ- At the meetings the Executive Board informed the Board of mental protection, increased provision of risk capital, which Supervisory Directors of: is essential to promotion, as well as its focus on Africa. – KfW’s 2011 annual and consolidated financial statements, – KfW IPEX-Bank GmbH and the Export and project finance – the business activities and current developments in KfW’s business area focused on their role as a reliable partner to individual fields of activity the German economy, in particular given that demand for – the Group’s net assets, the earnings position and risk situa- long-term financing is becoming increasingly scarce. The tion in general, particularly sensitive areas such as the expo- Board of Supervisory Directors discussed the capital structure sure to European states and possible impacts of the European of KfW IPEX-Bank GmbH in preparation for Basel III. sovereign debt crisis on KfW, the ship portfolio, – The Executive Board gave regular reports on capital market devel- – the initiated large-scale projects for the further modernisa- opment and the refinancing status of KfW’s business activities. tion of KfW, in order for KfW to present itself in an even more – The Board of Supervisory Directors was also informed of KfW professional, efficient and client-oriented manner. These in Group’s sustainability commitment. clude, among others, adopting provisions of the German Banking Act at KfW, restructuring the finance architecture, The Board of Supervisory Directors was informed at the meet- adapting to new regulatory requirements and greater orienta- ings as well as quarterly, in writing, of the Group’s net assets, tion to client needs as well as optimisation of the entire lend- earnings position and risk situation, and of the development of ing process. The projects comprise both the professional its promotional business. implementation and IT requirements, – sharpening of the brand profile combined with updating KfW’s At the meetings the Executive Board discussed KfW’s strategic image while including the results of a client survey, orientation with the Board of Supervisory Directors. They dis- – establishing the KfW Stiftung (foundation) to pool its corpo- cussed and approved focusing the products on important pro- rate social responsibility (CSR) activities, motional issues in connection with setting an environmental and

122 | KfW Annual Report 2012 Report of the Board of Supervisory Directors SME quota, while also improving promotional quality, as well as reappointed Dr Ulrich Schröder as an Executive Board member secondary requirements proposed by the Executive Board, i. e. and as Chief Executive Officer for the term from 1 January 2013 ensuring appropriate risk-bearing capacity, promotional effi- to 31 December 2017. ciency and profitability. The continued very positive development of the Group’s profitability has further strengthened its risk- As was agreed, in my capacity as Federal Minister of Finance I bearing capacity. The Board of Supervisory Directors approved assumed the position of Chairman of the Board of Supervisory the business strategy and related planning for 2013. Directors for 2013 from my colleague Dr Philipp Rösler, Federal Minister of Economics and Technology. Committees of the Board of Supervisory Directors In exercising its responsibilities prescribed in the By-Laws, the Helmut Dedy, Prof. Dr Hans Heinrich Driftmann, Heinrich Executive Committee discussed the compensation system for the Haasis, Frank Horch, Karoline Linnert, Dr Norbert Röttgen, KfW Executive Board and other Executive Board matters. It ap Hanns-Eberhard Schleyer, Gerd Sonnleitner and Marion proved creation of the KfW Stiftung and addressed the new insur- Walsmann stepped down from the Board of Supervisory Direc- ance plan and real estate matters. Other issues included informa- tors during the reporting period. The Board of Supervisory tion on legal disputes and the KfW staff remuneration system. Directors would like to thank these former members for their work. Peter Altmaier, Georg Fahrenschon and Joachim Rukwied The Credit Committee reviewed the commitments and equity joined the Board of Supervisory Directors in 2012, as did Jens investments that must be presented to it under the KfW Law and Bullerjahn, Prof. Dr Hans-Günter Henneke, Dr Ulrich Nussbaum, By-Laws as well as the scope for funding required by KfW for Holger Schwannecke, Erwin Sellering and Dr Martin Wansleben refinancing and the related swap transactions necessary for with effect from 1 January 2013. hedging, and was informed about the risk situation. The Commit- We promote Germany tee was also informed in detail about KfW’s ship financing busi- Annual financial statements ness and the current situation on this market. It also discussed at KPMG AG, who was appointed auditor for the 2012 financial great length any effects the European debt crisis might have on year, has audited the annual financial statements and the man- KfW and its exposure to European states. agement report of KfW as well as the consolidated financial statements and the group management report of KfW Group, The Audit Committee addressed the accounting process, the all of which were prepared as of 31 December 2012 by the quarterly and risk reports as well as the annual financial state- Executive Board, and issued an unqualified auditor’s report ments of KfW Group. It was informed about the efficiency of thereon. The financial statements and the management report

the risk management system, the Internal Control System (ICS), were prepared in accordance with the provisions of the German internationalisation secure We the internal audit system and the activities of the Internal Audit- Commercial Code (HGB). The consolidated financial statements ing department in 2011 and 2012. This included a detailed dis- and the group management report were prepared in accord- cussion of management of interest rate risks. The Committee ance with International Financial Reporting Standards (IFRS) as approved the audit plans of the Internal Auditing department for applicable within the European Union. 2013. It addressed auditor independence and determined focal points for the annual audit. It made corresponding recommenda- At its meeting on 15 April 2013 the Board of Supervisory Direc- tions to the Board of Supervisory Directors for the approval of tors approved the financial statements prepared by the Executive the annual financial statements and the appointment of the Board and the consolidated financial statements, as stipulated in auditor for 2012 and 2013. The Audit Committee was informed Article 9 (2) of the KfW Law following a recommendation by the We promote development promote We of the progress of the project to adopt provisions of the German Audit Committee. Banking Act at KfW, other major projects and – as the Credit Committee – of the effects of the European debt crisis on KfW and its exposure to European states. Frankfurt am Main, 15 April 2013

The committee chairpersons reported to the Board of Super The board of supervisory directors

visory Directors regularly on the work of the committees. Further topics

Changes on the boards At the proposal of the Executive Committee, the Board of Supervisory Directors at its meeting of 5 December 2012 Chairman

KfW Annual Report 2012 Report of the Board of Supervisory Directors | 123 Corporate Governance Report

As the promotional bank of the Federal Republic of Germany, Chairman of the Board of Supervisory Directors and his deputy. KfW has committed itself to making responsible and transpar- Derogation of clause 3.3.2 of the Code continues to prevail until ent action comprehensible. The Executive Board and the Board such a decision is made. of Supervisory Directors of KfW recognise the Public Corporate Governance Code (Public Corporate Governance Kodex – PCGK) of Delegation to committees the Federal Republic of Germany. A Declaration of Compliance The KfW Law sets out the size of the Board of Supervisory with the recommendations of the PCGK was issued for the first Directors at 37 members, as well as its structure. The Board of time on 6 April 2011. Since then any potential departures are Supervisory Directors is ratified via committees more special- disclosed and explained on an annual basis. ised in the subject matter and more flexible in terms of time. In some cases, the committees not only prepare the decisions of KfW is a public law institution under the KfW Law. The Law sets the Board of Supervisory Directors but also – in derogation of out KfW‘s main structural features. For example, KfW does not clause 5.1.8 of the Code – make final decisions. This is done for have a shareholders’ general meeting. The shareholders are re reasons of practicality and efficiency. presented on the Board of Supervisory Directors of KfW and exercise control as well as shareholder functions (e. g. approval – The Executive Committee makes final decisions in the follow- of the annual financial statements and adopting resolutions con- ing cases: It resolves measures dealing with important legal cerning the KfW By-Laws). The number of members, member- and administrative matters and can make urgent decisions in ship structure and duties of the Board of Supervisory Directors pressing matters. The Executive Committee also accepts re are set out in the KfW Law, which also provides that KfW is ports on Executive Board member conflicts of interest, in lieu subject to direct supervision by the Federal Ministry of Finance of the Board of Supervisory Directors, in derogation of clause in consultation with the Federal Ministry of Economics and 4.4.3 of the Code. The Chairman of the Executive Committee Technology as well as to direct control by the Bundesrechnungs- approves secondary employment of Executive Board members hof (Federal Audit Office). instead of the Chairman of the Board of Supervisory Directors, in derogation of clause 4.4.4 of the Code. In order to implement the PCGK, KfW revised the By-Laws of KfW, modified the Rules of Procedure for the Executive Board – The Credit Committee makes final decisions on all lending and adopted new Rules of Procedure for the Board of Supervi- requiring approval pursuant to the KfW By-Laws as well as on sory Directors in the course of 2010. This process also included funding. Effective 7 December 2011, the Board of Supervisory adapting recommendations and legal requirements designed Directors also determined that the Credit Committee will be for joint stock companies where and insofar as their application responsible for the approval of swap transactions of KfW. It is to KfW seemed feasible and appropriate. The new requirements standard procedure within the banking industry for the final became effective on 1 January 2011, with reference to some decision in such matters to be made by a credit committee. It provisions concerning the Credit Committee on 1 May 2011. serves to accelerate and bundle committee expertise.

Declaration of Compliance Distribution of responsibilities The Executive Board and Board of Supervisory Directors of With the approval of the Board of Supervisory Directors, the KfW hereby declare: “Since the last Declaration of Compliance Executive Board has established for itself rules of procedure issued on 27 March 2012, the recommendations of the Public which govern collaboration at management level. These rules Corporate Governance Code of the Federal Republic, as adopted stipulate that the Executive Board itself – and in derogation of by the Federal Government on 1 July 2009, were and will be ful- clause 4.2.2 of the Code without further approval of the Board of filled to the extent applicable to KfW as a public-law institution Supervisory Directors – determines responsibilities in a schedule with the exception of the following recommendations.“ of responsibilities. This ensures the required flexibility for making essential changes and thus efficient division of labour. D&O insurance excess KfW concluded new D&O insurance policies for members of the Loans to members of the bodies Executive Board and the Board of Supervisory Directors effec- Pursuant to the By-Laws, KfW may not grant individual loans to tive 1 January 2013. In derogation of clause 3.3.2 of the Code, members of the Executive Board and the Board of Supervisory the previous policies did not include any excess. The new poli- Directors. For equal treatment reasons, this does not apply – in cies, however, contain the option of introducing an excess. derogation of clause 3.4 of the Code – to utilisation of promo- Exercise of the option is to be decided in consultation with the tional loans offered under the KfW programmes. Due to the

124 | KfW Annual Report 2012 Corporate Governance Report 2012 standardisation of lending approval and the principle of on- their employment with KfW. Executive Board members must lending through applicants’ own banks, there is no danger of inform their Board colleagues of any potential conflicts of inter- conflicts of interests in the case of such programme loans. est and disclose to the Executive Committee any conflicts of However, any programme loans granted to members of the interest that do arise without delay. No such situation occurred Board of Supervisory Directors must be notified to the Board during the reporting year. of Supervisory Directory in accordance with the By-Laws. Board of Supervisory Directors Cooperation between the Executive Board and Board of The Board of Supervisory Directors supervises and advises the Supervisory Directors Executive Board in the management of the bank. The Executive Board and Board of Supervisory Directors work closely together for the benefit of KfW. The Executive Board In accordance with the KfW Law, the Board of Supervisory Direc- maintains regular contact with the Chairman and Deputy Chair- tors consists of 37 members, including seven Federal Ministers. man of the Board of Supervisory Directors and discusses impor- The Federal Minister of Finance and the Federal Minister of Eco- tant issues concerning the management of the bank and stra nomics and Technology alternate on a yearly basis as Chairman tegy with them. The Chairman of the Board of Supervisory of the Board of Supervisory Directors. The Chairman of the Directors informs the Board of Supervisory Directors of issues Board of Supervisory Directors in the reporting year was Federal of major significance, and, if necessary, convenes an extraordi- Minister Dr Philipp Rösler. There were five female members of nary meeting. the Board of Supervisory Directors during the reporting year.

During the reporting year, the Executive Board informed the No member of the Board of Supervisory Directors may have

Board of Supervisory Directors about all relevant matters re business or private dealings with KfW or its Executive Board We promote Germany garding the bank’s planning, results of operations, risk assess- which would lead to a substantial and not merely temporary ment, risk management and financial position. conflict of interests. Each member of the Board of Supervisory Directors has to disclose conflicts of interest to the Board of Executive Board Supervisory Directors. No such situation occurred during the The Executive Board is responsible for managing the activities reporting year. of KfW pursuant to the KfW Law, its By-Laws and the rules of procedure for the Executive Board. Nine members of the Board of Supervisory Directors attended fewer than half of the board meetings in the reporting year.

The responsibilities of the members of the KfW Executive Board internationalisation secure We remained unchanged during the reporting year, as follows: Committees of the Board of Supervisory Directors The Board of Supervisory Directors has established three – Dr Ulrich Schröder – Chief Executive Officer, Management committees to fulfil its monitoring responsibilities in a more Affairs and Communication, Group Development and Econom- efficient manner. ics, Internal Auditing, Compliance and Sustainability – Dr Günther Bräunig – Financial Markets, Capital market- The Executive Committee is responsible for legal and adminis- related financings, Human Resources and Legal Affairs trative matters, as well as the bank’s business and corporate policy – Dr Norbert Kloppenburg – International Finance (KfW Develop- matters; it also makes urgent decisions in pressing matters. ment Bank, DEG, Export and Project Finance) including KfW We promote development promote We IPEX-Bank GmbH The Credit Committee is responsible for handling credit matters – Dr Edeltraud Leibrock – Organisation and Consulting, Central and the approval of fundraising and swap transactions of KfW. Services and Information Technology – Bernd Loewen – Risk Management and Controlling, Accoun The Audit Committee is responsible for accounting and risk ting, Restructuring, Transaction and Collateral Management management issues. In particular, it deals with monitoring the – Dr Axel Nawrath – Domestic Finance (business areas accounting process, the effectiveness of the internal controlling

KfW Mittelstandsbank, KfW Privatkundenbank, system, the internal audit system and risk management system, Further topics KfW Kommunalbank) and Sales; Environmental Issues auditing the annual and consolidated financial statements, the Executive Board members are obliged to act in the best interests required independence of the auditor and determining the main of KfW, may not consider private interests in their decisions, and focus of the audit. are subject to a comprehensive non-competition clause during

KfW Annual Report 2012 Corporate Governance Report 2012 | 125 The chairs of the committees report to the Board of Supervi- corrective actions are taken if necessary. The Board of Super sory Directors on a regular basis. The Board of Supervisory visory Directors regularly receives detailed information on the Directors has the right to resume responsibility for tasks dele- bank‘s risk situation, at least once a quarter. gated to the committees at any time. Compliance The Board of Supervisory Directors provides information about its The success of the KfW Group is largely based on the confidence work and that of its committees during the reporting year in its its shareholders, customers, business partners, employees and report. An overview of the members of the Board of Supervisory the general public place in its efficiency and above all in its Directors and its committees is available on the KfW website. integrity. This confidence rests not least on the implementation of and compliance with relevant statutory, supervisory and inter- Shareholders nal regulations and other relevant laws and rules. The compliance The Federal Government owns 80 % of KfW’s share capital; the organisation of KfW includes, in particular, measures to comply German Federal States 20 %. In accordance with section 1a of with data protection regulations as well as for the prevention of the KfW Law, the Federal Republic of Germany is liable for spe- insider trading, money laundering, terrorism financing and other cific KfW liabilities. In accordance with the legal situation pre- criminal activities. There are therefore binding rules and proce- vailing in the reporting year, no profit distribution is planned. dures that influence the day-to-day implementation of values The KfW Law does not require a shareholders’ general meeting; and the corporate culture; these are continually updated to re instead, the Board of Supervisory Directors fulfils the function flect the latest legal conditions as well as market requirements. of a shareholders’ general meeting. Regular training sessions on compliance and money laundering are held for KfW employees. E-learning programmes are also Supervision available in addition to the classroom seminars. KfW is subject to legal supervision by the Federal Ministry of Finance in consultation with the Federal Ministry of Economics Accounting and auditing and Technology. The supervisory authority is authorised to As the supervisory authority, the Federal Ministry of Finance in adopt all measures necessary to ensure that KfW operates its consultation with the Bundesrechnungshof (Federal Audit Office) business activities in accordance with statutory law, the KfW appointed KPMG AG Wirtschaftsprüfungsgesellschaft as auditor By-Laws and other rules and regulations. for the financial year 2012 on 26 April 2012. The appointment was based on the proposal made by the KfW Board of Supervi- KfW is not subject to banking supervision regulations although sory Directors on 27 March 2012. The Audit Committee pre- it does apply the relevant norms of the German Banking Act, pared this recommendation and determined the priorities of the particularly the minimum requirements for risk management audit with KPMG. The bank and the auditor agreed that the (MaRisk) and the German Solvency Regulation (Solvabilitätsver- Chairman of the Audit Committee would be informed without ordnung – SolvV). The group company KfW IPEX-Bank GmbH is delay of any potential grounds for bias or disqualification dis- subject in full to the provisions of the German Banking Act, and covered during the audit that were not immediately rectified. It the DEG (Deutsche Investitions- und Entwicklungsgesellschaft mbH) was furthermore agreed that the auditor would immediately to a limited extent. inform the Audit Committee Chairman about any qualifying remarks or potential misstatements in the Declaration of Com- Transparency pliance with the PCGC. A declaration of auditor independence KfW provides all important information about the bank’s consoli- was obtained. dated and annual financial statements, the semi-annual report and the financial calendar on its website. Investor relations ac Efficiency audit of the Board of Supervisory Directors tivities and corporate communications also involve regular The Board of Supervisory Directors reviews the efficiency of its announcements on the latest company developments. The annual activities on a regular basis. The last self-assessment of the Corporate governance reports including the Declaration of Com- Board of Supervisory Directors was conducted for 2010 using pliance with the PCGK are always available on the KfW website. structured questionnaires. More than two thirds of the members participated. The results of the survey showed that the Risk Management members of the Board of Supervisory Directors rated the work Risk management and risk control are primary responsibilities and efficiency of their body on average between satisfactory of overall bank management at KfW. Through the risk strategy and good, while the average rating of the work and efficiency of the Executive Board defines the framework for the bank‘s busi- the committees was good. Possible improvements were ness activities regarding risk-taking and risk-bearing capacity. addressed by the Board of Supervisory Directors and Executive This ensures that KfW fulfils its unique responsibilities with an Board which have worked continuously since then to implement appropriate risk profile in a sustainable manner and for the long and monitor these improvements. The efficiency audit for the term. The bank’s overall risk situation is subject to comprehen- financial year 2012 will be conducted in the first half of 2013. sive analysis in monthly risk reports to the Executive Board, and Subsequent audits will take place at two-year intervals.

126 | KfW Annual Report 2012 Corporate Governance Report 2012 Compensation report porate Governance Code (Public Corporate Governance Kodex des The compensation report describes the basic structure of the Bundes – PCGK) was taken into account when drawing up the remuneration plan for members of the Executive Board and Board contracts. The individual contracts contain adjustments. of Supervisory Directors; it also discloses the remuneration of the individual members. The compensation report is an integral part Compensation components of the notes to the consolidated financial statements. Executive Board members that were appointed to the Executive Board prior to June 2009 currently receive annual salaries paid Overview of total compensation to members of the in twelve equal payments. They also receive a fixed end-of-year Executive Board and Board of Supervisory Directors bonus paid annually upon approval of the annual financial statements by the Board of Supervisory Directors. Executive Board

2012 2011 Change members who have been appointed or reappointed since June EUR in EUR in EUR in 2009 receive the fixed end-of-year bonus paid out as part of thousands thousands thousands their monthly salaries. The compensation of the Chief Executive Officer is an exception: – Members of the Executive Board 4,140 3,365 775 based on an annual agreement on objectives – he receives a Former members of variable end-of-year bonus of originally at least EUR 160 thou- the Executive Board sand in addition to his fixed salary. This minimum bonus pay- and their surviving ment does not apply if KfW net income for a financial year is dependents 3,890 3,827 63 insufficient to ensure allocation to the statutory reserves. The Members of the Board of Supervi- annual agreement on objectives for the financial year 2012 sory Directors 179 175 4 comprises 50 % quantitative and 50 % qualitative objectives. A Total 8,209 7,367 842 cap on the end-of-year bonus has been agreed for the first time.

The following table shows total compensation, broken down Compensation to the Executive Board into fixed and, where applicable, variable components and other The compensation system for the KfW Executive Board is aimed forms of compensation, as well as additions to pension provi- at appropriately compensating members of the Executive Board sions for the individual Board members. Compensation paid to for their duties and responsibilities. Executive Board contracts Dr Bräunig, Dr Kloppenburg, Mr Loewen and Dr Nawrath in are drawn up based on the 1992 version of the policy for hiring 2012 included a reward for 2011 in the amount of EUR 20 We promote Germany executive board members at credit institutions of the Federal thousand each; Dr Leibrock received a pro rata payment of Government (Grundsätze für die Anstellung der Vorstandsmitglie- EUR 5 thousand. der bei den Kreditinstituten des Bundes). The Federal Public Cor-

Annual compensation to the Executive Board and additions to pension provisions in 2012 and 2011

Salary Variable Other Total Additions to

compensation compensation pension internationalisation secure We provisions 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 EUR in thousands EUR in thousands EUR in thousands EUR in thousands EUR in thousands Dr Ulrich Schröder (Chief Executive Officer) 680.3 673.1 250.0 240.0 97.9 117.9 1,028.2 1,031.0 794.2 297.8 Dr Günther Bräunig 632.6 515.8 0.0 0.0 31.3 27.2 663.9 543.0 1,026.9 216.2 Dr Norbert Kloppenburg 668.4 474.0 0.0 0.0 52.7 69.7 721.1 543.7 1,032.7 217.0 Dr Edeltraud Leibrock 510.2 124.5 0.0 0.0 50.4 11.4 560.6 135.9 276.5 64.5 Bernd Loewen 514.8 487.7 0.0 0.0 46.0 45.4 560.8 533.1 382.6 126.3 We promote development promote We Dr Axel Nawrath 498.3 473.5 0.0 0.0 107.0 104.7 605.3 578.2 678.5 292.7 Total 3,504.6 2,748.6 250.0 240.0 385.3 376.3 4,139.9 3,364.9 4,191.4 1,214.5 Further topics

KfW Annual Report 2012 Corporate Governance Report 2012 | 127 Responsibilities The contractually agreed benefits for ancillary services are The Executive Committee discusses the Executive Board com- granted tax-free to Executive Board members; if this is not pos- pensation system including contract components in detail and sible or has not been contractually agreed, any taxes incurred on regularly reviews it. The Board of Supervisory Directors resolves such benefits are borne in full by the Executive Board members. upon the basic structure of the Executive Board compensation system as proposed by the Executive Committee. The Board of Moreover, the contractually agreed benefits for ancillary ser- Supervisory Directors and the Executive Committee of the vices contain the costs for security measures at Executive Board of Supervisory Directors discussed remuneration matters Board members’ residences; these benefits are not recognised on several occasions in calendar year 2012, the last of which as other compensation but as Administration expense. was on 5 December 2012. At this meeting, an adjustment of aggregate compensation to each KfW Executive Board member As at the end of the year, there were no loans to any members was agreed in accordance with the collective agreement for of the Executive Board. No new loans were granted to Executive public-sector banks dated 6 June 2012. In addition, Dr Schröder Board members in the financial year 2012 nor will any be was appointed Chief Executive Officer for an additional five granted in future. years, ending on 31 December 2017. The employment agreement is based on the employment terms contained in the first No Executive Board member was granted or promised any ben- employment agreement. A severance pay cap was agreed in efits by a third party during the past financial year with a view accordance with the Federal Public Corporate Governance Code. to his position as a member of the KfW Executive Board. Benefits for ancillary services were also adjusted. Pension benefits and other benefits in the case of early Contractually agreed benefits for ancillary services retirement Other compensation largely comprises contractually agreed In accordance with Section 1 (1) of the By-Laws of KfW, the benefits for ancillary services. Executive Board members are appointment of an Executive Board member should not generally entitled to a company car with driver services for business and extend beyond the completion of the legal age of retirement. personal use. Executive Board members bear the costs of using After reaching 65 years of age or the legal age of retirement and the company car and the driver for personal purposes in expiration of their Executive Board contract, Executive Board accordance with applicable tax regulations. They are reim- members are entitled to claim pension payments; they may also bursed for the costs of maintaining a secondary residence for elect to retire early after reaching 63 years of age. business reasons under tax regulations. Pension commitments for Executive Board members as well as Executive Board members are insured under a group accident their surviving dependents are based on the 1992 version of insurance policy. Supplements are paid on health and long-term the Federal Government’s policy for hiring executive board care insurance premiums. Executive Board members are cov- members at credit institutions. The Federal Public Corporate ered by a directors and officers liability insurance policy (D&O Governance Code was taken into account when drawing up the Insurance), which insures them against the risk of financial loss Executive Board contracts. associated with their actions in their capacity as Executive Board members and by a supplemental legal expense insurance In the case of Executive Board members who have been appointed policy. In its meeting on 5 December 2012 the Executive Com- or reappointed to the Executive Board since 2010, a severance mittee of the Board of Supervisory Directors agreed to restruc- pay cap was included in the Executive Board contracts in accord- ture the D&O insurance by adding coverage against financial ance with the recommendations of the Federal Public Corporate loss and legal costs arising from contractual liability claims Governance Code. In other words, payments to an Executive gaps in protection were also closed and coverage amounts Board member due to early termination of the Executive Board were adjusted so that they now correspond to KfW’s size and function without good cause in accordance with Section 626 of the risk content of its activities. There currently is no excess. the German Civil Code (Bürgerliches Gesetzbuch – BGB) should not KfW Executive Board members acting in their management exceed the equivalent of two-year salary or compensation includ- capacity are also protected by a special legal expenses group ing benefits for ancillary services for the remainder of the con- policy for employees covering criminal action. tract, depending on which amount is lower.

As of 1 July 2011, no compensation is paid to members of the Executive Board contracts which were concluded before 2010 Executive Board for assuming executive body functions at generally provided for early retirement benefits after two group companies. The item Other compensation in the financial terms on the Board, regardless of age and even in the case year 2012 thus no longer contains compensation for exercise of that KfW did not extend the Executive Board contract. For group mandates. Executive Board members reappointed to the Executive Board since 2010, any early retirement benefit entitlements were As all other executives, Executive Board members may also opt grandfathered by converting them into claims with a time limit. to participate in the deferred compensation programme – a Moreover, Executive Board members are entitled to pension supplemental company pension scheme financed via tax-free benefits if their employment relationship terminates due to salary conversion. permanent disability.

128 | KfW Annual Report 2012 Corporate Governance Report 2012 The full benefit entitlement totals 70 % of the pensionable sal- The following table provides details on the compensation paid ary. The pensionable salary is 70 % of the last salary. The bene- to the Board of Supervisory Directors in the financial year 2012: fit entitlement – with the exception of the Chief Executive stated amounts are net amounts in EUR thousands. Travel Officer – normally amounts to 70 % for a first-time appointment expenses are reimbursed upon submission of receipts and are and increases over ten years by 3 percent for every year of ser- not taken into account in the table. vice completed.

The Executive Board contracts contain additional individual provisions, in particular concerning vesting of pension benefits.

Pension payments to former Executive Board members or their surviving dependents were as follows in 2012 and 2011:

Pension payments to former Executive Board members and their surviving dependents

Number EUR in Number EUR in 2012 thou- 2011 thousands sands 2012 2011

Former members of the Executive Board 19 3,206 20 3,227 Surviving dependents 11 685 10 600 Total 30 3,890 30 3,827

Provisions in the amount of EUR 54,718 thousand had been set up at the end of the financial year on 31 December 2012 for pension obligations to former members of the Executive Board and their surviving dependents (previous year: EUR 48,413 thousand). We promote Germany

No loans were granted to former Executive Board members and their surviving dependents in the financial year 2012.

Compensation to members of the Board of Supervisory Directors The amount of compensation to members of the Board of Super- visory Directors is determined by the supervisory authority in

accordance with Section 5 (8) of the By-Laws of KfW. With the internationalisation secure We last revision in May 2010, compensation to members of the Fed- eral Government who are members of the Board of Supervisory Directors pursuant to Section 7 (1) No. 2 KfW Law was set at EUR 0. Moreover, compensation for the Chairman of the Board of KfW Supervisory Directors and his deputies was also set at EUR 0.

For the reporting year, compensation for other members of the Board of Supervisory Directors pursuant to Section 7 (1) no. 3 – 6 KfW Law amounted to EUR 5.1 thousand p. a.; compensa- We promote development promote We tion for membership on the Executive, Credit or Audit Commit- tees, was a standard amount of EUR 0.6 thousand p. a. for each member. Committee chairs received no special compensation.

Members who join during the year receive their compensation on a pro-rata basis. Further topics A daily allowance (EUR 0.2 thousand per meeting day) is paid and travel expenses and applicable VAT are reimbursed upon request.

KfW Annual Report 2012 Corporate Governance Report 2012 | 129 Compensation to members of the Board of Supervisory Directors for the financial year 2012

No. Name Dates of Board of Committee Daily Total membership Supervisory membership1) allowance Directors membership1) EUR in EUR in EUR in EUR in 2012 thousands thousands thousands thousands

1 Dr Philipp Rösler 1 Jan. – 31 Dec. 0.0 0.0 0.0 0.0 2 Dr Wolfgang Schäuble 1 Jan. – 31 Dec. 0.0 0.0 0.0 0.0 3 Ilse Aigner 1 Jan. – 31 Dec. 0.0 0.0 0.0 0.0 4 Peter Altmaier 22 May – 31 Dec. 0.0 0.0 0.0 0.0 5 Norbert Barthle 1 Jan. – 31 Dec. 5.1 1.2 0.6 6.9 6 Jan Bettink 1 Jan. – 31 Dec. 5.1 1.2 0.0 6.3 7 Anton F. Börner 1 Jan. – 31 Dec. 5.1 0.6 0.0 5.7 8 Volker Bouffier2) 1 Jan. – 31 Dec. 5.1 0.6 0.2 5.9 9 Frank Bsirske 1 Jan. – 31 Dec. 5.1 0.0 0.0 5.1 10 Helmut Dedy 1 Jan. – 31 Dec. 5.1 0.0 0.4 5.5 11 Prof. Dr Hans Heinrich Driftmann 1 Jan. – 31 Dec. 5.1 0.0 0.0 5.1 12 Ingeborg Esser 1 Jan. – 31 Dec. 5.1 0.6 0.0 5.7 13 Georg Fahrenschon 27 June – 31 Dec. 2.8 1.0 0.2 4.0 14 Heinrich Haasis 1 Jan. – 27 June 2.3 0.8 0.4 3.5 15 Hubertus Heil 1 Jan. – 31 Dec. 5.1 1.2 0.4 6.7 16 Gerhard Hofmann 1 Jan. – 31 Dec. 5.1 1.2 0.2 6.5 17 Frank Horch 2) 1 Jan. – 31 Dec. 5.1 0.6 0.0 5.7 18 Bartholomäus Kalb 1 Jan. – 31 Dec. 5.1 0.6 0.8 6.5 19 Dr Markus Kerber 1 Jan. – 31 Dec. 5.1 0.6 0.0 5.7 20 Dr h.c. Jürgen Koppelin 1 Jan. – 31 Dec. 5.1 0.6 0.8 6.5 21 Karoline Linnert2) 1 Jan. – 31 Dec. 5.1 0.6 0.2 5.9 22 Dr Gesine Lötzsch 1 Jan. – 31 Dec. 5.1 0.6 0.6 6.3 23 Claus Matecki 1 Jan. – 31 Dec. 5.1 0.0 0.6 5.7 24 Dr Michael Meister 1 Jan. – 31 Dec. 5.1 0.6 0.6 6.3 25 Franz-Josef Möllenberg 1 Jan. – 31 Dec. 5.1 1.2 0.8 7.1 26 Dirk Niebel 1 Jan. – 31 Dec. 0.0 0.0 0.0 0.0 27 Dr Peter Ramsauer 1 Jan. – 31 Dec. 0.0 0.0 0.0 0.0 28 Dr Norbert Röttgen 1 Jan. – 22 May 0.0 0.0 0.0 0.0 29 Joachim Rukwied 14 Nov. – 31 Dec. 0.6 0.1 0.0 0.7 30 Hanns-Eberhard Schleyer 1 Jan. – 31 Dec. 5.1 1.2 0.6 6.9 31 Dr Nils Schmid2) 1 Jan. – 31 Dec. 5.1 0.6 0.4 6.1 32 Andreas Schmitz 1 Jan. – 31 Dec. 5.1 1.8 0.4 7.3 33 Carsten Schneider 1 Jan. – 31 Dec. 5.1 1.2 0.8 7.1 34 Dr Markus Söder2) 1 Jan. – 31 Dec. 5.1 0.6 0.0 5.7 35 Michael Sommer 1 Jan. – 31 Dec. 5.1 0.6 0.0 5.7 36 Gerd Sonnleitner 1 Jan. – 14 Nov. 4.5 0.5 0.2 5.2 37 Marion Walsmann2) 1 Jan. – 31 Dec. 5.1 0.0 0.2 5.3 38 Dr Norbert Walter-Borjans2) 1 Jan. – 31 Dec. 5.1 0.6 0.2 5.9 39 Dr Guido Westerwelle 1 Jan. – 31 Dec. 0.0 0.0 0.0 0.0 Total 147.9 21.0 9.6 178.5

1) The amounts had not yet been paid out as of the reporting date 31 December 2012. 2) Amount determined by state law.

130 | KfW Annual Report 2012 Corporate Governance Report 2012 Compensation to members of the Board of Supervisory Directors for the financial year 2011

No. Name Dates of Board of Committee Daily Total membership Supervisory membership1) allowance Directors membership1) EUR in EUR in EUR in EUR in 2011 thousands thousands thousands thousands

1 Dr Wolfgang Schäuble 1 Jan. – 31 Dec. 0.0 0.0 0.0 0.0 2 Rainer Brüderle 1 Jan. – 12 May 0.0 0.0 0.0 0.0 3 Dr Philipp Rösler 12 May – 31 Dec. 0.0 0.0 0.0 0.0 4 Ilse Aigner 1 Jan. – 31 Dec. 0.0 0.0 0.0 0.0 5 Norbert Barthle 1 Jan. – 31 Dec. 5.1 1.0 0.4 6.5 6 Jan Bettink 1 Jan. – 31 Dec. 5.1 1.2 0.0 6.3 7 Anton F. Börner 1 Jan. – 31 Dec. 5.1 0.6 0.0 5.7 8 Volker Bouffier2) 1 Jan. – 31 Dec. 5.1 0.5 0.0 5.6 9 Frank Bsirske 1 Jan. – 31 Dec. 5.1 0.0 0.0 5.1 10 Prof. Dr Hans Heinrich Driftmann 1 Jan. – 31 Dec. 5.1 0.0 0.2 5.3 11 Ingeborg Esser 1 Jan. – 31 Dec. 5.1 0.6 0.2 5.9 12 Georg Fahrenschon2) 1 Jan. – 3 Nov. 4.7 0.4 0.0 5.1

13 Heinrich Haasis 1 Jan. – 31 Dec. 5.1 1.8 0.8 7.7 We promote Germany 14 Hubertus Heil 1 Jan. – 31 Dec. 5.1 1.0 0.6 6.7 15 Gerhard Hofmann 1 Jan. – 31 Dec. 5.1 1.2 0.6 6.9 16 Frank Horch2) 17 June – 31 Dec. 3.0 0.3 0.0 3.3 17 Bartholomäus Kalb 1 Jan. – 31 Dec. 5.1 0.7 0.8 6.6 18 Dr h.c. Jürgen Koppelin 1 Jan. – 31 Dec. 5.1 0.6 0.8 6.5 19 Monika Kuban 1 Jan. – 31 Dec. 5.1 0.0 0.4 5.5 20 Karoline Linnert2) 1 Jan. – 31 Dec. 5.1 0.6 0.6 6.3 21 Dr Gesine Lötzsch 1 Jan. – 31 Dec. 5.1 0.6 0.6 6.3 22 Stefan Mappus2) 1 Jan. – 31 Aug. 3.4 0.3 0.0 3.7 We secure internationalisation secure We 23 Claus Matecki 1 Jan. – 31 Dec. 5.1 0.0 0.4 5.5 24 Dr Michael Meister 1 Jan. – 31 Dec. 5.1 0.6 0.6 6.3 25 Franz-Josef Möllenberg 1 Jan. – 31 Dec. 5.1 1.2 0.8 7.1 26 Dirk Niebel 1 Jan. – 31 Dec. 0.0 0.0 0.0 0.0 27 Dr Peter Ramsauer 1 Jan. – 31 Dec. 0.0 0.0 0.0 0.0 28 Dr Norbert Röttgen 1 Jan. – 31 Dec. 0.0 0.0 0.0 0.0 29 Hanns-Eberhard Schleyer 1 Jan. – 31 Dec. 5.1 1.2 0.8 7.1 30 Dr Nils Schmid2) 4 Nov. – 31 Dec. 0.8 0.1 0.2 1.1 31 Andreas Schmitz 1 Jan. – 31 Dec. 5.1 1.8 0.2 7.1 We promote development promote We 32 Dr Werner Schnappauf 1 Jan. – 31 Dec. 5.1 0.6 0.4 6.1 33 Carsten Schneider 1 Jan. – 31 Dec. 5.1 0.9 0.8 6.8 34 Dr Markus Söder2) 16 Dec. – 31 Dec. 0.4 0.0 0.0 0.4 35 Michael Sommer 1 Jan. – 31 Dec. 5.1 0.6 0.0 5.7 36 Gerd Sonnleitner 1 Jan. – 31 Dec. 5.1 0.6 0.4 6.1 37 Marion Walsmann2) 1 Jan. – 31 Dec. 5.1 0.0 0.0 5.1 38 Dr Norbert Walter-Borjans2) 1 Jan. – 31 Dec. 5.1 0.5 0.2 5.8 Further topics 39 Dr Guido Westerwelle 1 Jan. – 31 Dec. 0.0 0.0 0.0 0.0 Total 144.9 19.5 10.8 175.2

1) The amounts had not yet been paid out as of the reporting date 31 December 2011. 2) Amount determined by state law.

KfW Annual Report 2012 Corporate Governance Report 2012 | 131 There are no pension obligations for members of the Board of actions in their capacity as Supervisory Directors and by a sup- Supervisory Directors. plemental legal expenses insurance policy. In its meeting on 5 December 2012 the Executive Committee of the Board of Members of the Board of Supervisory Directors received no Supervisory Directors agreed to restructure the D&O insurance compensation in the reporting year for personal services pro- by adding coverage against financial loss and legal costs aris- vided. ing from contractual liability claims. Gaps in protection were closed and coverage amounts were adjusted so that they now No direct loans were granted to members of the Board of correspond to KfW’s size and the risk content of its activities. Supervisory Directors in the reporting year. There currently is no excess. KfW Supervisory Directors acting in that capacity are also protected by a special legal expenses Members of the Board of Supervisory Directors are covered by group policy for employees covering criminal action and by a a directors and officers liability insurance policy, which insures group accident insurance policy. them against the risks of financial loss associated with their

Frankfurt am Main, 15 April 2013

The Executive Board The Board of Supervisory Directors

Directors Petra Borisch Detlev Kalischer Christiane Orlowski Dr Stefan Breuer Klaus Klüber Dr Stefan Peiss Dr Frank Czichowski Doris Köhn Wolfgang Roßmeissl Michael Ebert Cherifa Larabi Dr Jürgen Schneider Dr Lutz-Christian Funke Dr Matthias Leclerc Roland Siller Helmut Gauges Klaus Neumann Klaus Weirich Werner Genter Werner Oerter Dr Volker Gross Stephan Opitz

Managing Directors of KfW IPEX-Bank GmbH We promote Germany Christiane Laibach | Christian Murach | Markus Scheer | Harald Zenke (Speaker) KfW IPEX-Bank is responsible for the business area of international project and export finance. Since the beginning of 2008, it has been a legally independent subsidiary of KfW which is subject to the German Banking Act (Kreditwesengesetz – KWG) and banking supervisory regulations.

Managing Directors of DEG – Deutsche Investitions- und Entwicklungsgesellschaft mbH internationalisation secure We Dr Michael Bornmann | Philipp Kreutz | Bruno Wenn (Chairman) DEG was founded in 1962 and has been a wholly-owned subsidiary of KfW Group since 2001. DEG is one of the largest European development finance institutions for long-term project and corporate financing. It has been financing and structuring investments by private companies in developing and transition countries for 50 years. We promote development promote We Further topics

KfW Annual Report 2012 Executive Board, Directors and Managing Directors of KfW Group | 133 Members and tasks of the Board of Supervisory Directors

The Board of Supervisory Directors supervises the conduct of KfW’s business activities and the management of its assets. It approves, among others, the annual financial statements. The Board of Supervisory Directors consists of 37 members. In the year under review, the Chairman was the Federal Minister of Economics and Technology, and the Deputy Chairman was the Federal Minister of Finance.

Dr Wolfgang Schäuble Frank Bsirske Hubertus Heil Federal Minister of Finance Chairman of ver.di Member of the German Bundestag Chairman Vereinigte Dienstleistungsgewerkschaft Member appointed by the (since 1 January 2013) Representative of the trade unions German Bundestag Deputy Chairman (1 January 2012 – 31 December 2012) Jens Bullerjahn Prof. Dr Hans-Günter Henneke Deputy Minister President Managing Member of the Executive Dr Philipp Rösler Minister of Finance of the State of Committee of the Federation of Federal Minister of Economics Saxony-Anhalt German Districts (DLT) and Technology Member appointed by the German Bundesrat Representative of the municipalities Deputy Chairman (since 1 January 2013) (since 1 January 2013) (since 1 January 2013) Chairman Helmut Dedy Gerhard Hofmann (1 January 2012 – 31 December 2012) Permanent Deputy of the Member of the Board of Managing Managing Director of the Executive Board of Directors of the Bundesverband der Ilse Aigner the Deutscher Städtetag Deutschen Volksbanken Federal Minister of Food, Representative of the municipalities und Raiffeisenbanken e. V. (BVR) Agriculture and Consumer Protection (until 31 December 2012) Representative of the cooperative banks

Peter Altmaier Prof. Dr Hans Heinrich Driftmann Frank Horch Federal Minister for the Environment, President of the Association of German Cham- Senator of the Free Hanseatic City of Hamburg Nature Conservation and Nuclear Safety bers of Commerce and Industry (DIHK) Ministry of Economy, Transport and Innovation (since 22 May 2012) Representative of industry Member appointed by the German Bundesrat (until 31 December 2012) (until 31 December 2012) Norbert Barthle Member of the German Bundestag Ingeborg Esser Bartholomäus Kalb Member appointed by the German Bundestag Managing Director of the Member of the German Bundestag Federal Association of German Member appointed by the German Bundestag Jan Bettink Housing and Real Estate President of the Verband Enterprises (GdW) Dr Markus Kerber Deutscher Pfandbriefbanken Representative of the housing industry Director General and Member of the Representative of the mortgage banks Presidential Board of the Federation of Georg Fahrenschon German Industries (BDI) Anton F. Börner President of the Deutscher Representative of industry President of the Federation Sparkassen- und Giroverband of German Wholesale, Representative of the savings banks Dr h. c. Jürgen Koppelin Foreign Trade and Services (since 27 June 2012) Member of the German Bundestag Representative of trade Member appointed by the German Bundestag Heinrich Haasis Volker Bouffier Former President of the Deutscher Minister President of the State of Hesse Sparkassen- und Giroverband Member appointed by the German Bundesrat Representative of the savings banks (until 27 June 2012)

134 | KfW Annual Report 2012 Members and Tasks of the Board of Supervisory Directors Karoline Linnert Joachim Rukwied Michael Sommer Mayor President of the Deutscher Chairman of the Confederation of Senator for Finance of the Bauernverband e. V. German Trade Unions Free Hanseatic City of Bremen Representative of agriculture Representative of the trade unions Member appointed by the German Bundesrat (since 14 November 2012) (until 31 December 2012) Gerd Sonnleitner Hanns-Eberhard Schleyer Former President of the Dr Gesine Lötzsch Former Secretary General of the Deutscher Bauernverband e. V. Member of the German Bundestag Zentralverband des Deutschen Handwerks Representative of agriculture Member appointed by the German Bundestag Representative of the skilled crafts (until 14 November 2012) (until 31 December 2012) Claus Matecki Marion Walsmann Member of the Executive Board Dr Nils Schmid Minister for Federal and European Affairs and of the Confederation of Minister of Finance and Economics Head of the State Chancellery of the Free

German Trade Unions of the State of Baden-Württemberg State of Thuringia We promote Germany Representative of the trade unions Member appointed by the German Bundesrat Member appointed by the German Bundesrat (until 31 December 2012) Dr Michael Meister Andreas Schmitz Member of the German Bundestag President of the Bundesverband Dr Norbert Walter-Borjans Member appointed by the German Bundestag Deutscher Banken e. V. Minister of Finance of the State of Chairman of the Management Board of North Rhine-Westphalia Franz-Josef Möllenberg HSBC Trinkaus & Burkhardt AG Member appointed by the German Bundesrat Chairman of the Trade Union Representative of the commercial banks

Nahrung-Genuss-Gaststätten Dr Martin Wansleben internationalisation secure We Representative of the trade unions Carsten Schneider Chief Executive of the Member of the German Bundestag Association of German Chambers of Dirk Niebel Member appointed by the German Bundestag Commerce and Industry (DIHK) Federal Minister for Economic Representative of industry Cooperation and Development Holger Schwannecke (since 1 January 2013) Secretary General of the Zentralverband Dr Ulrich Nußbaum des Deutschen Handwerks Dr Guido Westerwelle Senator of Finance for Berlin Representative of the skilled crafts Federal Minister for Foreign Affairs Member appointed by the German Bundesrat (since 1 January 2013) We promote development promote We (since 1 January 2013) Erwin Sellering Dr Peter Ramsauer Minister President of the State of Federal Minister of Transport, Mecklenburg-Western Pomerania Building and Urban Development Member appointed by the German Bundesrat (since 1 January 2013) Dr Norbert Röttgen Further topics Former Federal Minister for the Environment, Dr Markus Söder Nature Conservation and Nuclear Safety Minister of Finance of the (until 22 May 2012) Free State of Bavaria Member appointed by the German Bundesrat

KfW Annual Report 2012 Members and Tasks of the Board of Supervisory Directors | 135 Photographs

Rüdiger Nehmzow Düsseldorf | Cover, page 6, 10/11, 11/12, 12/13, 14/15, 17/18, 30/31, 44/45, 84/85 Jens Steingässer, Darmstadt | page 6, 8, 36/37 Thomas Ott, Mühltal | page 6, 40/41 Aiko Recke/Ostfriesische Nachrichten, Aurich | page 6, 70/71 KfW photo archive, photographer: Rendel Freude | page 6, 26/27, 82/83 Getty Images | page 16 laif Agentur für Photos & Reportagen | Cover, page 18/19 agentur bilderberg | Cover, page 20 dpa Picture Alliance | page 23, 28 VDMA | page 25 German Embassy Nairobi | page 33 stadtleben GmbH, photographer: Peter Krausgrill/Tobias Roth | page 42/43 Ilja C. Hendel/BMF, Berlin | page 122

136 | KfW Annual Report 2012 Photographs Imprint We promote Germany

Published by KfW Group Communications Department Palmengartenstrasse 5–9, 60325 Frankfurt am Main, Germany Phone +49 69 7431-0, Fax +49 69 7431-2944 [email protected], www.kfw.de

Design and realisation MEHR+ Kommunikationsgesellschaft mbH, Düsseldorf internationalisation secure We

Lithography Laser-Litho 4, Düsseldorf

Printed by Schirmer Medien GmbH & Co. KG, Ulm-Donautal

Printed on

Algro Design, Papier Union development promote We Heaven 42, Igepa group PlanoPlus, Papyrus Further topics

Annual Report 2012 Imprint | 137 KfW Group Palmengartenstrasse 5–9 60325 Frankfurt am Main Germany Phone +49 69 7431-0 Fax +49 69 7431-2944 [email protected] www.kfw.de

600 000 2741