KfW's promotional operations are strong - little need for risk provisions

Frankfurt (ots) -

Commitments hit highest level in KfW's history
Promotional business is growing while results of operative
business remain steady
Net loss for the year caused by charges from IKB risk protection
Adjustments already made in 2007 annual statements for charges
from IKB risk protection in Q1 2008
Matthäus-Maier: "KfW's operations are strong and its promotional
strategy is well positioned."

In 2007 KfW Bankengruppe committed a total financing volume of EUR
87.1 billion - an increase of 13% over the previous year (EUR 76.8
billion). "2007 was a highly unusual year for KfW Bankengruppe. We
reached the highest volume of commitments in the bank's 60-year
history and achieved good results in our promotional priorities
"Small SMEs" and "Environmental and Climate Protection", said Ingrid
Matthäus-Maier, Spokeswoman of the Board of Managing Directors. At
EUR 68.1 billion the lion's share of our promotion was loan
commitments (plus 14% over last year's EUR 59.6 billion), with KfW
Förderbank accounting for EUR 34.6 billion and KfW Mittelstandsbank
for EUR 13.2 billion. Despite the difficult situation in the
securitisation market the volume of securitisations climbed to EUR
19.0 billion (plus 11% over last year's EUR 17.1 billion).

The 2007 business results were affected by the risk protection
measures applied to IKB, which had run into existential difficulties.
Risks taken over by KfW participating in the liquidity lines for the
IKB conduit Rhineland Funding in July 2007 accounted for a
significant portion of these measures. The continuing negative
developments in the Rhineland Funding securities in the first quarter
of 2008 led to much higher impairment requirements for these
liquidity lines than had been expected in December. The continuing
negative developments in the Rhineland Funding securities in the
first quarter of 2008 led to much higher impairment requirements for
these liquidity lines than had been expected in December. This trend
is fully recognised in the 2007 financial year.

The overall charge from the IKB crisis for KfW now amounts to EUR
7.2 billion, of which EUR 6.8 billion from the various risk
protection instruments and EUR 0.4 billion in write-downs on KfW's
shareholding in IKB. The credit lines (liquidity lines) for Rhineland
Funding are now 90% written off." We are pursuing a conservative
measurement approach and providing for early transparency of the
charges KfW has incurred from rescuing IKB by incorporating adjusting
information from the first quarter 2008 in the 2007 balance sheet",
said Ingrid Matthäus-Maier, Spokeswoman of the Board of Managing
Directors.

A large part of the charges borne by KfW was covered by the "fund
for general bank risks" which was established in previous years.
Additional charges will be recognised as losses carried forward in
KfW's balance sheet and offset against net income generated in coming
years.

KfW is pleased that the results of its operative business and the
risk position in the bank's core business remained stable. Risk
provisioning without including the extraordinary effects of the risk
protection for IKB continued at a low level even as the lending
volume expanded.

In KfW's individual financial statements, which are prepared in
accordance with the German Commercial Code, the bank incurred a net
loss of EUR 1,393 million for the year (net income in the previous
year EUR 822 million).

The net operating result before valuation was hence EUR 1,202
million, almost matching the previous year's level of EUR 1,222
million. Despite an increase in promotional finance, interest income
was EUR 1,520 million, slightly higher than in the previous year (EUR
1,512 million) and commission income added up to EUR 202 million
(previous year: EUR 210 million). Administrative expenses rose
moderately to EUR 547 million (previous year: EUR 523 million).

The operating result after valuation in accordance with the German
Commercial Code was EUR -1,346 million (previous year: EUR 877
million). The result was reduced by risk provisions made for the
valuation of Rhineland Funding and write-downs of securities prices
to market value by EUR 239 million, two-thirds of which in the form
of probably temporary write-downs of marketable securities to market
prices. Net individual impairments (without IKB risk protection) were
at a low level at EUR 83 million (EUR 56 million in the previous
year). Much of the charge from the IKB risk protection and the
write-down of the shareholding in IKB were covered under the German
Commercial Code by using up the fund for general bank risks.

The consolidated financial statements were prepared according to
the international accounting standards IFRS for the first time. They
show that the balance sheet total of KfW Bankengruppe as at 31
December 2007 rose by 6% to EUR 354 billion. Contrary to German
Commercial Code (HGB) accounting standards under which the burden
resulting from the risk protection for IKB can largely be reduced by
dissolving the fund for general banking risks - with the
corresponding effect on results - this is not possible under IFRS.
Accordingly, the risk provisions for the risk protection afforded to
IKB - particularly the risk exposure resulting from the liquidity
lines for Rhineland Funding - as well as the write-down of the equity
interest in IKB have a full negative impact on profit under IFRS. The
Group therefore posts a loss under IFRS in the amount of EUR 6,168
million (in contrast to the net loss for the year of EUR 1,393
million in the individual financial statements prepared according to
the German Commercial Code). For the most part this is offset through
a reduction of EUR 5.3 billion in the fund for general banking risks
posted under equity.

Under IFRS, the Group's operating result before valuation was EUR
1,357 million (previous year: EUR 1,381 million) and is characterised
by a stable contribution of core operations to results at Group
level. Despite an increase in promotional finance, interest income
attained EUR 1,755 million (previous year: EUR 1,754 million) and
commission income added up to EUR 209 million (previous year: EUR 200
million). Administrative expense remained within our expectations at
EUR 607 million (previous year: EUR 573 million).

The operating result after valuation in accordance with IFRS was
EUR -6,182 million (previous year: EUR 1,542 million). The decline
was mostly due to the measures and impacts of the IKB crisis. In
addition, the crisis affecting the financial markets has led to
charges from the fair value accounting of financial assets (above all
securities including portfolios of asset-backed securities) that
total just under EUR 600 million under IFRS. Of this amount approx.
EUR 200 million was recognised directly in equity. At EUR 400
million, the expenses recorded in the income statement amounted to
less than 1% of all securities and investments. Owing to the crisis
in the financial markets the valuation losses also apply to top-rated
papers. For the most part these valuation losses are considered
temporary.

At EUR 129 million the risk provisions (excluding the risk
protection for IKB) remain at a low level (previous year: EUR 12
million) despite substantial growth in the volume of promotional
lending.

"Our business performance in the year 2007 was influenced to a
large extent by the risk protection measures for IKB, for which we
used our fund for general banking risks. In order to protect IKB
against risks and thus to stabilise the financial markets in Germany,
KfW has taken on an extraordinarily heavy burden. If not for the
charges for the risk protection for IKB and the writedowns of our IKB
shares, KfW's consolidated profit would have attained nearly EUR 1
billion," said Ingrid Matthäus-Maier. "KfW's operations are strong
and its promotional strategy is well positioned. In the future the
bank will remain committed to its official mission to provide
support, carrying on with the promotional priorities "Small SMEs" and
"Environmental and Climate Protection" set these past few years. The
promotional capacity of the ERP Special Fund is assured. We are
pleased that the promotional year 2008 has gotten off to a good
start."

The financial report and the annual financial statements of the
KfW Group are available for download at www.kfw.de.

Originaltext: KfW
digital press kits: http://www.presseportal.de/pm/41193
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For further information please contact:
Charis Pöthig
Tel.: 0049 69 7431-4683
E-Mail: charis.poethig@kfw.de

KfW, Palmengartenstraße 5-9, 60325 Frankfurt
Kommunikation (KOM)
Tel. 069 7431-4400, Fax: 069 7431-3266,
E-Mail: presse@kfw.de, Internet: www.kfw.de


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