The KfW, which together with its subsidiaries DEG, KfW IPEX-Bank and FuB forms the KfW Bankengruppe ("banking group"), is a German state-owned

investment Investment is traditionally defined as the "commitment of resources into something expected to gain value over time". If an investment involves money, then it can be defined as a "commitment of money to receive more money later". From a broade ...

and

development bank Development finance institution (DFI), also known as a Development bank, is a financial institution that provides risk capital for economic development projects on a non-commercial basis. DFIs are often established and owned by governments or ...

, based in

Frankfurt Frankfurt am Main () is the most populous city in the States of Germany, German state of Hesse. Its 773,068 inhabitants as of 2022 make it the List of cities in Germany by population, fifth-most populous city in Germany. Located in the forela ...

. As of 2014, it is the world's largest national development bank and as of 2018 Germany's third largest bank by balance sheet. Its name originally comes from Kreditanstalt für Wiederaufbau ("Credit Institute for Reconstruction"). It was formed in 1948 after

World War II World War II or the Second World War (1 September 1939 – 2 September 1945) was a World war, global conflict between two coalitions: the Allies of World War II, Allies and the Axis powers. World War II by country, Nearly all of the wo ...

as part of the

Marshall Plan The Marshall Plan (officially the European Recovery Program, ERP) was an American initiative enacted in 1948 to provide foreign aid to Western Europe. The United States transferred $13.3 billion (equivalent to $ in ) in economic recovery pr ...

. According to the

OECD The Organisation for Economic Co-operation and Development (OECD; , OCDE) is an international organization, intergovernmental organization with 38 member countries, founded in 1961 to stimulate economic progress and international trade, wor ...

, Germany’s total official development assistance (ODA) (USD 35 billion, preliminary data) increased in 2022 due to an increase in in-donor refugee costs and increased contributions to international organisations. It represented 0.83% of gross national income (GNI).

Governance

KfW is owned by the Federal Republic of Germany (80 percent) and the

States of Germany The Federal Republic of Germany is a federation and consists of sixteen partly sovereign ''states''. Of the sixteen states, thirteen are so-called area-states ('Flächenländer'); in these, below the level of the state government, there is a ...

(20 percent). It is led by a five-member executive board headed by

CEO A chief executive officer (CEO), also known as a chief executive or managing director, is the top-ranking corporate officer charged with the management of an organization, usually a company or a nonprofit organization. CEOs find roles in variou ...

, which in turn reports to a 37member Board of Supervisory Directors. The chair and deputy chair of the Board of Supervisory Directors are the German Federal Ministers of

Finance Finance refers to monetary resources and to the study and Academic discipline, discipline of money, currency, assets and Liability (financial accounting), liabilities. As a subject of study, is a field of Business administration, Business Admin ...

and of Economic Affairs, with the positions alternating annually between them. Currently, the chairman is Jörg Kukies, Federal Minister of Finance. In 2009, Caisse des Dépots,

Cassa Depositi e Prestiti Cassa Depositi e Prestiti S.p.A., also known as CDP S.p.A., is a prominent Italian development bank founded on November 20, 1850, in Turin. Its original duty was to finance public works like roads and waterworks during the reign of Victor Emman ...

, KfW and

European Investment Bank The European Investment Bank (EIB) is the European Union's investment bank and is owned by the 27 member states. It is the largest multilateral financial institution in the world. The EIB finances and invests both through equity and debt sol ...

founded the Long-Term Investors Club.

Operations

KfW banking group covers over 90% of its borrowing needs in the

capital markets A capital market is a financial market in which long-term debt (over a year) or equity-backed securities are bought and sold, in contrast to a money market where short-term debt is bought and sold. Capital markets channel the wealth of savers t ...

, mainly through bonds that are guaranteed by the federal government. This allows KfW to raise funds at advantageous conditions. Its exemption from having to pay corporate taxes due to its legal status as a public agency and unremunerated equity provided by its public shareholders allow KfW to provide loans for purposes prescribed by the KfW law at lower rates than commercial banks. KfW is not allowed to compete with commercial banks, but it facilitates their business in areas within its mandate. KfW banking group has three business units with distinct functions, as well as several subsidiaries. Lending by KfW group's two main business units, accounting for more than 90% of total lending, is in Germany and, to a limited extent, in other European countries. However, its largest subsidiary, KfW IPEX-Bank GmbH, predominantly lends internationally. A smaller subsidiary, the

German Investment Corporation Deutsche Investitions- und Entwicklungsgesellschaft (DEG) is a Development Finance Institution (DFI) and a subsidiary of KfW Group. It was founded in Cologne in September 1962 as a federally owned company by the former Federal President Walter ...

(DEG), and one of the group's smaller business units, KfW Development Bank, are exclusively active in the international arena, each within their particular business areas.

Subsidiaries and group units

Housing and environment

KfW Förderbank (KfW promotional Bank), the largest business unit of the group, committed

€ The euro sign () is the currency sign used for the euro, the official currency of the eurozone. The design was presented to the public by the European Commission on 12 December 1996. It consists of a stylized letter E (or epsilon), crossed by t ...

47.6 billion in 2014, mostly for housing and environmental protection in Germany.KfW Bankengruppe:Key Business Figures
. It is especially active in promoting energy-efficient housing for owner-occupied houses as well as for landlords, both for new houses and refurbishments. Its energy efficiency standards for houses (KfW-60 and KfW-40) have become accepted standards in Germany. Concerning environmental protection, it promotes, among others, photovoltaic energy (

solar cell A solar cell, also known as a photovoltaic cell (PV cell), is an electronic device that converts the energy of light directly into electricity by means of the photovoltaic effect.

s) which has in turn received massive indirect subsidies through

feed-in tariff A feed-in tariff (FIT, FiT, standard offer contract,Couture, T., Cory, K., Kreycik, C., Williams, E., (2010)Policymaker's Guide to Feed-in Tariff Policy Design National Renewable Energy Laboratory, U.S. Dept. of Energy advanced renewable tariff, ...

s under the Renewable Energy Law of 2000. It also invests in municipal infrastructure such as public transport and sanitation through a sub-unit called KfW Kommunalbank (KfW municipal bank). More recently (since 2006), it has also engaged in education where it provides student loans.

Small and medium enterprises

KfW Mittelstandsbank (which roughly translates as KfW small and medium enterprises bank), the second largest business unit of the group, provides assistance to German

small and medium enterprises Small and medium-sized enterprises (SMEs) or small and medium-sized businesses (SMBs) are businesses whose personnel and revenue numbers fall below certain limits. The abbreviation "SME" is used by many national agencies and international organizat ...

(SMEs) including individual entrepreneurs and start-ups. In addition to loans it also provides equity and mezzanine financing. Its financing totaled €20.4 billion in 2015. KfW has been very active in

securitization Securitization is the financial practice of pooling various types of contractual debt such as residential mortgages, commercial mortgages, auto loans, or credit card debt obligations (or other non-debt assets which generate receivables) and sellin ...

before this market collapsed during the

subprime mortgage crisis The American subprime mortgage crisis was a multinational financial crisis that occurred between 2007 and 2010, contributing to the 2008 financial crisis. It led to a severe economic recession, with millions becoming unemployed and many busines ...

. Through securitization it helped commercial banks to transfer risks from their housing and SME portfolios to the capital market. KfW also provides loans to European commercial banks to help them finance SMEs, housing and infrastructure (so-called global loans).

Development aid

KfW Entwicklungsbank (KfW Development Bank) provides financing to governments, public enterprises and commercial banks engaged in

microfinance Microfinance consists of financial services targeting individuals and small businesses (SMEs) who lack access to conventional banking and related services. Microfinance includes microcredit, the provision of small loans to poor clients; saving ...

and SME promotion in developing countries. It does so through loans close to market terms using its own resources ("promotional loans"), soft loans that blend KfW resources with support from the federal government's aid budget ("development loans"), as well as highly subsidized loans and grants, the latter two coming entirely from the federal aid budget. Different country groups are offered different financing conditions depending mainly on their per capita income. All these financing instruments are part of what is officially called

development cooperation Development aid (or development cooperation) is a type of aid given by governments and other agencies to support the economic, environmental, social, and political development of developing countries. It is distinguished from humanitarian aid by ...

and is often also called "

development aid Development aid (or development cooperation) is a type of aid given by governments and other agencies to support the economic, environmental, social, and political International development, development of developing countries. It is distinguishe ...

". In German aid, the work of KfW Development Bank is called "financial cooperation" which is complemented by "technical cooperation" by GIZ and other public agencies. The main sectors of financial cooperation are water supply and sanitation, renewable energy and energy efficiency, as well as the development of the financial sector. KfW Development Bank also works, among other sectors, in health, education, agriculture, forestry, solid waste management. It provided €7.4 billion in loans and grants in 2014.

Export and project finance

The largest subsidiary of KfW banking group is KfW IPEX-Bank. KfW IPEX-Bank is active in

project finance Project finance is the long-term financing of infrastructure and industrial projects based upon the projected cash flows of the project rather than the balance sheets of its sponsors. Usually, a project financing structure involves a number of eq ...

and

corporate finance Corporate finance is an area of finance that deals with the sources of funding, and the capital structure of businesses, the actions that managers take to increase the Value investing, value of the firm to the shareholders, and the tools and analy ...

related to German or European exports. It also promotes foreign investments in Germany. Unlike KfW, it competes directly with commercial banks. Therefore, and in response to concerns voiced by the European Commission concerning unfair competition, KfW IPEX-Bank has become legally and financially independent in 2008. KfW IPEX-Bank's main sectors of activity are ports, airports, toll roads, bridges and tunnels, railways, ships, planes, telecommunications, energy, and manufacturing. In 2014 the balance sheet total of KfW IPEX-Bank amounted to

26.3 billion. Another subsidiary of KfW banking group, the

(DEG), takes minority equity stakes and provides loans to private companies investing in developing countries. It pursues a business model broadly similar to that of the

International Finance Corporation The International Finance Corporation (IFC) is an international financial institution headquartered in Washington, D.C. and a member of the World Bank Group that offers investment, advisory, and asset-management services to encourage private ...

of the

World Bank Group The World Bank Group (WBG) is a family of five international organizations that make leveraged loans to developing countries. It is the largest and best-known development bank in the world and an observer at the United Nations Development Group ...

. Its main sectors of activity are banking, agro-business, renewable energy, telecommunications and manufacturing. It lent 1.2 billion in 2008.

State shareholding

On behalf of the German state, KfW holds shares in a variety of corporations, including

Deutsche Post (, ) is a brand of the DHL Group (listed as ), used for its domestic mail services in Germany. The services offered under the brand are those of a traditional mail service, making the brand the successor of the former state-owned mail monopoly ...

Deutsche Telekom Deutsche Telekom AG (, ; often just Telekom, DTAG or DT; stylised as ·T·) is a partially state-owned German telecommunications company headquartered in Bonn and the largest telecommunications provider in Europe by revenue. It was formed in 199 ...

Commerzbank The Commerzbank Aktiengesellschaft (shortly known as Commerzbank AG or Commerzbank ) is a European Financial institution, banking institution headquartered in Frankfurt am Main, Hesse, Germany. It offers services to private and entrepreneurial c ...

Lufthansa Deutsche Lufthansa AG (), trading as the Lufthansa Group, is a German aviation group. Its major and founding subsidiary airline Lufthansa German Airlines, branded as Lufthansa, is the flag carrier of Germany. It ranks List of largest airlin ...

, and CureVac.

Advisory services

In 2013, KfW agreed to help establish a Portuguese financial institution to foster economic growth and boost job creation in the country.

Awards

The magazine ''Global Finance'' rated KfW as the safest bank in the world in its "World's 50 Safest Banks 2014" rating. The rating was based on long-term foreign currency ratings from

Fitch Ratings Fitch Ratings Inc. is an American credit rating agency. It is one of the three nationally recognized statistical rating organizations (NRSRO) designated by the U.S. Securities and Exchange Commission and is considered as being one of the " Bi ...

and

Standard and Poor's S&P Global Ratings (previously Standard & Poor's and informally known as S&P) is an American credit rating agency (CRA) and a division of S&P Global that publishes financial research and analysis on stocks, bonds, and commodities. S&P is cons ...

and the long-term bank deposit ratings from

Moody's Investors Service Moody's Ratings, previously and still legally known as Moody's Investors Service and often referred to as Moody's, is the bond credit rating business of Moody's Corporation, representing the company's traditional line of business and its histo ...

Controversy

In September 2008, as investors were scrambling to get their funds out of

Lehman Brothers Lehman Brothers Inc. ( ) was an American global financial services firm founded in 1850. Before filing for bankruptcy in 2008, Lehman was the fourth-largest investment bank in the United States (behind Goldman Sachs, Morgan Stanley, and Merril ...

, KfW accidentally wired €320 million ($426 million) to Lehman; Germany's largest circulation newspaper, ''

Bild ''Bild'' (, ) or ''Bild-Zeitung'' (, ) is a German tabloid newspaper published by Axel Springer SE. The paper is published from Monday to Saturday; on Sundays, its sister paper '' Bild am Sonntag'' () is published instead, which has a differen ...

'', called KfW "Germany's Dumbest Bank" at the time. The bank subsequently fired two board members over the transfer. Due to a glitch in the bank's information technology, KfW again accidentally transferred 7.6 billion euros ($8.2 billion) to four other banks in February 2017 but got the money back, incurring costs of 25,000 euros.Alexander Hübner (March 29, 2017)
German state bank KfW accidentally transferred 7.6 billion euros: exec
''

Reuters Reuters ( ) is a news agency owned by Thomson Reuters. It employs around 2,500 journalists and 600 photojournalists in about 200 locations worldwide writing in 16 languages. Reuters is one of the largest news agencies in the world. The agency ...

''.

References

External links

*
Company ProfileWorld's 50 Safest Banks 2009
{{Authority control Banks based in Frankfurt Banks established in 1948

Germany Germany, officially the Federal Republic of Germany, is a country in Central Europe. It lies between the Baltic Sea and the North Sea to the north and the Alps to the south. Its sixteen States of Germany, constituent states have a total popu ...

Public finance of Germany Government-owned banks of Germany