Sunday, September 23, 2012

Public Corporate & Investment Bank – Can France and the UK can learn from Germany’s KfW?

My last post was about the French public investment bank. In the UK, this topic has also been on the agenda of the British Chambers of Commerce which have, on September 3, 2012, called for setting up a state backed business bank.

In this article, I would like to compare both the French and the English proposals to Germany’s Kreditanstalt für Wiederaufbau (KfW).

About KfW

KfW has been founded on 18 November 1948.

Today, it is a public law institution disposing of 3.75 Billion Euro equity capital. Some business lines of the bank are privately organized even though they are held by the public law parent company. Despite its status as a public law entity, KfW is a bank and, as such, is explicitly entitled to designate itself as a “bank” or “banking group”.

It can only be dissolved by way of law.

In the law governing KfW, the German government has given an explicit guarantee for any debt financing (loans and bonds) used the bank. KfW has no deposits as this is explicitly forbidden by the law governing KfW.

The bank can act directly vis-à-vis its clients or put promoting programs in place through other private financial institutions.

The German bank usually provides medium- and long-term financing. As is stipulated in the KfW law, short-term lending shall only be granted exceptionally. Equally, unsecured lending is only exceptionally possible, upon approval of the board of directors.

There is no earnings' distribution at KfW. Any profit will be accounted for as retained earnings.

As KfW does not hold deposits, it refinances its assets trough issuing bonds and raising loans. Short-term refinancing can amount to 10 % of medium- and long-term refinancing at most.

KfW Business Lines

KfW is organized in 5 business lines:

  • SME Banking
  • Retail Banking
  • Municipal Banking
  • Development Banking
  • Export and Project Finance

As shown on the above charts, SME and Retail Banking constitute the largest business lines and together account for more than half of the bank's revenues.

KfW Performance vs. Capital Risk Policy

Comparison Kfw vs. French / UK Public CIB Projects


As shown in the below table, many the ideas of the public investment bank projects in France, Germany, and the UK are quite similar.

In terms of ROE, KfW has recently shown a good performance. This is all the more striking as its Total Capital Ratio is high, compared other universal banks such as Deutsche Bank and BNP Paribas.

The proposal for a public corporate and investment bank in France and the UK should, in my view, not raise any particular objections.


  • Synthèse du rapport de la mission de préfiguration de la banque publique d’investissement (BPI) – July 2012
  • Communication du Conseil des Ministres – 6 June 2012
  • British Cambers of Commerce – The Case of a British Business Bank – 3 September 2012
  • Gesetz über die Kreditanstalt für Wiederaufbau – lastly amended on 31 October 2006
  • KfW Annual Report 2011