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
Conclusion
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.
Resources:
- 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
