The federal government has apparently backed away from its plans to skim profits from the state development bank KfW for the budget over the next two years. To do this, the government would have had to change a law anyway, because KfW profit transfers are prohibited. Now another solution is emerging as to how KfW should relieve the budget.
A building block for this can be found in documents for the Bundestag's budget committee, which are available to the Handelsblatt. KfW will then assume the risks from loans that it granted during the corona pandemic next year. Because KfW launched this special program on behalf of the government, the federal government was previously liable for loan defaults.
KfW is now taking on the risks from the program itself. This will reduce the burden on the 2027 budget by 519 million euros. In a “supplement to the adjustment template” that the Federal Ministry of Finance sent to the budget committee this week, it says that this is KfW’s “contribution to the counter-financing of tax relief from the reform and tax package in implementation of the coalition decision”.
According to Handelsblatt research, this will also apply next year. In addition, the development bank will launch its own funding programs to further ease the burden on the federal budget, according to circles familiar with the matter.
KfW did not want to comment on the information. The Federal Ministry of Finance announced that the budget process is currently still in progress and that the results cannot therefore be anticipated.
By assuming the risk of the corona loans and foregoing a direct profit transfer, the coalition would bypass a controversial measure that it had introduced in July as part of the tax relief announced at the time. At that time, a transfer of KfW profits of 500 million euros in 2027 and 2028 was still an integral part of the counterfinancing.
However, the “Law on the Credit Institution for Reconstruction” has so far prohibited profit distributions. “There will be no distribution of profits,” it states.
The head of the CDU's middle class parliamentary group, Christian von Stetten, also pointed this out on Thursday. The “Bild” newspaper quoted him as saying that profit transfer to the federal government is prohibited.
A profit transfer is controversial, even if it were limited in time. Critics fear that federal governments could then find it easier to divert profits from the development bank in the future.
According to critics of profit skimming, this could weaken KfW in the long term. Like every bank, KfW has to back loans with equity capital. If its capital base is reduced through profit transfers, the development bank's ability to grant loans also shrinks.
The KfW profits had also aroused desire in the past. A black-yellow coalition last examined this step in 2012, but ultimately decided against it. Even then, alternatives were found.
This is exactly what KfW boss Stefan Wintels had hoped for. In an interview with the Handelsblatt he said that his company was in discussions with the responsible ministries about alternatives. At that time, he also brought higher funding costs into play. KfW describes loan concessions such as lower interest rates for promotional loans that it finances from its own profits as promotional expenses.
Recently, KfW's funding expenditure has increased continuously and is around 500 million euros per year. “This sum could continue to rise instead of a profit transfer,” Wintels said in July.
