1ST QUART ER AT A GLANCE

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1 Quarterly Report 1/2003

2 1ST QUART ER AT A GLANCE Mittelstandsbank off to a Good Start The Mittelstandsbank (Bank for SME), a joint promotional initiative of KfW and DtA, started work on January 1, 2003 as scheduled. It is offering start-ups, small and medium-sized enterprises and innovators all the reduced-interest loan programmes of both institutions and can be accessed in the Internet under Founders of new businesses and small and medium-sized enterprises can call the number (local call from within Germany) or send an to info@mittelstandsbank.de for information and advice about the Mittelstandsbank financing offers. This single-source financing offer durably strengthens the promotion of start-ups and small and medium-sized enterprises in Germany as it makes this promotion more efficient and transparent. Additional financing potential can be tapped thanks to the resulting synergies. In the coming months the financing offers will be reorganized under the umbrella of the Mittelstandsbank. The objective is to create a transparent set of financing instruments that gives the various target groups a comprehensive range of favourable financing offers that suits their needs. Two New KfW Loan Programmes Hans Eichel, Germany s Finance Minister, and Hans W. Reich, Chairman of KfW s Board of Managing Directors, presented two new KfW loan programmes in Berlin on March 14: the special fund Growth Impulses under the KfW Infrastructure Programme and the new KfW Housing Modernization Programme. The aim of these two programmes is to contribute to strengthening domestic demand. They will primarily benefit the construction sector, particularly the small and medium-sized enterprises, many of them handicrafts firms.

3 The special fund Growth Impulses builds on the existing KfW Infrastructure Programme. It is designed for municipalities and municipal enterprises in particular. The special fund has a loan volume of EUR 6 billion with an additional interest rate reduction from funds of the Federal Government over a period of three years. A further EUR 1 billion is available for municipalities in structurally weak regions. The Federal Government will grant a particularly strong interest rate reduction for these municipalities for three years. The KfW Housing Modernization Programme 2003/2004, available throughout Germany, is designed to stimulate investments in the modernization and renovation of owner-occupied or rented residential buildings. The programme is scheduled to have a volume of EUR 8 billion which will be extended in the form of reduced-interest long-term loans. Development of promotional loan commitments in Germany KfW s promotional loan commitments in Germany increased slightly in the first quarter to EUR 6.3 million. This trend is due to rising commitments in the home finance segment which are over-compensating the slight decline in the commitments made under the promotional loan programmes for small and medium-sized enterprises. Commitments to SMEs totalled EUR 1.8 billion in the first quarter of 2003, almost half of which were made under the KfW SME Programme. The slight decline against the previous year resulted from the declining propensity of enterprises to invest amid the continued cyclical weakness. In the segment of securitizations the first quarter saw only one transaction of lesser volume. Several large transactions are under preparation and will be realized in the second quarter.

4 Under the Programme Capital for Work (Kapital für Arbeit) commitments were made in a total of EUR 197 million until the end of the first quarter, creating over 2600 jobs. The number of incoming applications is rising continuously. Considering its innovative character, the programme was launched with great success. Kf W s CO 2 Building Finance Programme expanded In the first quarter 2003 KfW committed a total of EUR 3.9 billion to promote owner-occupied housing and CO 2 reduction in emissions from residential buildings. Of this sum, EUR 3.6 billion was committed to finance the acquisition of homes and EUR 320 million for the promotion of CO 2 reduction in building emissions. The KfW CO 2 Building Rehabilitation Programme was expanded at the beginning of the year. An additional package of measures was included which comprises the complete thermal insulation of a building. Besides, the minimum CO 2 reduction requirement of 40 kilograms per square metre of usable building space was lowered to 35 kilograms per square metre. This expands the range of financing offers for homeowners who have already implemented individual measures in previous years and now want to put an additional package of measures in place. In the case of lower CO 2 reduction, however, a reduced lending ceiling applies. Kf W s programmes contribute substantially to reducing CO 2 emissions of residential buildings The Jülich Research Centre has conducted a study to evaluate the CO 2 Building Rehabilitation Programme and the KfW CO 2 Reduction Programme. It has concluded that both programmes will bring about a

5 reduction of up to 3.5 million tonnes in annual CO 2 emissions by the end of Thus they will contribute a share of 13% to the goal of lowering CO 2 emissions from private households, including residential buildings, by the year 2005, in accordance with the commitment Germany made under the Kyoto Protocol. The climate protection measures so financed safeguard as many as 35,000 jobs every year. The demand and employment effects benefit primarily the small and medium-sized construction industry and trade. Kf W s Environmental Protection Programme positive job market effects despite difficult economic environment Loans committed under the KfW Environmental Protection Programme totalled EUR 160 million in the first quarter. The projects promoted with these funds do not only protect the environment and the Earth s climate but also have positive effects on the job market. Indirect employment effects not counted, the past years have shown an average of four new jobs to be directly created for every one million euros granted in loans under the KfW Environmental Protection Programme. This also applies to environmental protection investments serving the purpose of rationalization, in which employment growth was even slightly higher than over the programme average. The reason is that rationalization measures in the area of environmental protection are mainly directed at conserving energy and not reducing employment. So it is precisely in the field of environmental protection that enterprises cost-saving measures can also create jobs even in a difficult economic environment.

6 Export and Project Finance In export and project finance loans amounting to EUR 1.1 billion (EUR 1.6 billion) were granted in the first quarter. As was expected, new business declined again owing to the difficult situation of the world economy. It is very strongly focused on the European market. The demand for loans from the Americas and the Asian region, in turn, is on a very low level. Kf W is putting international development objectives into practice 2003 is the International Year of Freshwater. The United Nations has chosen this annual theme to draw the world s attention to the increasingly scarce water resources and to promote initiatives for the sustainable use of water. Around the world, 18% of the people have no clean drinking water and 40% have no access to sanitation. The international community intends to reduce this share by one-half by the year Since 1995 KfW has helped around 60 million people to obtain access to clean drinking water. Each year KfW commits around EUR 260 million from funds of the German Ministry for Economic Cooperation and Development. Our aim is to devise and implement socially, economically and ecologically balanced and, thus, sustainable projects with our partners.

7 Funding In the first three months of the year KfW has raised funds in the equivalent of around EUR 18 billion in the capital markets, more than one-third of the funding needs of EUR 45 to 50 billion planned for the year KfW has benefited from the strong trend towards safe investment schemes. Just under 45% of the volume of issues launched so far was achieved by a five-year bond in euros (EUR 5 billion) and another in US dollars (USD 3 billion) under the KfW Benchmark Programmes. With the first issue of a large-volume callable Euro bond of EUR 1 billion KfW once again presented itself in March as a pioneer in the capital market. The bond has a maturity of three years and can be called by KfW once after one year. The strong demand from all over the world has enabled KfW to open a new capital market segment and thereby to expand the range of its products as well as its investor basis. In the short-term funding segment KfW expanded its US-dollar Commercial Paper Programme on February 1, 2003 because of the strong demand from thus far USD 4 billion to USD 6 billion. At the same time the maximum term of the securities was extended to now 12 months. KfW s Euro Commercial Paper Programme (EUR 12 billion) is now by far the largest programme in the issuing category of agencies/states on the European money market, with a degree of utilization of over EUR 10 billion.

8 Corporate Indicators (in EUR billion) Investment finance in Germany Promotional loans, among others, in the fields of Small and medium-sized enterprises (including global loans to commercial banks) (1.3) (0.5) (0.5) Housing (of which global loans to commercial banks) (1.4) (1.3) (1.7) Infrastructure Securitizations Project financings Funding for special credit institutions at Länder level Investment finance outside Germany Export and project finance Promotion of developing countries (including mandates, excluding DEG) FINANCING VOLUME of which: promotional loans in total Securitizations and guarantees Total grants General investment finance tasks Support for the new eastern German states Environmental and climate protection Innovations and participations/venture capital Funding Balance-sheet total KfW Information Centre Tel. +49 (0) Published by: Corporate Communication Department Palmengartenstrasse 5-9, Frankfurt am Main Tel. +49 (0) , Fax +49 (0)