up.date Funding Q Annual Financial Statements of KfW Bankengruppe News for Investors. April 2005.

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2 up.date News for Investors. April Funding Q Annual Financial Statements of KfW Bankengruppe

3 e.ditorial Dear Readers, On April 12th KfW Bankengruppe presented its annual financial statements for fiscal year All key figures including the balance sheet total, equity capital, operating income and net income continued their positive development. The following pages contain a summary of the main data. The bank s full-length annual report is available in the Internet in PDF format at (German version) and in English at You may also order the print version on the same page under Contact (investor.relations@kfw.de). In addition, this publication offers you a brief retrospect of our funding activities in the first quarter of 2005 and an outlook on the rest of the year. In the first months of this year KfW already raised one-third of the planned long-term funds in the capital market. This update reports on the different issues and the trends we can discern in demand. Allow me to say just this much: the interest of investors in instruments to diversify their portfolios is also I am glad to note piqued by KfW s bonds. This is an additional incentive for us to constantly adjust our offers. Naturally Benchmark bonds as well as issues of other proven and liquid products will remain our prime focus. As always, near the end of this publication you will find current news about KfW Bankengruppe in the section From the News Ticker. Yours faithfully, Dr. Frank Czichowski Treasurer of KfW 2004 Annual Financial Statements of KfW Bankengruppe KfW Bankengruppe can look back on a successful year. In 2004 the bank fully accomplished its promotional mission once again, with a commitment volume of EUR 62.9 billion. The overview below contains key items of the balance sheet and statement of income. At the end of 2004, the biggest share of the volume of lending was investment loans to the German and European economies. At EUR 184 billion, they exceeded the prior year s figure by EUR 11 billion. One-fifth of the lending volume was guarantees. Most of these guarantees were related to securitisation transactions. Loans in the field of export and project finance dropped slightly over the year and accounted for 15% of the lending volume in The decline was due mainly to the fact that part of the loans were granted in US dollars. As these loans were valuated at a low US dollar exchange rate at the end of 2004, their share of the lending volume declined, thus reducing the growth of KfW Bankengruppe. The breakdown of the lending volume by business unit remained almost constant compared to the previous year. The group balance sheet total for 2004 grew by 5% over the previous year to EUR billion. This increase was primarily the result of the high volume of domestic investment loans. At EUR 1,236 million the group s operating income before risk provisions was slightly below the 2003 result, which had been boosted by Volume of lending 2004 (2003) Investment finance 59% (59%) Export/project finance 15% (17%) Promotion of developing countries 7% (7%) Guarantees 19% (17%)

4 Balance sheet total Own funds Balance sheet total, own funds, equity ratio in EUR billion * 2.99* 3.09* 3.16* 3.55* Balance sheet total Own funds * Equity ratio in % (Figures for excl. DtA) Funds raised in the money and capital markets Volume at the end of 2004 in EUR million retained earnings stemming from the inclusion of the results of its subsidiaries and the capital consolidation. KfW and the group as a whole more than fulfil the equity requirements for banks with international operations. Funds borrowed from banks Funds borrowed from customers Bonds issued ,823 17, ,937 % ,469 19, ,555 % ,294 20, ,806 % In 2004 the balance sheet total of KfW Bankengruppe was refinanced to about twothirds by notes issued in the money and capital markets (EUR 211 billion). Beyond that, approx. EUR 46 billion were raised with other instruments in the money and capital markets. The remainder splits up into funds from the Federal Republic of Germany (EUR 35 billion), equity capital (EUR 12 billion) and additional individual items totalling EUR 25.6 billion. positive one-time effects resulting from the merger of DtA into KfW Bankengruppe. The impact on the net operating result was positive. Thus, synergy potential from the merger could be used in particular to reduce administrative expenses. KfW s risk provisions amounted to EUR 808 million and dropped slightly over 2003 owing to the improved risk situation of KfW Bankengruppe in There was less need for specific loan loss provisions, which were mainly made in the areas of aircraft and equity finance. The need for country risk provisions was also lower. After risk provisions and valuation adjustments, the operating result generated by KfW Bankengruppe attained EUR 428 million, significantly higher than the prior year s result (+38%). Net income for the year rose to EUR 368 million (EUR 247 million). In the past fiscal year KfW Bankengruppe increased its equity capital substantially. Following an increase of EUR 1.7 billion (+ 17%), it reached EUR 11.7 billion by the end of the year. To prepare for the planned changeover of group accounting to IFRS, EUR 1.3 billion were allocated to the fund for general bank risks, which is shown in the balance sheet, during This fund also contains reserves that had been set up previously. KfW Bankengruppe also allocated a total of EUR 416 million to its own funds in the form of additions to the reserve from the ERP Special Fund, the allocation of KfW s net income to retained earnings, and the increase in other

5 Funding Q In the first quarter of this year KfW raised approx. EUR 17 billion in the capital markets, roughly one-third of its target volume for the entire year of EUR billion. Just under 40% of the funds were raised under KfW s Euro and US dollar Benchmark Programmes, and somewhat more than half were raised with other public bonds denominated in various currencies. Private placements accounted for 4%, and credit linked securities in connection with asset securitisation contributed 3%. The Euro continues being the main funding currency of KfW Bankengruppe. At more than EUR 8 billion, securities denominated in Euro accounted for around half of the current issue volume. The issues comprised a 10-year Benchmark bond for EUR 4 billion, a 2-year bond for EUR 2 billion and a number of smaller, in some cases structured issues. Nearly one-third of the funding amount was raised in US dollars. Under its US dollar programme KfW also achieved great success by issuing a large 3-year bond for US dollar 3 billion in the first quarter of this year. Another pleasing result is that the upturn in demand for KfW bonds denominated in pounds sterling is continuing this year. The 12% share of the funding volume puts the pound sterling on the same level as in In the past months demand has been strong for KfW bonds denominated in currencies other than Euro, US dollars, pounds sterling and Japanese yen. Interest in Australian, Canadian and New Zealand dollars as well as in New Turkish Lira has been particularly high. KfW was able to respond very flexibly to the demand by issuing a number of bonds, some of which have already been increased several times. Altogether, by the end of March these currencies accounted for 9% of the funding of KfW Bankengruppe. KfW is planning to issue additional Benchmark bonds in Euro and US dollars by the end of the year as well as public bonds in various currencies and with different maturities outside of its Benchmark programmes. Special structured products can also be issued at any time on investors request. KfW Bankengruppe intends to issue a similar volume as in KfW's Funding Q By currency EUR 50% USD 28% GBP 12% AUD 3% TRY 2% CAD 2% JPY 2% NZD 1% HUF 1% KfW s Funding Q By instrument Benchmarks 37% Targeted transactions 56% Loans 3% Private placements 4%

6 STICKER FROM THE NEWSTICKER FROM THE NEWSTICKER FRO KFW URIDASHI BOND EXCHANGEABLE FOR SHARES IN DEUTSCHE POST AG. At the end of January KfW issued a bond exchangeable for shares in Deutsche Post AG. The bond targets Japanese retail investors and had a volume of EUR 1.1 billion. Altogether about 32,000 private individuals subscribed to this first foreign currency exchangeable bond offered by a non-japanese issuer (Uridashi bond). The bond carries a coupon of 0.5% p.a. and matures on February 3, Investors purchase the right to buy shares in Deutsche Post AG during a fixed term of 5 years for a price of EUR This corresponds to an exchange premium of 12% on a reference price of EUR INCREASE IN KFW US COMMERCIAL PAPER PROGRAMME. At the beginning of the year KfW increased the volume of its US CP Programme by USD 4 billion to USD 10 billion. This was made possible by the excellent response to the programme and steadily high demand for KfW s US CPs. CLIMATE PROTECTION GOAL OF CO2 REDUCTION: THREE NEW PROMOTIONAL PROGRAMMES AS OF On January 1, 2005 KfW Förderbank (KfW promotional bank) introduced a new programme structure in the areas of construction, housing and energy conservation. These programmes will play a role in achieving the climate protection goal of reducing CO2 emissions as agreed in the Kyoto Protocol. Under its Housing Modernisation programme, long-term financing for CO2 reduction and modernisation measures in residential buildings will be eligible for financing in the future as well, and with its Solar Power Generation programme KfW offers a streamlined financing product for the photovoltaic market in Germany. Its Ecological Construction programme supports KfW Low-Energy Houses. The programme offer has become more transparent through the addition of the three new programmes, processing has been streamlined and advisory services have become more customer-friendly. ONE-DAY KFW CONFERENCE FOR SOCIALLY RESPONSIBLE INVESTORS ON JUNE 16, Social responsibility instead of profit maximisation, sustainability instead of short-term yield KfW Bankengruppe abides by these investment criteria, which will be the topic of discussion at a conference held in Frankfurt am Main on June 16, 'Socially responsible' investors and analysts are invited to participate. The conference topics will include: Environmental management within KfW Bankengruppe Environmental and educational programmes within Germany Guiding principles of lending Presence in the capital market Carbon Fund Corporate governance and compliance Environmental protection within KfW Bankengruppe. The conference will be held in German. To register or obtain information, please contact Dr. Solveig Pape at , solveig.pape@kfw.de. CKER FROM THE NEWSTICKER FROM THE NEWSTICKER FROM T

7 M THE KfW Bankengruppe Palmengartenstraße 5-9, 5-9, Frankfurt Frankfurt am Main, am Main Germany Telephone , Fax Investor Relations Dr. Axel Breitbach Telephone , Telefax Press Office Capital Markets: Nathalie Drücke Telephone , Telefax WHAT OUR BONDS STAND FOR. Quality Transparency Liquidity Performance Transparency Liquidity E