Outlook


AKA has further expanded its export and trade finance business with a focus on emerging markets in 2017. It has a higher volume of new business compared to the previous year, even if the overall planned volume was not quite reached.

The market environment in the relevant credit segment for AKA was very challenging in this fiscal year. In particular, the high level of liquidity in the markets led to the proven forms of financing tied to specific commodity transactions to be less in demand, since alternative financing options were offered to borrowers and investors in the sales markets. Overall, there was a decline in risk sensitiveness and, accordingly, the demand for securing financing through government export credit insurance was lower than in previous years. Nevertheless, AKA was able to grow in this core business area and is even above the volume planned for 2017 for concluding ECA-covered finance.

 

The business performance impacted on the financial performance indicators achieved by AKA in various ways. The proportion of long-term new business with investment grade rating, a quality performance indicator, is higher than the target value. Conversely, in regard to net earnings from the loan business, a financial performance indicator, the planned values have not been reached. However, the earnings were 10 % above the previous year's level. New business accounted for a large share of earnings, while effects from existing business had the opposite effect. The cost-income ratio (CIR) of 46 % exceeded the value planned for 2017. Higher costs associated with regulatory requirements carried weight in this regard. However, the CIR remains at a value that is low for the financial industry. A return on equity of 7.4 % was achieved in the 2017 fiscal year, which is noticeably above the planned level. One of the causes is the lower allocations to country risk provisions.

 

AKA's business perspective for 2018 will also continue to focus on financing and risk taking with a real economic link to trade and investment. The geographical focus is on emerging markets and extends to all regions of the world. Together with its shareholders, AKA set an important course for its business policy development in 2017. It is therefore now possible to accompany transactions of non-shareholder banks across all product types, whereby certain exclusive activities are reserved for the shareholders. The activities and earnings for the year 2018, as well as the multi-year business planning until 2021, are determined by growth in all business sectors.

 

For AKA's business model, the most important economic drivers are the development of the German and European economies and export flows as well as the growth prospects in the emerging markets and also generally in world trade. The assessment of economic and political developments in the target markets of the emerging markets is very important to AKA in analysing the risks arising from its loan business. The assessment of risks that may arise from geopolitical tensions and conflicts is equally important.

 

The outlook for 2018 forecasts a growth rate of 1.9 % for the German economy. German exports are to grow by 4 %. Both values are therefore well above the previous year's forecasts. [1] Exports in particular have developed better than expected during the course of 2017. Growth in the Eurozone in 2017 also exceeded the forecasted figures. [2]

 

From a global perspective, forecasts for 2018 assume good economic growth prospects, which include both industrialised and emerging markets. Higher commodity prices are also contributing to this, which has a stabilising effect on the economies of some emerging markets being heavily influenced by commodity exports.

 

Across the globe, growth is predicted to be about the same in 2018 as last year at 3.1 %. It should be noted, however, that economic growth had already picked up in 2017 and was above the projected figures of 2.7 %. Growth of 4.5 % is predicted for emerging countries as a whole. Countries exporting raw materials are expected to increase by 2.7 % while other emerging markets are supposed to grow by 5.7 %. From a regional perspective, the highest growth rates between 6 % and 7 % are expected for the countries of Southeast Asia. In contrast, Latin America brings up the rear with 2 %. Ultimately, the projections for world trade 2018 are projecting an increase of 4 %, after already growing faster than expected in 2017. [3]

 

Geopolitical conflicts, especially in the Middle East, as well as the tensions coming from North Korea, are seen as a threat to the good global economic developments. Furthermore, there is a risk that protectionist and nationalist movements will act as a barrier to world trade. This tendency was already feared for 2017, but specific far-reaching obstacles do not yet exist. The expected further increase in USD interest rates will put some emerging markets with high foreign currency debt under pressure.

 

From AKA’s point of view, the positive framework factors prevail with a view to 2018. The bank therefore expects a national, European and international environment, which will be characterised by good economic prospects. In the context of trade and export finance that is relevant to AKA, this means that private and public investment in the target countries is increasing, as is global trade in general. On the other hand, it cannot be ruled out that, given more stable economic conditions, there will also be less demand for risk hedges, or that the risk-dependent margins that can be achieved for AKA will be reduced. For some markets, AKA sees the risk that the implementation of major projects will be more difficult due to sanction regulations.

 

AKA will continue to diversify its target countries in its business activities in 2018 in order to achieve a broad risk diversification. AKA strives to support large-scale investments planned in many markets, for example, in the energy and chemical industries, by participating in ECA-covered financing. Cooperation with non-shareholder banks within the framework of the guidelines approved by the Supervisory Board also contributes to this. Furthermore, AKA continues to expand its activities with other European ECAs.

 

Regarding its treasury activities, AKA will continue to consistently pursue its measures for cost-optimising liquidity management and increasing refinancing options. AKA expects a further broadening of its base in terms of borrowing in the major currencies of EUR and USD, both in the uncovered segment as well as in covered refinancing for the ECA loan business. In general, AKA is maintaining its approach of refinancing its loan business as much as possible on a congruent currency and maturity basis, in compliance with all regulatory and internal requirements.

 

AKA expects interest rates in the Eurozone to remain low in the forthcoming fiscal year. Accordingly, its multi-year business planning is based on the conservative approach of an unchanged market interest rate scenario for the euro. However, it should be noted that an increase in interest rates in the Eurozone will have a positive impact on AKA, while the gradual increase in USD interest rates will have hardly any impact on AKA's profitability.

 

In summary, AKA plans a new business volume of around EUR 1.75 billion for 2018. It is aiming for a minimum proportion of 35 % of investment grade rated long-term financing deals. Regarding net earnings from the loan business, a result of around EUR 40 million is expected. AKA expects a ratio of 46 % in 2018 with respect to the cost-income ratio. Taking into account the associated risk provision for the business performance planned for 2018, a net profit after tax in the amount of about EUR 9 million and a return on equity before tax of about 6 % is expected.

 

AKA has a solid equity base and can continue to pursue its growth path without any changes. As a result of an SREP decision for 2018, there are slightly lower capital requirements applicated for AKA compared to the previous year.

 

In regard to the regulatory environment, AKA will be looking into implementing the additional requirements of the change to the minimum requirements for risk management (MaRisk) in 2018 as well as the bank supervisory requirements for IT (BAIT). In terms of financial reporting, the new AnaCredit requirements must be implemented. In addition, the requirements of the single European banking supervision and its effects on the national, so-called less significant institutions, to which the AKA belongs, must be closely observed.

 

In its external appearance, AKA will continue its successful event formats in 2018, such as the Investors' Meeting and the series of the theme-based Trade Finance Dialogue. AKA will also relaunch its entire internet presence.

 

In 2018, AKA will continue to act as a platform for trade and export finance issues contributing to such committees as the Hermes IMA and associations with national and foreign trade relations.


(1) Autumn forecast issued by the German federal government:
In: www.bmwi.de/Redaktion/DE/Dossier/wirtschaftliche-entwicklung.html

(2) European Commission, autumn forecast 2017: Commission expects the strongest economic growth for the eurozone in the last ten years.
In: ec.europa.eu/germany/news/20171109-herbstprognose_de. Press release, 09 November 2017.

(3) Global Economic Prospects, Broad Based Upturn – but for How Long? In: A World Bank Group Flagship Report, January 2018.

Read more in our latest annual report

Annual report 2017