Annual Report2002/2003

Annual Report 2002/2003

Brought to you by Global Reports

March 31, 2003 ChangeBalance Sheet Figures in EUR million in %Total assets 36 410 4.4

Claims on customers 24 803 0.8

Liabilities to banks 16 223 5.1

Securitised liabilities 13 700 5.6

Total liable funds 3 101 8.7

March 31, 2003 ChangeIncome Statement Figures in EUR million in %Net interest income 485.0 2.9

General administrative expenses 219.9 6.5

Risk provisioning balance –183.4 4.7

Result from ordinary activities 166.8 4.1

Net income for the year 85.8 3.2

Net income for the year of the AG 110.4 14.9

Total dividends 67.8 –

Selected Ratios March 31, 2003 March 31, 2002

Return on equity 15.0 % 15.0 %

Cost/income ratio 38.6 % 38.1 %

Equity ratio (Principle I) 12.1 % 12.1 %

Tier 1 capital ratio 7.4 % 6.4 %

Number of employees 1 496 1 429

IKB Rating Long-term Short-term OutlookMoody’s A1 P-1 “positive”Fitch IBCA A+ F1 “negative”

Figures concerning the IKB Share 2002/2003 2001/2002

Result per share EUR 1.90 EUR 1.82

Dividend per share EUR 0.77 EUR 0.77

Dividend yield as of balance sheet date 6.4 % 5.2 %

Highest share price in the financial year EUR 15.25 EUR 16.35

Lowest share price in the financial year EUR 11.00 EUR 11.95

Share price as of balance sheet date EUR 12.01 EUR 14.90

Number of shares (balance sheet date) 88.0 million 88.0 millionMarket capitalisation (balance sheet date) EUR 1.06 billion EUR 1.31 billion

IKB ShareholdersKreditanstalt für Wiederaufbau 34 %

Stiftung Industrieforschung 11 %

Private and institutional shareholders 55 %

Officially quoted at the Stock Exchanges in Berlin, Düsseldorf, Frankfurt, Hamburg, Munich,

and Stuttgart.

IKB Key Figures


4 To our Shareholders8 Report of the Supervisory Board

12 Corporate Governance

Boards, Heads of Market Units,Divisions and Subsidiaries

20 Supervisory Board21 Advisory Board24 Board of Managing Directors26 Market Units and their Heads27 Central Divisions and their Heads,

Subsidiaries and their Heads

Report of the Board of Managing Directors

30 I. Management Report31 1. An Overview of the Financial Year38 2. Risk Report46 3. Performance of the Divisions48 4. Outlook

52 II. Group Business Trends53 1. Underlying Economic Conditions56 2. Corporate Lending68 3. Real Estate Financing74 4. Structured Financing80 5. Private Equity86 6. Treasury and Financial Markets92 7. Human Resources

Financial Statements98 Consolidated Balance Sheet and Consolidated

Income Statement of IKB Deutsche Industriebank102 Balance Sheet and Income Statement

of IKB Deutsche Industriebank AG106 Notes132 Auditors’ Report

133 Income Statement and Balance Sheet Trends

135 Addresses


Despite the disappointing performance of theGerman economy, many medium-sized companiesremain remarkably successful. They are benefitingfrom a greater division of labour in the economy and arestructuring of the value-added chain. Whether aspart suppliers, development partners or serviceproviders, they make a huge contribution to strength-ening the international competitiveness of Germanproducts.

IKB too is firmly integrated in this process – as areliable financing partner, ready and willing to backthe growing investment activities of medium-sized

companies with a wide array of consulting and financ-ing services. This annual report documents the way inwhich the bank has once again supported a greatnumber of companies in implementing their strate-gies for the future. Thus, on behalf of Germany indus-try, I would also like to express my sincere thanks andappreciation to the men and women of the IKB staff.

Dr. Michael Rogowski

PresidentFederation of German Industry


Contrary to the general trend in the German bankingsector, IKB continued to develop along positive linesduring the 2002/2003 financial year. Despite the dif-ficult economic conditions, we were able to increaseour result from ordinary activities by 4.1 % to EUR 167

million.

Specifically,• net interest income increased by 2.9 % to EUR 485

million

• the interest margin for new loan accommodationsin the Group expanded to 1.68 % (previous year:1.44 %)

• net commission income rose by EUR 25 million toEUR 64 million

To our Shareholders


• administrative expenses increased by 6.5 % to EUR220 million and

• risk provisioning balance increased by EUR 8 mil-lion to EUR 183 million.

The cost/income ratio for the period under reviewcame to 38.6 % (38.1 %) while return on equityremained unchanged at 15.0 %.

In light of this generally positive performance, theManagement Board and Supervisory Board proposeto the General Meeting payment of an unchangeddividend to shareholders of EUR 0.77 per share forthe 2002/2003 financial year. This corresponds to adividend yield of 6.4 % based on the share price at thebalance sheet date.

The reasons for IKB’s comparatively robust businessand earnings growth lie in the excellent strategicpositioning of the bank, giving us a crucial advantagecompared to our competitors. At a time when manybanks have withdrawn from lending business in theMittelstand market, or have in any case becomehighly volatile in their behaviour, we have succeededin getting the message across to our customers thatIKB is a dependable, predictable and trustworthypartner.

This message has become all the more persuasivenow that we are cooperating even more closely withKfW, a bank that shares our commitment to the long-term financing of the Mittelstand. Indeed, our part-nership with KfW has met with an exceptionally pos-itive response from our customers.

The rating agencies have taken an equally sanguineview of developments. In spring 2002, for instance,Moody’s – contrary to the general trend in the bank-ing sector – upgraded our rating to A1, while Fitchhad already given us an A+. Moreover, Moody’s

combined its rating of IKB with a “positive outlook”statement and reinforced this assessment only a fewdays before our balance sheet date. In justifying thesegood ratings, both agencies pointed to IKB’s stableearning performance as well as our partnership withKfW.

And indeed, the results of our first full year of cooper-ation with KfW have been highly encouraging. Forexample, we cooperated in developing a global loanfacility that enables us to set margins based on thecreditworthiness of the individual borrower ratherthan imposing a uniform margin of 1 %. On the onehand this is precisely in line with the requirements ofBasle II, while on the other it makes it attractive forbanks to extend industrial development loans again.

The division of labour between IKB and KfW thusbecomes clear: because we have our ear to theground, we can keep our partner apprised of theevolving demand and needs of the Mittelstand. Inturn, KfW applies its unsurpassed expertise in thejoint development of new financing instrumentsspecifically designed for the medium-sized corporatesector. It is not least because of this that the twoorganisations succeeded in generating a combinedEUR 0.8 billion in additional new loan business duringthe past financial year, something neither bank couldhave achieved without assistance from the other.

Two New Cooperation Agreements

In order further to improve our competitive positionin the German banking market, we entered into twonew cooperation agreements during the periodunder view: one with Sal. Oppenheim, the otherwith UniCredito Italiano.


The prime motivation behind our cooperation agree-ment with Sal. Oppenheim is the fact that our targetgroups are nearly identical. Whereas at IKB the mainfocus during an acquisition is on the company, at Sal.Oppenheim the emphasis is on the entrepreneur.Thanks to our complementary range of products,there is plenty of potential for adding to the businessof both banks. Thanks to our new cooperation partnerwe are able to offer our customers a comprehensivearray of ECM products, greater assistance duringM&A transactions as well as full range of asset man-agement services. For its part, Sal. Oppenheim cannow supply its customers with long-term corporateand acquisition financing, and also arrange forcertificates of indebtedness (Schuldscheindarlehen).In order to strengthen ties between the two banks,Sal. Oppenheim has taken up an initial 3 % of IKBshare capital.

Apart from the immediate business benefits of coop-erating with Sal. Oppenheim, there is another impor-tant aspect here. I refer to the message that thiscooperation agreement sends to our customers, com-petitors and the public at large: the fact that IKB verymuch remains a private sector, market-oriented bank.

At the end of the period under review we also en-tered into a cooperation agreement with UniCreditoItaliano. Together with its investment unit, UniCreditBanca Mobiliare (UBM), we will be establishing a jointventure in Luxembourg this autumn called IKBCorporateLab. This company will offer consulting andfinancial services for optimising the balance sheetstructures of our customers.

In cooperating with UniCredito, we will have one ofEurope's strongest performing banks on our side –and one which has been working successfully in thefield of financial risk management since 1998. Now,in comprehensive and professional fashion, we will beable to offer our customers a full range of interestand foreign currency derivatives without having tocouple these with a loan, something which hithertotended to be the case.

Step by step, IKB CorporateLab will enable us to makeup with the competitive edge enjoyed by the bigbanks in this advice-intensive sector – and withoutthe need for major investments in management andIT resources. While our Italian partners will be respon-sible for the products, we will focus on acquisitionand consulting.

We aim to make IKB CorporateLab the leading sourceof financial risk management for Germany’s Mittel-stand.

Viewed against the backdrop of our partnership withKfW and our cooperation agreements with Sal.Oppenheim and UniCredito Italiano, an analysis ofthe strategic positioning of IKB quickly makes clearthe pivotal position we now occupy in the Germanbanking market, providing us with excellent opportu-nities for continued increased earnings.

Also contributing to this are our investments in inter-national loan portfolios, part of our systematic step-by-step transition from risk taker to risk manager. Forby investing in international loan portfolios, not onlyare we able to diversify our risks from the regionaland sector standpoint, but – and even more impor-tantly – we can substantially increase our earnings.


The IKB Share

This positive business performance has made a bigcontribution to keeping IKB’s share price relativelystable over the past two years, stock market crashesand investor reluctance notwithstanding. As thegraph shows, the IKB share price has largely decou-pled itself from the poor performance of the DAX andthe CDAX Banks. Though the downturn in the stockmarket also led to some selling of IKB shares, we wereimmediately able to place these with new institu-tional investors, having already presented our bankto them during one-on-one meetings and investorconferences over the past two years.

But this placement was certainly also facilitated bythe revival of investor interest in strong-earningshares. Of course, up until 2000/2001 the mood wasvery different. A company that paid a dividend inthose heady days was considered to be “Old Econo-my” and branded as unimaginative. But after thestock market crash of 2001/2002, a significant reori-entation took place among analysts and investors.A convincing corporate strategy, strong earningpower and the payment of a dividend havere-emerged today as the most important criteria inprompting an investor to buy a share. Because IKBstock meets all these criteria and has paid a dividendever since the bank’s post-war foundation, andbecause this dividend has never been scaled back, ourshares have performed correspondingly well.

You will find further information concerning ourshares and Investor Relations activities at our web-site, www.ikb.de.

You are cordially invited to attend this year's GeneralMeeting, which will be held at 10:00 a.m. on Septem-ber 5 at the CCD. Stadhalle, Congress Center Düssel-dorf, Rotterdamer Straße, 40474 Düsseldorf. We verymuch look forward to seeing you there.

Dr. Alexander v. Tippelskirch

Chairman of the Board of Managing Directors IKB Deutsche Industriebank AG

Source:Bloomberg

%

2001 2002 2003-70

-60

10

-50

-40

-30

-20

-10

0

■ IKB■ DAX■ CDAX Banks/Prime Banks

IKB Share Performance


Report of theSupervisory Board

During the 2002/2003 financial year, the SupervisoryBoard has kept itself thoroughly informed concern-ing the condition of the bank and Group on a regularbasis, as well as monitoring senior management. Dur-ing the period under review, the Supervisory Boardheld four regular meetings on June 26, August 30,

and November 7, 2002, and March 13, 2003. Allmembers of the Supervisory Board took part in morethan half of the meetings of the Supervisory Boardheld during their period of tenure.


The Supervisory Board has formed two committees.The Presiding Board, consisting of the Chairman ofthe Supervisory Board and the two Deputy Chairmen,met on four occasions. The Finance and AuditingCommittee met once on June 25, 2002 prior to thebalance sheet meeting of the Supervisory Board. Thiscommittee consists of the members of the PresidingCommittee plus one representative from the group ofstaff representatives in the Supervisory Board.

Issues discussed by the Supervisory Board weretreated in greater depth at meetings of the PresidingCommittee. The Presiding Committee organised themeetings of the Supervisory Board, handled person-nel matters relating to the Management Board, aswell as approving the acceptance of seats on thesupervisory bodies of other companies by membersof the Management Board. In the form of a writtenstatement, the Finance and Auditing Committeeauthorised loan transactions requiring its approvalunder German banking law, and carried out a prelim-inary audit of the 2001/2002 annual accounts of theAG and Group on behalf of the entire SupervisoryBoard.

The Chairman of the Supervisory Board reported tothe Plenum on the activities of the two SupervisoryCommittees. Furthermore, in addition to these meet-ings, the Chairman of the Supervisory Board and theChairman of the Management Board also conferredin depth on issues and items of general importance atregular working meetings.

Among the main items discussed at meetings of theSupervisory Board were business policy matters andother critical aspects of corporate planning, balancesheet and profit statement developments, as well asplanning and results in the individual divisions, andparticipation investments. The development of risksin the loan business as well as measures of the bankto further enhance the loan portfolio and to strength-en regulatory capital were discussed in depth. A topicof intense discussion was the IKB Mittelstand ratingsystem, based on proposals of the Basel Committeefor Bank Supervision (Basel II), as well as measuresmade necessary by the imposition of future regulato-ry requirements on the banking industry in this area.Also dealt with in depth was the development of ourcooperation with Kreditanstalt für Wiederaufbau ofFrankfurt am Main, as well as the new strategic part-nership with Bankhaus Sal. Oppenheim jr. & Cie.KGaA of Cologne and the agreement to cooperatewith UniCredit Banca Mobiliare of Milan. The Super-visory Board was informed about the duties and fun-damental findings of the regular inspections con-ducted by the Group auditing unit. The results of asurvey of the staff conducted in November 2002

concerning their views of the bank was anotherimportant topic of discussion.

Much space was allocated to consultations relatingto the IKB Principles of Corporate Governance which,based on the recommendations and suggestions ofthe German Corporate Governance Code, wereadopted at the meeting of the Management Boardand the Supervisory Board on November 7, 2002, aswell as to amending the internal regulations govern-ing the Management Board and the SupervisoryBoard so as to conform with these regulations. In thiscontext, the Supervisory Board arranged for a person-al and thorough briefing by the auditor concerning


the German Corporate Governance Code and theresulting obligations. The following obligation wasalso added to the bank’s Principles of CorporateGovernance and the internal regulations covering theSupervisory Board: Members of the SupervisoryBoard must disclose potential conflicts of interestrelating to their tenure to the Supervisory Board. Inits annual report to the General Meeting, the Super-visory Report informs of any conflicts of interestoccurring and the steps taken as a result. No suchconflicts of interest emerged during the period underreview.

At the November meeting, the Supervisory Board alsopassed the Declaration of Conformity with the Ger-man Corporate Governance Code pursuant to Section161 of the German Stock Corporation Act (AktG).Additional information on this can be found in thechapter of this Annual Report entitled “CorporateGovernance”.

The annual accounts and consolidated Groupaccounts, as well as the Management Report of boththe AG and the Group, including the accounting, werereviewed and unreservedly confirmed by the auditor.The report submitted by the Management Board con-

cerning relations with related companies for the2002/2003 financial year was also scrutinised by theauditor. The Report of Dependency was granted thefollowing unrestricted audit certificate: “Followingour duly conducted audit and evaluation, we herebyconfirm that the actual statements in this report arecorrect and that payments made by the companyrelating to transactions listed in this report were notinappropriately high”.

The Supervisory Board received the accounting docu-mentation well ahead of the balance sheet meeting,as well as the draft Annual Report and the reports ofthe auditors. The Finance and Auditing Committeethoroughly scrutinised the annual accounts docu-mentation, the Report of Dependency and the reportsof the auditors. The auditors also briefed the Com-mittee, discussing the findings and results of theaudit. The auditors furnished all the informationrequired. The Finance and Auditing Committee pre-sented the results of the audit to the entire Supervi-sory Board at the balance sheet meeting. The audi-tors took part in the meeting, commenting on thebasic results of the audit and answering the ques-tions of individual members of the Supervisory Board.

In conformity with the final results of its own audit,the Supervisory Board raised no objections concern-ing the Report of Dependency or the declaration ofthe Management Board at the end of the report. TheSupervisory Board agreed to the auditor’s result ofthe audit of the report. Nor did the Supervisory Boardraise any objections concerning the audit of theannual accounts, the joint Management Report of theAG and Group or the Management Board’s proposal


for the appropriation of profits. The SupervisoryBoard took note of the results of the audit, expressingits approval. At today's meeting, the annual accountsand consolidated annual accounts received theapproval of the Supervisory Board, and are now defi-nite. The Management Board’s proposal for theappropriation of profits has met with our approval.

At the General Meeting on August 30, 2002, JörgBickenbach, Dr. Jürgen Heraeus, Roland Oetker andHans W. Reich were re-elected, and Dr. MichaelRogowski elected, as members of the SupervisoryBoard. Roswitha Loeffler and Rita Röbel, both mem-bers of the IKB staff, were also re-elected on thatdate. At the conclusion of last year's General Meeting,Hans Peter Stihl stepped down from the SupervisoryBoard. The Supervisory Board would like to thank tohim for his many years of valuable service.

At the end of the General Meeting on August 30,2002, the Supervisory Board convened a constituentmeeting at which Hans W. Reich was re-elected asDeputy Chairman of this body. Gunnar John, electedto the Supervisory Board at the suggestion of theGerman Government, resigned from this body effec-tive December 31, 2002. Exercising its statutory rightof proposal, on March 27, 2003 the German Govern-ment proposed Ministerial Councillor Jörg Asmussen,Head of the Department for National and Interna-tional Financial Market and Currency Policy of theFederal Ministry of Finance in Berlin, for electionto the Supervisory Board. By a declaration of theMunicipal Courts of Düsseldorf and Berlin, JörgAsmussen has been appointed as member of theSupervisory Board effective April 9, 2003 until theGeneral Meeting on September 5, 2003.

Düsseldorf, June 27, 2003

The Supervisory Board

Dr. h.c. Ulrich Hartmann

Chairman


Corporate Governance

Joint Report of the Management Board

and Supervisory Board of IKB Deutsche

Industriebank AG on Corporate Governance

Confidence in the business policy of IKB essentiallydepends on transparent and responsible corporategovernance and control, oriented to the sustainedincrease in corporate value. Good corporate govern-ance thus forms the foundation of our decision-making and control processes. This is particularlyapplicable to the way we interact with our sharehold-ers. The Management Board and Supervisory Boardcooperate closely on behalf of the bank, and are ded-icated to increasing its corporate value. An open flowof timely, equal information encourages confidencein the bank among our shareholders, other investors,business partners, employees and the public.

We welcome the introduction of the German Corpo-rate Governance Code as well as the approach of pro-gressively updating this Code so as to comply withinternational standards. We see in this an importantstep in the ongoing development of the regulatoryframework and practice of corporate governance andcontrol in Germany.

Principles of Corporate Governance of IKB

In November 2002, the Management Board and theSupervisory Board agreed a set of IKB Principles ofCorporate Governance, updated for the first time inJune 2003. In line with the specific corporate natureof IKB, these Principles were elaborated on the basisof the German Corporate Governance Code, and aresteadily updated to conform to new requirements.They have been disseminated throughout the entireorganisation, and their content assured through com-

pany directives. In addition, the Supervisory Boardhas adapted the internal regulations of the Manage-ment Board and Supervisory Board with the rulescontained in the IKB Principles. The IKB Principles ofCorporate Governance are published on the IKB web-site (www.ikb.de); furthermore, a hardcopy versioncan be requested at no charge.

IKB Corporate Governance Officer

In order to monitor the conformity with the GermanCorporate Governance Code and the IKB Principles,the Management Board, acting in consultation withthe Supervisory Board, has appointed as CorporateGovernance Officer Joachim Neupel, a member of theManagement Board. The Supervisory Board notedwith approval the report on the implementation of,and conformity with, the Principles submitted by theCorporate Governance Officer to the SupervisoryBoard at the meeting on June 27, 2003.

With six exceptions, the bank is currently in compli-ance with the recommendations of the Code andessentially follows its suggestions. The proposal tothe General Meeting on September 5, 2003 to


permit the proceedings of the General Meeting to berecorded and transmitted using electronic and othermedia, and requiring a corresponding change in theArticles of association, means that a further sugges-tion is now being acted upon. The deviations from therecommendations of the Code arise from the annualDeclaration of Conformity pursuant to Article 161 ofthe German Stock Corporation Act (AktG), whichappears at the end of this report.

Cooperation of the Management Board and

Supervisory Board

Intensive, continuous cooperation between the Man-agement Board and the Supervisory Board is a vitalprerequisite for successful corporate governance. Inthe last years this cooperation was steadily strength-ened and improved. On a regular basis, the Manage-ment Board keeps the Supervisory Board promptlyand comprehensively informed on all matters of plan-ning, business trends, the risk situation and risk man-agement pertaining to the IKB Group. The Manage-ment Board explains deviations of the actual busi-ness development from formulated plans and tar-gets, indicating the reasons therefore. The definitionof corporate strategy is coordinated with the Supervi-sory Board. The bank's internal regulations requirethe Management Board to obtain the approval of theSupervisory Board in transactions of vital significanceto the bank. The internal regulations also contain theinformation and reporting requirements of the Man-agement Board vis-à-vis the Supervisory Board.

Committees of the Supervisory Board

In order to increase its operational efficiency and dealmore effectively with complex issues, the SupervisoryBoard has formed two committees composed ofmembers of its own ranks, assigning to them certaintasks.

The Presiding Committee of the Supervisory Board,consisting of the Chairman of the Supervisory Boardand his two deputies, remains in continuous contactwith the Management Board between meetings ofthe Supervisory Board, coordinates the work of theSupervisory Board and prepares for the meetings ofthe Supervisory Board. It decides on loans and majortransactions requiring Supervisory Board approval.Furthermore, it decides whether or not to approvethe acceptance of directorships, offices or other sig-nificant outside occupations by members of the Man-agement Board. In addition, it handles personnelissues pertaining to the Management Board and rep-resents IKB in its dealing with members of the Man-agement Board, as well as taking care of special tasksassigned to it by the plenum.

The Finance and Auditing Committee, made up of themembers of the Presiding Committee as well as onemember from the body of Staff Representatives, isresponsible for questions of accounting and forinspecting the annual financial statement and con-solidated financial statement, as well as for risk man-agement and assuring the independence of the audi-tor. It decides on which auditor to engage, specifyingpoints of focus for the audit if necessary, as well asnegotiating the auditor's fee.The committee also pre-pares for the Supervisory Board’s audit of the annualfinancial statement and consolidated financial state-ment and the report on relations with related compa-nies. Furthermore, it decides on loans requiring theapproval of the Supervisory Board but which do notcome under the purview of the Presiding Committee,as well as measures relating to capital requirements.

Rules for Avoiding Conflicts of Interest

The IKB Principles contain numerous rules for avoid-ing potential conflicts of interest on the part of theManagement Board and the Supervisory Boardextending well beyond the recommendations of theGerman Corporate Governance Code. During the past


financial year, there were no conflicts of interest withthe bank involving members either of the Manage-ment Board or the Supervisory Board. No transactionsrequiring approval of the Supervisory Board wereconcluded during the period under review.

Compensation of the Management Board and

Supervisory Board

The compensation package of members of theManagement Board contains fixed and variablecomponents. The variable component is oriented tocorporate results and the individual performance ofthe particular member of the Management Boardbased on mutually agreed targets. A subsequentrevision of success criteria is not permitted.

The compensation of members of the SupervisoryBoard is specified in the IKB Articles of Association.Apart from the remuneration of expenses, eachmember of the Supervisory Board receives a paymentof EUR 4,000 per financial year; the Chairman receivestwice that amount, while each Deputy Chairmanreceives EUR 6,000. In addition, the Supervisory Boardas whole receives compensation oriented to the per-formance of the bank amounting to EUR 15,000 forevery cent of dividend per share in excess of adividend of 25 cents per share. The total amount ofvariable compensation is distributed according to thesame formula as the fixed compensation component.In addition, the member of the Finance and AuditingCommittee from the group of Staff Representativeson the Supervisory Board receives fixed compensa-tion amounting to EUR 10,000 per financial year.

Total compensation of the Management Board andthe Supervisory Board for the 2002/2003 financialyear is stated in the Notes and Group Notes, dividedinto fixed and variable components. Furthermore,during the past financial year, members of the Super-

visory Board received neither payment nor advan-tages for personally performed services.

Managing Risks

Good corporate governance also implies a responsi-ble approach to handling corporate risks. The entireManagement Board is responsible for IKB risk man-agement inasmuch as it defines risk policy in theform of a clearly stated risk strategy, as well as thetypes of business and the acceptable degree of aggre-gate risk within the context of the bank's ability tobear risk. Subject to inspection by the auditor, the riskmanagement system of IKB is continuously updatedand modified to reflect changing circumstances.Details on this can be found in the “Risk Report” sec-tion of the Management Report of the AG and Group.

Transparency and Information

We place great emphasis on transparency and infor-mation. Through a policy of timely and open commu-nication with shareholders and other participants inthe capital market, we intend to make the valuepotential of IKB stock completely transparent. Indoing so, we adhere to the principle of equal treat-ment: the same information must be made availableto all target groups at the same time. By checking theIKB website, private investors too can inform them-selves of the latest developments (including ad hocannouncements) in the Group without delay. More-over, significant events at the bank are reported inpress releases which also appear on the IKB website.In addition, the bank immediately publishes notifica-


tions from shareholders who, through purchase orsale or other means have obtained, exceeded orundershot 5 %, 10 %, 25 %, 50 % or 75 % of the votingrights in IKB. Furthermore, so-called Directors’ Deal-ings are published in the Notes and Group Notes withcorresponding information. At March 31, 2003,property requiring notification pursuant to Item 6.6

of the German Corporate Governance Code did notexist. The directorships of members of the Manage-ment Board and Supervisory Board are listed in theNotes and Group Notes. There are no share optionprogrammes or similar securities-related incentivesystems. All of our significant participations are listedat the IKB website, and can also be viewed in thecatalogue of our holdings contained in the Notes andGroup Notes.

Anyone interested can subscribe to our electronicnewsletter, which features up-to-date information onfinancial reports as well as containing ad hocannouncements and press releases.

Accounting and Auditing

The consolidated financial statement and the finan-cial statement of IKB are prepared in accordance withthe regulations contained in the German CommercialCode (HGB) In conjunction with the Accounting Regu-lations for Financial Institutions (RechKredV), as wellas taking into account relevant provisions of the Ger-man Stock Corporation Act (AktG). Furthermore, thefinancial statements of IKB Group are drawn up inaccordance with the Seventh Council Directive ofJune 13, 1983 based on Article 54 (3) (g) of the Treatyon consolidated accounts (83/349/EWG) and CouncilDirective of December 8, 1986 on the annualaccounts and consolidated accounts of banks andother financial institutions (86/635/EWG) and publi-cation requirements of the European Union. The

implementation of internationally recognisedaccounting principles is planned for the 2005/2006

financial year.

The Management Board has prepared a report onrelations with related companies for the 2002/2003

financial year, which has been submitted to theSupervisory Board. All agreements in connection withthe audit of the annual accounts recommended inthe German Corporate Governance Code have beenagreed with the auditor, KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft Wirtschaftsprüfungs-gesellschaft of Düsseldorf.

First Declaration of Conformity pursuant

to Article 161 of the German Stock Corporation

Act (AktG)

On November 7, 2002, the Management Board andthe Supervisory Board submitted the first Declarationof Conformity pursuant to Article 161 of the GermanStock Corporation Act (AktG), declaring that IKB hadcomplied with all but four of the recommendationsof the Government Commission on the GermanCorporate Governance Code. One of these exceptionswas that a proxy named by IKB to exercise the votingrights of shareholders at the General Meeting in linewith their instructions had so far not been appointed.This is no longer applicable, because the bank willoffer voting by proxy at the General Meeting onSeptember 5, 2003.

In light of this innovation and the recommendationsof the Government Commission on the German Cor-porate Governance Code of May 21, 2003 for moretransparency in Management and Supervisory Boardcompensation, on July 7, 2003 the ManagementBoard and Supervisory Board submitted the follow-ing annual Declaration of Conformity, which share-holders can access at the IKB website (www.ikb.de)on a permanent basis.


Annual Declaration of Conformity pursuant to

Article 161 of the German Stock Corporation

Act (AktG)

The Management Board and Supervisory Board of IKBhereby declare that the recommendations of theGovernment Commission on the German CorporateGovernance Code published by the Federal Ministryof Justice in the official section of the electronic Fed-eral Gazette of July 4, 2003 since submission of thefirst Declaration of Conformity on November 7, 2002

and/or since the publication on July 4, 2003 of newrecommendations regarding greater transparency inManagement Board and Supervisory Board compen-sation, have been adhered to with the followingexceptions:

1. The corporation shall facilitate the personal exerciseof shareholders' voting rights. The corporation shallalso assist the shareholders in the use of proxies. TheManagement Board shall arrange for the appoint-ment of a representative to exercise shareholders'voting rights in accordance with instructions(Code Item 2.3.3).

The appointment of a proxy has not yet takenplace. Prior to the General Meeting on September5, 2003, for the first time we will be offering ourshareholders the services of proxies appointed bythe bank and empowered to vote in accordancewith their instructions. Thus, this recommendationof the German Corporate Governance Code willalso be acted upon.

2. If the company takes out D&O (directors and offi-cers' liability insurance) policy for the ManagementBoard and Supervisory Board, a suitable deductibleshall be agreed (Code Item 3.8).

Under the current Directors & Officers insurancepolicy for the Management Board and SupervisoryBoard, a retention has thus far not been agreed. In

our view, a retention would not be a suitablemeans of improving the motivation and sense ofresponsibility with which members of the Man-agement Board and Supervisory Board of IKB goabout their assigned tasks and functions. Besides,the primary object of this insurance is to protectthe bank against operational risks, not to protectthe personal assets of members of ManagementBoard and Supervisory Board. Furthermore, this is agroup insurance policy that also covers senior IKBexecutives. We do not consider it appropriate todifferentiate between members of the Manage-ment Board and Supervisory Board and employeesof the bank.

3. The salient points of the compensation system forthe Board of Managing Directors as well as the con-crete form of a share option programme or similararrangements of components with long-term incen-tives and risk character shall be published on thecompany’s website in generally understandableform and detailed in the annual report. In this con-text also information on the value of share optionsshall be provided (Code Item 4.2.3).

The Chairman of the Supervisory Board willprovide information concerning the principles ofthe compensation system and respective changesat the annual General Meeting of IKB.

4. Compensation of the members of the ManagementBoard shall be published in the Notes to the Consol-idated Financial Statement, subdivided into fixedand performance-oriented components and com-ponents relying on long-term incentives. Detailsshall be disclosed on an individualised basis (CodeItem 4.2.4).

Compensation of the members of the Manage-ment Board is listed, divided into fixed and variablecomponents. This is the first time this informationhas been provided in an IKB annual report. It is


essential for evaluating whether the ratio of fixedto performance-oriented compensation is appro-priate, and if the necessary performance incentiveshave been established for the members of theManagement Board. Compensation componentsrelying on long-term incentives, such as stockoptions or similar formulas, are not employed byIKB. We consider this information concerning theBoard of Managing Directors to be sufficient.

5. Compensation of the members of the SupervisoryBoard shall also take into account the chair andmembership in committees (Code Item 5.4.5).

Among the members of the two committees of theSupervisory Board (the Presiding Committee andthe Finance and Auditing Committee), only thework of the Staff Representative on the Financeand Auditing Committee is separately compen-sated. The chairman of the committees and theother members (shareholders’ representatives)receive no additional compensation. This involvesthe Chairman of the Supervisory Board and his twodeputies, who are in any case already compensatedfor taking on these responsibilities. The Chairmanreceives double, and each Deputy Chairman oneand a half times, the amount received by a regularmember of the Supervisory Board.

6. The compensation of members of the SupervisoryBoard shall be published in the Notes to the Consol-idated Financial Statement on an individualisedbasis and subdivided into components (Code Item5.4.5).

The compensation of members of the SupervisoryBoard is shown divided into fixed and variable pay-ments. The amount of fixed compensation and theformula for calculating the variable component areset by the General Meeting in the Articles of Asso-ciation of IKB. The Chairman of the SupervisoryBoard receives double, and each Deputy Chairman

one and a half times, the amount of a regularmember of the Supervisory Board. In addition, themember of the Finance and Auditing Committeefrom the group of Staff Representatives on theSupervisory Board receives EUR 10,000 per finan-cial year. We consider this information concerningthe compensation of the Supervisory Board to besufficient.

7. The Consolidated Financial Statements and theinterim reports shall be prepared under observanceof internationally recognised accounting principles(Code Item 7.1.1).

The implementation of internationally recognisedaccounting principles is planned for the2005/2006 financial year. Adherence to interna-tional standards of accounting for publicly tradedcompanies does not become compulsory untilthe financial year beginning on or after January1, 2005. We will comply with this deadline.

With the exception of the aforementioned Items2–7, the recommendations of the GovernmentCommission on the German Corporate GovernanceCode will also be complied with in future.

Düsseldorf, July 7, 2003

IKB Deutsche Industriebank AG

For the Supervisory Board For the Management Board


Honorary ChairmanProf. Dr. Dr.-Ing. E. h. Dieter Spethmann, DüsseldorfAttorney

ChairmanDr. h. c. Ulrich Hartmann, DüsseldorfChairman of the Supervisory Board E.ON AG

Deputy ChairmanProf. Dr.-Ing. E. h. Hans-Olaf Henkel, BerlinPresidentWissenschaftsgemeinschaftGottfried Wilhelm Leibniz e.V.

Deputy ChairmanHans W. Reich, Frankfurt (Main)Chairman of the Board of Managing DirectorsKreditanstalt für Wiederaufbau

Jörg Asmussen, BerlinMinisterial CouncillorFederal Ministry of Finance

Dr. Jürgen Behrend, LippstadtManaging PartnerHella KG Hueck & Co.

Jörg Bickenbach, DüsseldorfUndersecretary of StateNorth Rhine-Westphalia Ministry of Economicsand Labour

Wolfgang Bouché, Düsseldorf *

Hermann Franzen, DüsseldorfPersonally Liable PartnerPorzellanhaus Franzen KG

Herbert Hansmeyer, MunichFormer Member of the Board ofManaging DirectorsAllianz Aktiengesellschaft

Dr. Jürgen Heraeus, HanauChairman of the Supervisory BoardHeraeus Holding GmbH

Roswitha Loeffler, Berlin *

Wilhelm Lohscheidt, Düsseldorf *

Jürgen Metzger, Hamburg *

Roland Oetker, DüsseldorfAttorneyManaging Partner ROI Verwaltungsgesellschaft mbH

Dr.-Ing. E. h. Eberhard Reuther, HamburgChairman of the Supervisory Board Körber Aktiengesellschaft

Randolf Rodenstock, MunichManaging PartnerOptische Werke G. Rodenstock KG

Rita Röbel, Leipzig *

Dr. Michael Rogowski, Berlin PresidentFederation of German Industry

Dr. Carola Steingräber, Berlin *

Ulrich Wernecke, Düsseldorf *

Prof. Dr. h. c. Reinhold Würth, KünzelsauChairman of the Advisory CouncilWürth Gruppe

Supervisory Board

* Elected by the staff


Advisory Board

ChairmanProf. Dr.-Ing. E. h. Hans-Olaf Henkel, BerlinPresidentWissenschaftsgemeinschaftGottfried Wilhelm Leibniz e.V.

Deputy ChairmanJürgen R. Thumann, DüsseldorfManaging Partner Heitkamp und Thumann GmbH & Co.

Dieter Ammer, HamburgChairman of the Board of Managing DirectorsTchibo Holding AG

Dr. rer. nat. Peter Barth, NeuwiedMember of the Advisory CouncilLohmann GmbH & Co. KG

Dipl.-Ing. Norbert Basler, GroßhansdorfDeputy Chairman of the Supervisory BoardBasler AG

Prof. Dipl.-Kfm. Thomas Bauer, SchrobenhausenChairman of the Board of Managing Directors BAUER Aktiengesellschaft

Josef H. Boquoi, StraelenChairman of the Advisory Councilbofrost*Familienunternehmen

Dr. Walter Botermann, WuppertalMember of the Boards of Managing DirectorsBarmenia Versicherungs-Gesellschaften

Dr.-Ing. Dirk Busse, GrefrathChairman of the Board of Managing DirectorsGirmes GmbH

Dr. Claus-Michael Dill, CologneChairman of the Board of Managing DirectorsAXA Colonia Konzern AG

Dipl.-Kfm. Martin Dreier, DortmundManaging PartnerDreier-Werke GmbH + Dreier Immobilien

Prof. Dr. phil. Hans-Heinrich Driftmann, ElmshornManaging PartnerPeter Kölln KGaA

Dr. Peter Fleischer, BonnChairman of the Board of Managing DirectorsDeutsche Ausgleichsbank

Hans-Michael Gallenkamp, OsnabrückManaging PartnerFelix Schoeller Holding GmbH & Co. KG

Werner Gegenbauer, BerlinPresidentBerlin Chamber of Industry and Commerce

Heinz Greiffenberger, BayreuthExecutive Director and Principal ShareholderGreiffenberger AG

Wolfgang Gutberlet, FuldaChairman of the Board of Managing Directorstegut ... Gutberlet Stiftung & Co.


Dipl.-Kfm. Dietmar Harting, EspelkampPersonally Liable PartnerHarting KGaA

Dr. Thomas Hertz, BerlinManaging DirectorBerlin Chamber of Industry and Commerce

Dr. Stephan J. Holthoff-Pförtner, EssenAttorney and Notary

Dr. Franz Wilhelm Hopp, DüsseldorfMember of the Board of Managing DirectorsERGO Versicherungsgruppe AG

Dr. Edgar Jannott, DüsseldorfMember of the Supervisory BoardERGO Versicherungsgruppe AG

Dr. Eckart John von Freyend, BonnChairman of the Board of Managing DirectorsIVG Immobilien AG

Martin Kannegiesser, VlothoManaging PartnerHerbert Kannegiesser GmbH & Co.

Dr. Jochen Klein, DarmstadtManaging PartnerDöhler-Euro Citrus Natural BeverageIngredients GmbH

Jan Kleinewefers, KrefeldManaging PartnerKleinewefers Beteiligungs-GmbH

Caio K. Koch-Weser, BerlinUndersecretary of StateFederal Ministry of Finance

Dr. Hermut Kormann, HeidenheimMember of the Board of Managing DirectorsJ. M. Voith AG

Prof. Dr.-Ing. Eckart Kottkamp, Bad OldesloeManaging DirectorHako Holding GmbH & Co.

Andreas Langenscheidt, MunichManaging PartnerLangenscheidt Verlagsgruppe KG

Erik Lescar, ParisDeputy Chief ExecutiveHead of Corporate & International BankingNatexis Banques Populaires

Dr. Kurt Merse, DüsseldorfChairman of the Supervisory BoardGARANT SCHUH + MODE AG

Josef Minderjahn, BerlinPartnerMKF-Folien GmbH Minderjahn + Kiefer

Siegmar Mosdorf, MunichMember of the Board of Managing DirectorsCNC-The Communication &Network Consulting AG


Klaus Oberwelland, BerlinPersonally Liable PartnerAugust Storck KG

Dipl.-Kfm. Jürgen Preiss-Daimler,WilsdruffManaging PartnerP-D Management Consulting GmbHand Preiss-Daimler Group

Dr. Günther Radtke, MeerbuschFormer Member of theBoard of Managing DirectorsAMB Aachener und MünchenerBeteiligungs-Aktiengesellschaft

Wolfgang Roth, LuxembourgVice-PresidentEuropean Investment Bank

Dr. Ingeborg von Schubert, BielefeldChairman of the Advisory CouncilE. Gundlach GmbH & Co. KG

Dr. Eberhard Schwarz, LahnsteinManaging DirectorZschimmer & Schwarz Chemie GmbH

Dr.-Ing. Hans-Jochem Steim, SchrambergManaging PartnerHugo Kern und Liebers GmbH & Co.

Dr. Alfred Tacke, BerlinUndersecretary of StateFederal Ministry of Economicsand Technology

Dipl.-Kfm. Rainer Thiele, Halle/SaaleManaging PartnerKATHI Rainer Thiele GmbH

Dr. Karl V. Ullrich, Freiburg i. Br.Managing DirectorWVIB Wirtschaftsverband IndustriellerUnternehmen Baden e. V.

Dr. Martin Wansleben, BerlinManaging Director Association of German Chambers ofIndustry and Commerce (DIHK)

Dr. Ludolf v. Wartenberg, BerlinManaging DirectorFederation of German Industry

Clemens Freiherr von Weichs, HamburgChairman of the Board of Managing DirectorsHERMES Kreditversicherungs-Aktiengesellschaft

Dr. Axel Wiesenhütter, KaiserslauternManaging PartnerSchuster & Sohn Kommanditgesellschaft

Dipl.-Ing. Albrecht Woeste, VelbertOwnerR. Woeste & Co. GmbH & Co. KG

Horst R. Wolf, HeidelbergMember of the Board of Managing DirectorsHeidelbergerCement AG


Board of Managing Directors

Dr. Markus GuthoffBoard member since 2001

Date of birth: 1964

Dr. Guthoff is responsible for the PrivateEquity Division, as well as for the IT andthe organisation of the bank.

Dr. Alexander v. TippelskirchBoard member since 1984

Chairman of the Board since 1990

Date of birth: 1941

Dr. v. Tippelskirch is especially responsible forCorporate Strategy, Corporate Communication,Risk Management and the Research of the bank.


Claus MomburgBoard member since 1997

Date of birth: 1959

Mr. Momburg’s main area ofaccountability is the Corporate LendingDivision and the Central DivisionPersonnel and Service.

Joachim NeupelBoard member since 1989

Date of birth: 1943

As CFO Mr. Neupel is in charge with Accounting,Controlling, Taxes and Internal Auditing. Moreover,he is responsible for the Real Estate FinancingDivision.

Stefan Ortseifen Board member since 1994

Date of birth: 1950

Mr. Ortseifen is responsible for the bank’s nationaland international business of the StructuredFinancing Division as well as for the Tresury andFinancial Markets Division, including the funding ofthe bank, the development of innovative financialproducts and the activities of the Securitisationsegment.


Corporate LendingLeo von Sahr Berlin-LeipzigWolf-Herbert Weiffenbach

Helmut Laux Düsseldorf

Udo Belz Frankfurt

Hajo Köhler HamburgBurckhard W. Richers

Norbert Mathes Munich

Dr. Klaus Eisele StuttgartJoachim Rostek

Environment and Transport UnitHelmut Laux Düsseldorf

Division CoordinationClemens Jahn Düsseldorf

Real Estate FinancingKlaus Neumann DüsseldorfJoachim Schwarz

Private EquityRolf Brodbeck DüsseldorfRoland Eschmann

Structured FinancingDr. Frank Schaum DüsseldorfStefan Rensinghoff Frankfurt

London BranchFriedrich Frickenhaus

Paris BranchEric Schaefer

Treasury and Financial MarketsMichael Braun DüsseldorfWinfried Reinke

Market Units and their Heads


Central Divisionsand their Heads

Accounting, Controlling and TaxesChristoph Müller-MasiáJürgen Rauscher

Internal AuditingOliver Zakrzewski

Organisation and Information ManagementManfred Knols

Personnel and ServiceMartin Verstege

Legal Department and Officeof the Board of Managing DirectorsPanagiotis Paschalis

Risk ManagementFrank BraunsfeldClaus-Dieter Wagner

Corporate DevelopmentFrank Schönherr

Economics, Investor Relationsand Public RelationsDr. Kurt DemmerDr. Gert Schmidt

Subsidiariesand their Heads

IKB Capital Corporation, New YorkDavid Snyder

IKB International S.A., LuxembourgDr. Alfons SchmidRobert SpliidRaphael Karl Walisko

IKB Private Equity GmbH, DüsseldorfRolf BrodbeckRoland Eschmann

IKB Leasing GmbH, HamburgWolfgang BrzuskaMichael FichterWilhelm LindemannJoachim Mertzenich

IKB Immobilien Leasing GmbH, DüsseldorfAlexander BoyeHeribert Wicken

IKB Immobilien Management GmbH, DüsseldorfTheodor HonrathMauritz von StrachwitzHeribert Wicken

IKB Facility Management GmbH, DüsseldorfThomas Damrosch


I. Management Report

1. An Overview of the Financial Year

2. Risk Report

3. Performance of the Divisions

4. Outlook


Major Steps in Business Strategy

Moves of major strategic importance during the2002/2003 financial year were

• the ongoing development of our partnership withKfW;

• the opening of cooperations with Sal. Oppenheimand UniCredito Italiano; and

• expanded investment in international loan portfo-lios in a wide variety of asset categories.

Following the first full financial year of our strategicpartnership with KfW, the impact thus far has beenunreservedly positive, resulting in EUR 800 million inadditional loan business for the two organisationswith earnings of EUR 10 million.

But even more important is the fact that – in cooper-ation with KfW – we can continue to pursue withgreat commitment our role as a leading financier ofGermany’s medium-sized companies (Mittelstand).Particularly in difficult times like these, and especial-ly against the backdrop of Basel II and the highlyvolatile business behaviour of many of our competi-tors, this is an important message to our customers.

Likewise, a great deal was achieved during the pastfinancial year with regard to the concrete implemen-tation of our joint objectives. For example, we cooper-ated in developing a global loan facility that enablesus to set margins oriented to the creditworthiness ofthe individual borrower when extending public

industrial development loans rather than at a fixedmargin of 1 % as was previously the case. In themeantime, a number of other banks have applied forglobal loan facilities with KfW, a desirable develop-ment from the standpoint of regulatory and competi-tion policy.

In November 2002, furthermore, we set up a EUR 100

million mezzanine fund with KfW. This fund offerssilent participations at an amount of EUR 2.5 millionand EUR 8 million to our clients. This enables thesecompanies to improve their balance sheet ratios andratings, and thus to expand their room for manoeuvrewith respect to credit finance.

In February of this year we entered into a cooperationagreement with Sal. Oppenheim. Both banks havealmost identical target groups and a complementaryrange of products. Thanks to this agreement, we arenow able to offer our customers a complete array ofcapital market products, support during M&A trans-actions as well as comprehensive asset managementservices. For its part, Sal. Oppenheim can now offer itscustomers long-term corporate and acquisitionfinancing and arrange for Schuldscheindarlehen(certificates of indebtedness). As a means of under-scoring this agreement to cooperate, Sal. Oppenheimhas taken up an initial 3 % of IKB share capital.

In March 2003 we concluded an agreement to coop-erate with UniCredito Italiano. Together with itsinvestment unit, UniCredit Banca Mobiliare (UBM),we will be establishing a new subsidiary in Luxem-bourg offering consulting and financial services foroptimising the balance sheet structures of our cus-tomers.

1. An Overview of the Financial Year


During the past financial year we also expanded ourinvestments in international loan portfolios. Earningsfrom these transactions have since become signifi-cant enough to be reported separately; in this annualreport, and in conformity with the rules of DRSC(Deutsches Rechnungslegungs Standards Committee),these earnings are shown separately for the first timeunder the rubric of “Securitisation” as part of our seg-ment reporting procedures.

Our goal is to make a consistent, systematic transi-tion from Risk Taker to Risk Manager. This is mani-fested in our policy of using collateralised loan obliga-tions (CLOs) to outplace our own credit risks, therebyimproving our Principle I ratio. Moreover, by defreez-ing capital in this way we are able to invest in otherasset items like Mittelstand financing or loan portfo-lios. This also enables us to diversify our risk withregard to regions and sectors, while simultaneouslyleading to increased earnings in the form of commis-sion income.

A further important measure taken during the periodunder review was the increase in tier 1 capital,achieved by issuing EUR 450 million in hybrid capital.As a result, we succeeded in increasing our tier 1 cap-ital ratio to 7.4 % (2001/2002: 6.4 %).

Key Data

The business performance of the IKB Group duringthe 2002/2003 financial year is reflected in thefollowing key data:

• net interest income increased by 2.9 % to EUR 485

million (in the AG: a decline of 5.1 % to EUR 422

million)• net commission income rose by EUR 25 million to

EUR 64 million (AG: by EUR 28 million to EUR 82

million)• the interest margin for new loan accommodations

in the Group expanded to 1.68 % (previous year:1.44 %)

• administrative expenses increased by 6.5 % to EUR220 million (AG: by 6.0 % to EUR 173 million)

• other operating income declined by EUR 9 millionto EUR 20 million, while

• risk provisioning balance increased by EUR 8 mil-lion to EUR 183 million (AG: by EUR 12 million toEUR 153 million), with a simultaneous rise in netrisk provisions by EUR 44 million to EUR 248 millionas well as a EUR 36 million-increase in the result ofsecurities trading to EUR 65 million.

For the Group, this equates to an increase in the resultfrom ordinary activities of 4.1 % to EUR 167 million;for the AG the corresponding figure increased by14.2 % to EUR 183 million. The cost/income ratio forthe Group during the period under review came to38.6 % (previous year: 38.1 %); at 15.0 %, return onequity before tax remained unchanged from theprevious year’s level.

The Management Board has proposed to the Super-visory Board the payment of an unchanged dividendto shareholders of EUR 0.77 per share for the 2002/

2003 financial year. To reinforce the bank’s equitybase, EUR 43 million was transferred to reserves fromGroup net income for the year (AG: EUR 43 million).

Report of Dependency

We have prepared a report of dependency for theperiod under review for the first time. Please see ourcomments on this in the Notes to the financial state-ments. The final declaration of the ManagementBoard of the bank in the Report of Dependencystates: “In each of the transactions stated in thereport on relations with subsidiary companies, IKBreceived an appropriate consideration. This evalua-tion is based on the circumstances known to us at thetime of the reportable transactions. Measures pur-suant to Article 312 of the German Stock CorporationAct (AktG) were neither taken nor omitted.“


Loan Operations and Asset Items

The volume of new business in the Group during theperiod under review came to EUR 6.9 billion(2001/2002: EUR 6.1 billion). For the AG, the corre-sponding figure amounts to EUR 5.8 billion (EUR5.1 billion). Consisting of claims on customers, loansto banks, leasing items and guarantees, Group loanvolume at the balance sheet date (March 31, 2003)was EUR 30.6 billion, representing a 4.4 % increasecompared to the previous year’s figure.

The most important Group figures are explainedbelow.

Claims on customers, accounting for just under 70 %of the balance sheet total, rose by 1 % to EUR 24.8 bil-lion. This relatively small increase resulted in partfrom the high volume of scheduled repayments inour domestic loan operations, but also reflects theweek state of the German economy and declininginvestment activity. While German GDP last yeargrew by 0.2 % – purely as the result of strongerexports – corporate investment in plant and equip-ment fell by 9.4 %.

Against a backdrop of economic malaise, it is all themore gratifying that we were able to increase ourvolume of disbursements – including the granting of

March 31, 2003 March 31, 2002 Changein EUR million in EUR million in EUR million in %

AssetsLiquid funds 27 11 16 >100

Claims on banks 2 140 1 605 535 33.3

Claims on customers 24 803 24 600 203 0.8

Debentures 5 927 4 928 999 20.3

Shares and other non-fixedinterest securities 38 38 0 0

Investments and holdings insubsidiary companies 45 47 –2 –4.3

Tangible fixed assets 245 215 30 14.0

Leasing items 2 466 2 346 120 5.1

Outstanding capital of minority shareholders 49 49 0 0

Other assets 670 1 035 –365 –35.3

Total assets 36 410 34 874 1 536 4.4

LiabilitiesLiabilities to banks 16 223 15 436 787 5.1

Liabilities to customers 2 019 2 250 –231 –10.3

Securitised liabilities 13 700 12 975 725 5.6

Provisions 337 301 36 12.0

Subordinated liabilities 632 868 –236 –27.2

Participation certificate capital(Genussrechtskapital) 614 624 –10 –1.6

Fund for general bank risks 80 80 – –

Participations of minority shareholders 11 14 –3 –21.4

Equity capital (without consolidated profit) 1 775 1 282 493 38.5

Other liabilities 1 019 1 044 –25 –2.4

Total liabilities 36 410 34 874 1 536 4.4

Summarised IKB Group Balance Sheet


certificates of indebtedness (Schuldscheindarlehen) –by nearly 17 % during the year under review. We thussucceeded in expanding our share in a more or lessstagnant credit market. This was the result of inten-sive, goal-oriented marketing as well as the highstanding enjoyed by IKB in the German banking sec-tor. Because this coincided with a high volume ofrepayments – as already mentioned – the loan vol-ume of our Corporate Lending Division at the balancesheet date was slightly lower than at March 31, 2002.

A different state of affairs pertained in the Real EstateFinancing Division, where a slightly lower volume ofnew business compared to the previous year – owingto the special repayment structure involved in realestate assets – was offset by an increase in loan vol-ume. An upsurge in new business in the StructuredFinancing Division also resulted in a moderate rise inloan volume.

However, the clearest increases in new business andloan volume alike occurred in the Securitisation seg-ment, which – as already stated – encompasses ourinvestments in international loan portfolios in differ-ent asset categories. While new business in thissegment rose to EUR 1.4 billion (EUR 0.7 billion), theloan volume at the balance sheet date increased toEUR 1.9 billion (EUR 0.7 billion). Liabilities arisingfrom guarantees, which should be seen in the contextof claims on customers, rose by EUR 0.4 billion toEUR 2.2 billion.

Owing to the balance sheet date, claims on banksrose by 33 % to EUR 2.1 billion. This increase relatesexclusively to overnight loans, whereas medium- andlong-term claims on banks both declined.

We augmented our portfolio of debentures by 20 %to EUR 5.9 billion, the bulk of which was used as col-lateral in tendering operations with the Bundesbank.

Under the rubric of debentures, we grew our securi-tised loan business by EUR 0.6 billion to EUR 1 billionby specifically acquiring securities representing ashare in a pool of securitised portfolios.

Our portfolio of leasing items also increased, growingby 5 % to EUR 2.5 billion (real estate leasing: EUR 1.8

billion; equipment leasing: EUR 0.7 billion); this risereflects the ongoing expansion of our activities in thisdomain.

The Group balance sheet total grew by 4 % or EUR 1.5

billion to EUR 36.4 billion; for the AG, the increasecame to 5 %, resulting in a balance sheet total of EUR36.8 billion.

Funding

We funded our operations by taking up money mar-ket funds, by issuing debentures, and by taking uphybrid capital. Owing to the moderate trend in claimson customers, long-term liabilities to banks con-tracted slightly. Conversely, securitised liabilities roseby EUR 0.7 billion to EUR 13.7 billion.

Equity

Our objective continues to be to strengthen theGroup’s equity position without dilution of our sharecapital. Accordingly, we issued two silent participa-tions during the past financial year, thereby increas-ing our hybrid capital by EUR 450 million to EUR 620

million. Specifically, we placed a EUR 250 million bondwith private investors in June of last year, whichcounts as tier 1 capital in the Group. In addition, viaCapital Raising GmbH, we took in a silent participa-tion worth EUR 200 million in November. Moreover,we augmented our revenue reserves by EUR 43 mil-lion to EUR 362 million. The bullet maturity havingbeen reached, subordinated liabilities fell by EUR 236


million to EUR 632 million. The measures outlinedhere led to a EUR 0.5 billion-increase in tier 1 capitalto EUR 1.9 billion; following regulatory definitionequity grew by a good EUR 0.2 billion to EUR 3.1

billion.

At March 31, 2003, the Group fulfilled Principle Icapital ratio with 12.1 % (2000/2001: 12.1 %); the tier1 capital ratio was 7.4 % (6.4 %). In the AG, the corre-sponding figures came to 12.0 % (11.9 %) and 6.4 %(6.0 %). These ratios show that we possess sufficientequity to keep the bank growing.

April 1, 2002 to April 1, 2001 to ChangeMarch 31, 2003 March 31, 2002in EUR million in EUR million in EUR million in %

Interest income from loan operations andmoney market transactions, fixed interestsecurities and government-inscribed debt,and earnings from leasing operations 3 223.2 3 215.2 8.0 0.2

Earnings from securities and holdings 1.8 4.8 –3.0 –62.5

Interest expenditure,expenditure and scheduled depreciationrelating to leasing operations 2 740.0 2 748.7 –8.7 –0.3

Net interest income 485.0 471.3 13.7 2.9

Commission income 76.0 44.8 31.2 69.6

Commission expenditure 11.9 5.3 6.6 >100

Net commission income 64.1 39.5 24.6 62.3

Net result from financial operations 0.8 1.9 –1.1 –57.9

Personnel expenditure 137.8 133.4 4.4 3.3

Salaries and wages 110.7 101.1 9.6 9.5

Social security contributions/expenditurefor retirement benefits and pensions 27.1 32.3 –5.2 –16.1

Other administrative expenditure 82.1 73.1 9.0 12.3

Administrative expenditure 219.9 206.5 13.4 6.5

Balance of other operating income and expenditure 20.2 29.3 –9.1 –31.1

Risk provisioning balance –183.4 –175.2 8.2 4.7

Result from ordinary activities 166.8 160.3 6.5 4.1

IKB Group Operating Results

March 31, 2003 March 31, 2002 Changein EUR million in EUR million in EUR million in %

Subscribed share capital 225 225 – –

Hybrid capital 620 170 450 >100

Capital reserves 568 568 – –

Revenue reserves 362 319 43 13.5

Fund for general bank risks 80 80 – –

Tier 1 capital 1 855 1 362 493 36.2

Participation certificate capital(Genussrechtskapital) 614 624 –10 –1.6

Subordinated liabilities 632 868 –236 –27.2

Total liable funds 3 101 2 854 247 8.7

IKB Group Total Liable Funds


Earnings

Group net interest income grew by 2.9 % to EUR 485

million. This increase was due primarily to expansionin the volume of new loans as well as the improve-ment of the interest margin.

Also encouraging is the increase in net commissionincome by EUR 25 million to EUR 64 million. A goodthird of net commission income during the periodunder review resulted from revenue generated by thedivisions, while roughly two thirds derived from theSecuritisation segment.

Administrative expenses rose by 6.5 % to EUR 220

million. Here, the increase in personnel expenditure,which rose by 3.3 % to EUR 138 million, reflects twoopposing trends: on the one hand, wages and salariesgrew by 9.5 % – due not least to the increase in theaverage number of staff, which rose by 83 to 1,433;on the other hand, owing to the relatively low alloca-tion to pension provisions compared to the previousyear, social contributions and expenditure for retire-ment benefits and pensions declined by 16.1 %. Otheradministrative expenses grew by 12.3 % to EUR 82.1

million. Contributing first and foremost to this trendwere higher spending on data processing and adver-tising, as well as increased consulting, expert andlegal costs relating to projects for fulfilling regulatoryand legal requirements such as Basel II, the MinimumRequirements for the Lending Business of CreditInstitutions (MaK), or preparations for the transitionto International Accounting Standards.

At EUR 20 million, other operating income was EUR9 million below the figure for the 2001/2002 finan-cial year, when we generated considerable incomefrom the sale of our former headquarters building inDüsseldorf. During the period under review, otheroperating income came chiefly from exit earnings

from investments by our Private Equity Division. Inthe AG, other operating income rose to EUR 4 million(–EUR 37 million), since no further losses by PrivateEquity needed to be absorbed following the success-ful turnaround of the division.

Risk Situation

The risk situation during the period under reviewremained difficult. Two years in a row of economicstagnation in Germany have taken a conspicuous tollon business, with the number of corporate insolven-cies soaring to 37,700, up from 32,400 the yearbefore.

The chief reasons for this unsatisfactory – and in cer-tain sectors, such as retail and construction, even dra-matic – development, are the weak state of the worldeconomy and (even more so) growth-restraining eco-nomic policies at home. A glance at corporate earn-ings on the one hand and the jobless figures on theother makes this abundantly clear.

According to initial estimates of the German Federa-tion of Industry, some 40 % of German companiesfailed to make a profit in 2002. This is due in part tothe country’s comparatively heavy levels of taxation,of course, but most of all it has to do with the highsocial welfare contributions. The German govern-ment’s stated intention was to push the ratio of socialwelfare contributions to gross wages to below 40 %.But in 2002 this ratio was 42 % with a continuingtrend to increase.

On top of this comes the added burden of the Ger-many’s environmental tax. Introduced in 1999 withthe aim of reducing the pressure on the country’spension system, it has thus far failed to do so, despiteno fewer than four rate hikes. In concrete terms, if weadd the impact of the environmental tax to the cur-rent social welfare contribution ratio of 42 %, the bur-den this year rises to over 44 %.


Two things should be clear here: (1) German compa-nies are caught in a cost trap, with their internationalcompetitiveness further impeded by the rise in thevalue of the euro; (2) at home, a decline in real dis-posable income in private households has led to a col-lapse in consumer demand in many sectors. For com-panies, this has meant a drop in orders, sales andprofits. They have cut their investment spendingaccordingly – by more than 15 % over the last twoyears – leading in turn to layoffs and greater numbersof unemployed.

The country’s government and the social securityadministration responded by raising the level of con-tributions again, further undermining the interna-tional competitiveness of German companies. Theseinterrelationships represent a veritable vicious circlefrom which there can be no escape without deep-running reform.

This was the environment in which our customershad to operate during the year under review. Theearnings performance of many of our borrowers wascorrespondingly disappointing. As a result – asalready mentioned – we were forced to increase ournet provisions for risk by EUR 44 million to EUR 248

million. However, because our liquidity reserveincome grew by EUR 36 million to EUR 65 million, therisk provisioning balance expanded by just EUR 8

million to EUR 183 million. For the AG the correspon-ding figures are EUR 12 million and EUR 153 million.

A close analysis of our provisions for bad and doubt-ful debts reveals that we remained unscathed by Ger-many’s more spectacular corporate failures, e.g. Kirch,Babcock or Holzmann. We were affected instead by ahost of smaller cases – especially in western Germany– in which we had to take charges ranging in sizefrom EUR 1 million to EUR 3 million. In eastern Ger-many a different pattern is apparent: here we had to

make additional provisions for old loans in particular.Though we had already substantially adjusted thevalue of these loans in recent years, it has sincebecome apparent that there is practically no second-ary market for these assets – and therefore no accept-able prices.

A regional breakdown for the period under reviewshows that 43 % of provisions for bad and doubtfuldebts relate to companies in eastern Germany,though the region accounts for only 23 % of totalloan exposure. This means that we will have to con-tinue to set aside a disproportionate amount of pro-visions for loans in eastern Germany. The oppositesituation pertains in western Germany, whichaccounts for 40 % of provisions for bad debts but59 % of total loan exposure. Comprising 14 % of totalloan volume, our international operations account for12 % of provisions for bad debts.

At March 31, 2002, Group’s stock of provisions forspecific and general bad debts totalled EUR 953

million (previous year: EUR 875 million), and in the AGto EUR 833 million (EUR 788 million).

Result from Ordinary Activities

The result from ordinary activities for the Group cameto EUR 167 million, thus exceeding the previous year’stotal by 4.1 %. The corresponding figures for the AGwere EUR 183 million and 14.2 %. The EUR 16 million-difference is explained primarily by leasing-typicalcosts and earnings patterns in the real estate leasingdomain, where full consolidation affected the Groupbut not the AG.


Proposal for the Allocation of Profits

Group net income for the year for the period underreview amounted to EUR 85.8 million (EUR 83.1 mil-lion). A loss resulting primarily from the consolidationof special purpose entities of IKB Immobilien LeasingGmbH was carried forward from the 2000/2001

financial year. Following the allocation of EUR 43 mil-lion to other revenue reserves, unappropriated profitin the Group came to EUR 11.1 million.

Net income for the year in the AG amounted to EUR110.4 million (EUR 96.1 million). After the allocationof EUR 42.6 million to other revenue reserves, unap-propriated profit came to EUR 67.8 million. Wepropose to the General Meeting that this profit bedisbursed in the form of an unchanged dividend ofEUR 0.77 per share.

2. Risk ReportObjectives, Strategies and Organisationof Risk Management

Objectives and Strategies

Bearing the stamp of a risk culture characterised by aconservative approach, risk management at IKB isbased on the ability of the bank to bear risk, and theupper limits of risk derived there from and prescribedby the Management Board. Measurement of the abil-ity to bear risk is oriented to the current rating of IKB,A1 and A+ respectively. This means that the extent ofrisk coverage defined by the Management Board issufficient to protect the bank even in scenarios ofextreme risk. The cornerstone of our risk strategy con-

tinues to be the comprehensive and continuous iden-tification, measurement and monitoring of all risksrelating to the operations of the bank, and embed-ding the findings in the risk/profit managementof IKB.

Risk Organisation

The clearly defined, highly functional organisation ofour risk management system guarantees the func-tionality and effectiveness of the bank’s risk manage-ment process. The delimitation of tasks and areas ofresponsibility is documented in a risk managementhandbook. Embracing all bank-internal and legalrequirements, this regulation lays down guidelines,which, in connection with specific organisationaldirectives, establish the principles of the IKB risk man-agement system.

Drawing on the concepts of the Basel Committee onBank Supervision regarding the Capital Backing ofBanks (Basel II), as well as the Minimum Require-ments for the Lending Business of Credit Institutions(MaK), published by Germany’s Federal FinancialSupervision Authority on December 20, 2002, princi-ples on the management of loan risk were formulat-ed which define quality standards of the organisationof risk management, and which, in accordance withthe MaK, are to be implemented by mid 2004.

Central elements of the MaK are above all a morerestrictive organisational separation of market unitsfrom back-office functions (independent voting andrisk monitoring), as well as directives on the structur-ing of loan processes and reporting arrangements.IKB has always separated the Risk ManagementDepartment as back-office unit from the marketunits with respect to disciplinary power and function.Whereas our customer service officers act as the pri-mary point of contact for customers on all questionsof loan operations, the Risk Management Depart-


ment carries out an objective and independent analy-sis of each individual loan commitment, as well asassessing its creditworthiness. By dividing risk man-agement from risk controlling, IKB has adopted addi-tional measures necessary for monitoring risks, mov-ing beyond the requirements defined in the MaK. Inthis context a close intermeshing of the expertiseembodied in these departments Is guaranteed whileat the same time maintaining different points ofemphasis with regard to the respective tasks.

Management Board. The entire Management Boardis responsible for IKB’s risk management inasmuch asit defines risk policy in the form of a clear definitionof strategy, the types of business, and the acceptableaggregate risk within the framework of the bank’sability to bear risk. Thus, the bank is already in com-pliance with many of the requirements contained inthe MaK with respect to the formulation of a loan riskstrategy.

Risk Committees. The setting up of specific commit-tees for combining and monitoring risk-relevant deci-sions (asset/liability management, investment, creditrisk and product committees) supports the risk man-agement activities and decision-making process ofthe Management Board. These committees areresponsible both for fundamental questions of policyand decisions on specific transactions, based on theparameters defined by the Board. They are composedof members of the Board and the operational divi-sions as well as representatives of the Risk Manage-ment and Risk Control Departments.

Risk Management. The Risk Management Depart-ment is responsible for the implementation andenforcement of Group-wide risk standards for theloan business in the divisions and departments, aswell as for loan portfolio management. Among the

basic tasks of the Risk Management Department is,in particular, the entire loan sanctioning process,in which it exercises its own loan approval powers.Risk Management is also responsible for calculatingand recommending an appropriate risk provisionfor identified risks. Thus, the Risk ManagementDepartment represents a back-office function asdefined by the MaK.

In order to control loan risk, Risk Management issupported in the individual divisions by loan offices,which, however, are not defined as back-office unit.Loan decisions – with the exception of minor deci-sions permitted by the MaK – are made exclusively bythe back-office units.

Risk Controlling. Under the aegis of the bank’s Con-trolling Department, Risk Controlling is responsiblefor monitoring the compliance with the risk policydefined by the Management Board, for the internaland external risk reporting, as well as for the neutralmonitoring of loan, market and operational risks. Asan instance independent of the market units and theRisk Management Department, Risk Controllingensures that all measured risks remain within theparameters determined by the Management Board.Within the framework of the risk controlling process,the core responsibilities of Controlling include thedaily calculation, analysis and reporting of marketprice risks as well as topical, continuous monitoringof credit risks at portfolio level. A further point ofemphasis is the development of methods to calculatemarket, credit and operational risks.

Apart from creating this risk transparency and con-trolling the aggregate risk of the bank, Controlling isresponsible for the ongoing development and imple-mentation of the risk/profit-based overall controlling


of the bank. Within the framework of strategic plan-ning as well as the operational budget process, Con-trolling supports the Management Board in allocat-ing capital to the divisions.

Internal Auditing. The Group’s Internal Auditing unitis an autonomous part of the risk management sys-tem, organised in accordance with the principlesdefined in the “Minimum Requirements for the Inter-nal Auditing Functions of Financial Institutions(MaIR) “. It is subordinate to the entire ManagementBoard, to which it directly reports. On the basis ofprocess-oriented inspections, all operational andbusiness flows within the Group are examined,whereby, from the standpoint of risk, the emphasis isplaced on the qualitative processes and quantitativemethods as well as data processing flows in thebank’s lending and trading operations. Moreover, thecreditworthiness and economic content of the loanportfolio are reviewed by means of spot-check audit-ing of representative loans on a regular basis.

Thanks to this systematic division of responsibilitieswithin the framework of operational risk manage-ment, adherence to the quality standards imposed bythe Supervision Authority with respect both to theMaK and MaH (“Minimum Requirements for the Trad-ing Activities of Financial Institutions”) is assured.

Risk Management Process

Customer Default Risk

In discussing the risk of customer default, we differ-entiate between credit risk and counterparty risk. Acredit risk occurs when the failure of a customer pre-vents a loan from being fully repaid. Counterparty risk

is defined as the potential losses arising form thedefault or deterioration of credit rating of a counter-party with whom we have engaged in derivativetransactions, or the fact that a profit not yet realisedcannot be recovered. On account of the special signif-icance of loan operations as a core business of thebank, credit risk is subjected to exceptionally carefulscrutiny.

In controlling the risk of customer default, we relyprimarily on the following elements:

• risk policy guidelines governing the acquisition ofnew business,

• single transaction-oriented loan authorisations,

• portfolio monitoring based on comprehensiveportfolio analysis,

• audits by the Internal Auditing Department.

Risk Policy Directives. The point of departure for therisk management process in the loan business is jointplanning by the Management Board and the divi-sions, supported by the Corporate Development, RiskManagement and Controlling Departments. Based onthe bank’s ability to bear risk and its growth andearnings targets, risk is explicitly included in the plan-ning process. The objectives derived from this includenot only the volume of new business, net interest andcommission income and administrative expenses, butalso the costs of risk and equity. In planning the riskcosts, the creditworthiness and collateral structure isagreed so as to be able to exercise a sustained influ-ence on the sourcing of new business and the care ofexisting customers.

Moreover, also the credit calculation of the respectivetransaction is taking into account the directlyattributable costs, especially the standard risk costs,determine the acquisition of new business.


Loan Approval Process. Of crucial importance in theloan process is the Risk Management Department,which operates independently of the divisions, there-by fulfilling the requirement to keep the acquisitionof new business separate from the loan decision-making process (“market” and “back-office” units).

Within the framework of a graduated system of deci-sion-making authority categorised by rating and vol-ume, individual loan decisions are made based on thevolume of existing Group loan exposure (on the basisof the borrower unit as defined in Article 19(2) of theGerman Banking Act), the rating of the borrower andcollateral, either centrally by the loan units in the RiskManagement Department, or by the ManagementBoard. Thus, the principle of dual control is invariablymaintained. Within the framework of the loanapproval process portfolio aspects have become moreand more important, in order to support the divisionsin optimising the loan portfolios. Likewise, loanand contract processing is driven by the bank’s legalpersonnel, who also operate independently of themarket units.

Portfolio Monitoring and Management. In monitor-ing and managing existing business, having anoverview of the bank’s entire loan portfolio is of cru-cial importance. Taking into account the corporategroups to which they belong, all loan risks are regu-larly collected and monitored, organised into portfo-lios by country, division, rating class and sector. Incombination with current business performancedata, this ensures that all the essential controlparameters and risk ratios are brought together.

To ensure the early detection of risks, the divisionsregularly gather up-to-date information on our cus-tomers. This enables timely evaluation by the bank ofthe creditworthiness of borrowers and hence of therisk structure of our loan portfolio.

The study of individual industries and market alter-ations is conducted by the Economics Department.

The point of departure for determining portfolio fac-tors, which are oriented to the bank’s business policyobjectives and risk policy guidelines, is a regularinspection of the portfolios by the Risk ManagementDepartment. Here, the risk structure of the loanportfolios and their alteration over time, which arepointed out by Risk Controlling, and the sector risksand business cycle influences on individual industriesidentified by the Economics Department, are trans-formed at portfolio level into risk-control measures bythe Risk Management Department, if necessarily. Dis-crepancies from the planned portfolio structure orundesired concentrations are thus subject to earlydetection, allowing countermeasures to be taken. TheManagement Board decides on portfolio limit set-tings based on proposals made by Risk Management.

Subparticipations and Securitisation. Apart from theoutplacement of risk through the direct subpartici-pation of other banks in individual loans, IKB is oneof the leading issuers of securitised “claims on Mittel-stand companies”; in such cases we use amongothers the KfW PROMISE platform.

IKB uses individual outplacements and securitisedtransactions not only as a means of defreezing regu-latory capital, but also as a form of portfolio manage-ment. Because they further enhance the diversifica-tion of IKB’s loan portfolio, our investments in inter-national portfolios with numerous product variantsshould also be seen in this context. We have out-placed a total volume of EUR 7.7 billion.

Managing High-Risk Loans. The management ofhigh-risk cases – separated into foreign and domesticcategories – is performed by special teams. By callingthese units in at an early stage and involving loanofficers with special expertise, it is possible to intro-duce measures capable of preserving a company’s


status as a going concern or, should these efforts fail,to limit substantially the ensuing degree of econom-ic damage.

Rating Process and Rating Techniques. The central ele-ment of the loan process is the evaluation of our cus-tomers’ creditworthiness. As a specialist bank with astrong focus on long-term customer and credit rela-tionship with medium-sized companies, in selectingour business partners we impose exceptionelly strin-gent criteria with regard to the creditworthiness andthe recoverability of collaterals of our exposure. Indoing so we place particularly great emphasis on asustained, positive earnings performance on the partof our customers. Corresponding credit guidelinesconcretise this commitment to quality.

In assessing creditworthiness, we make use of IT-sup-ported rating and scoring procedures for a long time,tailored to the customer’s segment and the specificform of financing. The customer’s various creditwor-thiness characteristics are correspondingly weightedand subsequently applied to a 10-point scale rangingin steps of 0.5 from 1.0 (the best rating) to 6.0

(default).

In our corporate financing operations we apply ourcontinuously improved Mittelstand rating system.With this model, we have adopted approach in whichthe core financial data of the past and projectedeconomic performance of a customer is combined bymeans of a mathematical/statistical technique withan evaluation of the individual characteristics of thecompany and sector based on an expert system. Thisprocedure assures very high quality and excellentselectivity. Particular aspects of project finance andother special forms of financing are subject to adifferent rating process in which greater significanceis attached to cash flow requirements and variousscenarios and simulations. The rating system used inthe bank’s real estate finance operations assessescreditworthiness based on a wide spectrum ofspecific property and investor information.

Today, these systems already form the core of ourinternal, risk-based loan risk management system,and will form the basis for the IRB (Internal RatingBased)-approach of the Basel Accord on risk-basedcapital requirements for credit risks, which will comeinto force in 2006.

Quantifying Credit Risk. In recent years, credit riskmodels have gained new importance in the internalcontrolling of risk. Here, loss distribution of the loanportfolio – the central item of concern – is dividedinto two categories: “expected loss” and “unexpectedloss”. While the “expected loss”, as a statisticalexpectancy value (standard risk cost), is covered bythe risk premium included in the loan calculation, the“unexpected loss” (credit value at risk) represents thepotential risk that, based on a specified confidenceinterval, could be greater than the “expected loss”.This risk is covered within the framework of thebank’s ability to bear risk.

In order to quantify this risk, we have developed a riskmodel based on a Monte Carlo simulation, carefullytailored to the specific requirements of the IKB port-folio. Apart from individual credit information(amount of the loan, collateral, maturity, sector, cor-porate group affiliation, rating), the model includes amultitude of statistic data, e.g. the probability ofdefault, security proceeds instalments and sector cor-relations.

During the current financial year, the model of risk-adjusted measurement and categorisation of theportfolio risk with respect to the individual divisionsand sector segments will be advanced as we continueto proceed systematically our approach of portfolio-oriented management.

Quality Assurance. As a part of a benchmarking pro-ject carried out over the past two years, not only thesystems for assessing creditworthiness were scruti-nised, but also the approval, monitoring and control


processes of our loan operations. The results obtainedform the basis for the ongoing refinement of thebank’s loan process, taking into account the afore-mentioned MaK standards and Basel II.

Not least with a view to the new Basel capitalrequirements, a history is maintained of all parame-ters determining creditworthiness for all rating pro-cedures, thus assuring that they are available for nec-essary simulation calculations and validations. Vali-dation tests taking into account the existing datahave shown that our rating procedures are an accu-rate means of classifying risks.

Market Price and Liquidity Risks

The group of market price risks plays a further role.Among others, these include interest rate risks, cur-rency risks, and price change risks for shares andother assets. Management of these risks within theframework of the risk management process conformsto the “Minimum Requirements for the Trading Activ-ities of Financial Institutions” (MaH).

Liquidity Risk. We define liquidity risk as the risk ofpresent or future payment commitments not beingable to be made on time or in full. Treasury conductsregular liquidity analyses and cash-flow forecasts inorder to guarantee solvency at all times in the frame-work of a professional liquidity management. Toensure adequate liquidity we also hold marketable,floating rate notes that can be sold or lent against atany time. This eliminates short-term liquidity risk.Management of liquidity takes place in adherence toexternal general conditions. Furthermore, it is ourpolicy to avoid maturity-related risks by funding ourassets largely at matching maturities.

Limit System. The core element in managing marketprice risks is a differentiated limit system focused pri-marily on a market value-oriented system for limiting

interest rate, option, share price and foreignexchange rate risks. Based on the ability of the bankto bear risk, the limits are agreed between the Man-agement Board and Treasury. Based in turn on thislimit system and taking into account our own rules inconformity with the minimum requirements – whichinclude limiting ourselves to permissible products –Treasury implements its market expectations in itsinvestment and funding strategies.

IKB keeps separate its trading for own account, equi-ty investment, and asset funding portfolios. Theseportfolios are evaluated daily with respect to marketprice risk. Their risk content is measured by means ofa value-at-risk system oriented to cash value, whichforms the basis for limiting market price risk. Thelimit system is based on a combination of perform-ance and sensitivity limits, with limit amounts orient-ed to the ability of the bank to bear risk. Our back-testing demonstrates that the actual changes inresults in both trading for own account and equityinvestment are accurately revealed by our value-at-risk estimates.

Asset and Liability Management. Market price riskscan also arise from mismatched maturities in loanfunding operations and equity investments. In orderto quantify and limit these risks, IKB utilises its ownasset and liability management system. With thehelp of this system, daily balances of interest ratefixes are set for asset transactions, including loancommitments and their subsequent funding, as wellas equity investments, to include equity. Interest-freepositions are included in line with historical experi-ence. On the basis of these interest rate fix calcula-tions, Risk Controlling determines the interest incomethat can be attained without risk during the currentand coming financial year. In addition, an “interest atrisk” for normal and worst case scenarios is calculat-ed. These two factors, the interest income attainablefor the various financial years and interest at risk, areset against interest income limits, so that the mini-


mum income requirements of the bank are assured,and thus must be viewed as an important subsidiaryaspect of risk controlling.

Reporting. In order to monitor market price risks andsupport the market price risk management process,the Board of Managing Directors and Treasury receivecomprehensive daily reports on the earnings and risksituation in the aforementioned portfolios. Once amonth, the member of the Board responsible for Con-trolling reports to the entire Management Board onmarket developments, results and the risk situationof these positions. Also in this context, the funda-mental parameters presented by the EconomicsDepartment and an interest rate estimate are pre-sented and jointly analysed by representatives ofTreasury and Controlling with respect to their impact.

Country Risk

The basis for evaluating and managing country risk isour country rating system, which involves six risk cat-egories: (country risk class 1: no recognisable countryrisk; country risk class 6: high country risk). In assess-ing individual countries, a wide array of economic,social and political factors are all taken into account.

Within the framework of a contemporary reportingsystem a regular report ist made on the utilisation ofthe limits, which are fixed by the Management Boardbased on analysis by the Economics Department andthe recommendation of Risk Management. Less than1 % of the country risks were in risk classes 2 to 5

after deducting risks covered by credit insurance(i.e. Hermes).

Operational Risks

Regulations of Basel II. According to the definition ofthe Basel Committee for Bank Supervision, “opera-tional risk” refers the danger of losses occurring as a

result of inappropriateness or failure of internal pro-cedures, persons and systems, or which arise due toexternal events.

The new Basel Accord will envisage the use of severalmethods for calculating the capital requirements foroperational risks. IKB is already preparing to meetthese new requirements.

Management of Operational Risks. The divisions,central departments and subsidiaries are responsiblefor the management of operational risks, with theemphasis on regular analysis and identification ofshortcomings and ways of optimising all businessflows and processes. The operational risks are tobe minimised or optimised through continuousimprovements of the internal control system, takinginto account the economic cost-benefit ratio.

In light of this development, IKB has assigned decen-tralised risk managers for operational risks. Their taskis to identify regularly occurring operational risks intheir area of responsibility, and to examine themfrom the following standpoints:

• Possibilities of early recognition• Measures aimed at minimising the probability of a

risk occurring • Measures aimed at minimising the impact of risk • Precautions and conduct in emergency situations.

Since the beginning of the 2001/2002 financial year,officers responsible for operational risk have been col-lecting data relating to cases of damage. The Control-ling Department coordinates the entire process byentering all cases of damage into a central incidentdatabase, which forms the basis for regular evalua-tions and reports.

Within the framework of risk analyse carried out thusfar, we have determined that the bank faces no


immoderate operational risks. For each of the risksidentified, measures for avoidance and possibilities ofearly recognition of undesirable developments andemergency precautions exist. As far as necessary,appropriate insurances are contracted.

Legal Risks. Also subsumed in the category of opera-tional risk is legal risk, i.e. the risk of losses occurringdue to the introduction of new legal regulations andof changes and or interpretations to existing lawsthat are disadvantageous to the bank. Limiting legalrisk is the task of the bank’s Legal Department, which– when necessary – also draws on external legaladvice from leading law firms. All contracts are con-tinuously monitored to determine if amendments arenecessary in order to conform to changes in the lawor new legal rulings.

IT Risks. In the area of IT risk, the main emphasis is onmeasures for improving our emergency managementpreparations. Among other things, these include theestablishment of backup systems as well asenhanced network security.

Strategic Risks and Reputation Risk

Strategic risks relate to the threat posed to the long-term success of the bank. These can take the form ofchanges in the underlying legal and social environ-ment, but can also come from changing market andcompetition conditions, or from our customers orfunding sources. Since there is nothing routine aboutstrategic risks, they are hard to collect using an inte-grated system. They thus come under the specialsupervision of the Management Board and selectedcentral departments and are regularly analysed. Thisentails a regular review of the division-level strate-gies within the framework of a systematic planningprocess, as well as the resulting strategic initiativesand investments.

Reputation risks relates to direct and indirect lossesdue to a deterioration in the image of the bankamong shareholders, customers, employees, businesspartners and the public at large. All measures affect-ing the bank’s image are carefully identified by theCorporate Development unit and the Investor Rela-tions and Public Relations Department, and evaluatedin close consultation with the Management Board inorder to contain the impact of these risks.

Risk Reportingand Risk Communication

To enable us to recognise risks at an early stage, andthen to analyse and control them, all relevant infor-mation from the trading and lending operations, aswell as the accounting, personnel and other depart-ments, is prepared at least once a month and pre-sented and explained to the Management Board andthe relevant heads of division.

During the past financial year, too, the reportinginstruments necessary for managing credit risk werefurther expanded; they depict the essential controlparameters and risk information. In this context, spe-cial significance was also attached to loan portfolioreporting, that gains increasing importance. Theearnings and risk figures, including a comparisonwith planning and target figures, are regularly andpromptly reported to Management Board and theheads of the divisions, enabling divergences to bedetected at an early stage and appropriate action tobe taken. As a result, the necessary information ismade available to the divisions and central depart-ments quickly and comprehensively.

As part of the MaH reporting process, Risk Controllingproduces a daily report for the Management Board,the Treasury and other relevant units containing an


evaluation of the positions, as well as the accumu-lated and without risk attainable interest result fromthe funding of assets and the equity investments.This report also features a statement of cash-valuerisk under normal case and worst-case scenarios. Inanalogous fashion, the risk of change in the bank’snet interest income is also reported on in both sce-nario variants. This report includes the utilisation ofmarket price limits, as well as containing commen-tary on special developments.

Summary and Outlook

The past financial year once again showed that themethods and measuring systems we use in monitor-ing and managing risk are an adequate means ofdepicting risks, and thus form a solid foundation forIKB’s professional risk management. We record andquantify our risks in accordance with clearly definedrisk categories in order to compare them with the riskmagnitudes set by the Management Board withinthe framework of the Group-wide calculation of ourability to bear risk. The results once again reveal thateven unexpected losses in worst-case circumstancescan be covered with a high degree of security.

By integration of economic risks and the resultingconsiderations on capital allocation, in the currentfinancial year we will continue to focus on the expan-sion of our portfolio-oriented risk/earnings manage-ment operations. In the process, we will be payingspecial attention to the development of bank super-vision rules in accordance with Basel II as well as therequirements of the Minimum Requirements forLending Business of Credit Institutions (MaK). Aboveall, this includes the continued development ofadvanced methods for measuring market price andcredit risks, taking into account the ongoing trend ofasset securitisation and the steady development ofour system for monitoring operational risks.

3. Performance of theDivisions

Our Corporate Lending Division succeeded in increas-ing its volume of disbursements by almost 17 % toEUR 2,7 billion, this despite the baleful economic con-ditions (stagnant GDP, the plunge of corporate invest-ment). We attribute this positive development to oursuccess in attaining a greater market share, resultingfrom our clear strategic orientation and intensiveconsulting work. Last but not least, this trend is alsodue in no small part to our expanding business inSchuldscheindarlehen.

The 2002/2003 financial year proved to be a specialyear for the Corporate Lending Division in any case,since we succeeded for the first time in increasing the

Segment Report

in EUR millionNet interest incomeNet commission incomeNet interest and commission incomeAdministrative expenses

Personnel expensesOther administrativeexpenses

Other operating result *)

Risk provisioning balance

Result fromordinary activities

Ø Allocated tier 1 capital

Loan volume at balancesheet date March 31

Cost/income ratio in %Return on equity in %Ø Number of staffVolume of new business

*) incl. net result from financial operations


volume of new business while simultaneouslyimproving credit ratings and the interest margin(from 1.12 % to 1.27 %). However, because the level ofrepayments was also high, the loan volume at thebalance sheet date (March 31, 2003) was slightlydown on the previous year’s level. Accordingly, theresult from ordinary activities decreased slightly toEUR 103 million (EUR 105 million). The cost/incomeratio amounted to 28.2 % (26.9 %), while return onequity came to 16.4 % (16.6 %).

The Real Estate Division’s result from ordinary activi-ties improved significantly compared to the previousyear, rising by an impressive 30 % to EUR 41 million.This was due on the one hand to a further increase inour comparatively high commission earnings, and onthe other to an expanded interest margin for newloans of 1.24 % (1.13 %). On account of our credit-worthiness criteria, which remain as stringent as

ever, disbursements were slightly lower than in2001/2002; even so, owing to the long maturities andlow repayments typical of the real estate sector, thevolume of loans at the balance sheet date actuallyrose. Accordingly, we were able to bring thecost/income ratio down to 27.1 % (30.0 %), whilereturn on equity increased to 17.1 % (14.4 %).

Our Structured Financing Division once again suc-ceeded in delivering the strong growth achieved inprevious years, resulting in a distinctly improvedinterest margin (2.57 % to 2.17 %) and a doubling ofstructuring fee income. Accordingly – and despite anappreciable increase in administrative expenses – wewere able to increase the result from ordinary activi-ties to EUR 59 million (EUR 54 million). Our branchesin Paris and London and our subsidiary in New York,IKB Capital Corporation, contributed to this positivetrend.

by Business Division for the Financial Year 2002/2003

Corporate Real Estate Structured PrivateLending Financing Financing Equity Leasing Securitisation Head Office Total

1.4.02 – 1.4.01 – 1.4.02 – 1.4.01 – 1.4.02 – 1.4.01 – 1.4.02 – 1.4.01 – 1.4.02 – 1.4.01 – 1.4.02 – 1.4.01 – 1.4.02 – 1.4.01 – 1.4.02 – 1.4.01 –

31.3.03 31.3.02 31.3.03 31.3.02 31.3.03 31.3.02 31.3.03 31.3.02 31.3.03 31.3.02 31.3.03 31.3.02 31.3.03 31.3.02 31.3.03 31.3.02

225.1 227.9 81.7 70.5 94.0 95.2 4.1 3.9 43.6 42.5 2.4 –8.3 34.1 39.6 485.0 471.3

5.7 4.4 7.9 7.4 14.4 6.0 –0.6 –0.6 –3.7 –4.4 45.3 27.4 –4.9 –0.7 64.1 39.5

230.8 232.3 89.6 77.9 108.4 101.2 3.5 3.3 39.9 38.1 47.7 19.1 29.2 38.9 549.1 510.8

65.2 62.4 24.3 23.4 31.3 27.6 7.4 7.3 25.5 22.8 4.5 2.3 61.7 60.7 219.9 206.5

49.8 47.9 17.9 16.9 21.1 18.6 4.8 4.0 16.2 15.4 2.2 1.3 25.8 29.3 137.8 133.4

15.4 14.5 6.4 6.5 10.2 9.0 2.6 3.3 9.3 7.4 2.3 1.0 35.9 31.4 82.1 73.1

0.0 0.0 0.0 0.0 0.2 0.2 10.9 –14.2 9.7 10.6 0.0 0.0 0.2 34.6 21.0 31.2

62.8 64.5 24.1 22.8 18.4 20.2 6.3 24.7 5.2 2.6 6.5 0.6 60.1 39.8 183.4 175.2

102.8 105.4 41.2 31.7 58.9 53.6 0.7 –42.9 18.9 23.2 36.7 16.2 –92.4 –26.9 166.8 160.3

626 636 241 220 179 182 24 24 47 37 –204 –264 199 237 1 112 1 072

16 022 16 266 5 532 5 355 4 209 4 191 191 204 2 659 2 550 1 937 676 45 56 30 595 29 298

28.2 26.9 27.1 30.0 28.8 27.2 51.4 – 51.4 47.0 9.4 12.0 38.6 38.1

16.4 16.6 17.1 14.4 32.9 29.5 2.9 – 40.2 62.1 – – 15.0 15.0

311 324 126 121 126 103 46 44 125 116 10 5 689 637 1 433 1 350

2 658 2 274 765 793 1 494 1 399 32 55 710 710 1 402 676 –117 183 6 944 6 090


Owing to the aforementioned rise in administrativeexpenses – principally due to the hiring of additionalstaff and additional rental expenditure at our inter-national locations – the cost/income ratio came to28.8 % (27.2 %), while return on equity rose to 32.9 %(29.5 %).

As predicted a year ago, our Private Equity Divisionexecuted a successful turnaround during the periodunder review. Although the underlying conditions forour activities in this field were anything but positive,thanks to profitable exits we nevertheless succeededin generating welcome revenue, which appears underother operating income. Moreover – and in line withexpectations – we were able to scale back our provi-sions for risk to a considerable extent. Accordingly,the result from ordinary activities reached EUR 0.7

million.

Despite the adverse economic conditions, the bank’sLeasing Division – which embraces our activities inthe field of equipment and real estate leasing – suc-ceeded in reproducing the previous year’s perform-ance, generating EUR 710 million in new business. Inorder to produce income and improve our Principle Istanding, we outplaced leasing items within theframework of an investor model. The interest marginimproved accordingly. However, because administra-tive expenses increased appreciably and other oper-ating income contracted – the result from ordinaryactivities fell to EUR 19 million (EUR 23 million).The cost/income ratio followed suit, rising to 51.4 %(47.0 %), while the return on equity declined to40.2 % (62.1 %). In assessing these results, however, itshould be noted that leasing-typical income andexpenditure patterns have a tendency to push downearnings figures during periods of expansion in par-ticular, while reserves are simultaneously built up.

In the Securitisation segment not only the volume ofnew business, but also the loan volume at balancesheet date appreciably increased. This reflects ourstrong involvement in this attractive business. As aresult, we succeeded in improving our net interestincome and especially our net commission income.While the net interest income also contains our costsfor the CLOs, the strongly increased net commissionincome – which rose to EUR 45 million (EUR 27

million) – contains income from our investments ininternational loan portfolios, as well as commissionincome from consultancy fees relating to thestructuring of a conduit.

Owing to our increasing business in the field of secu-ritisation, we have considerably increased the num-ber of staff in this area, leading to a correspondingrise in the administrative expenses. Moreover, expan-sion in this area of business prompted us to raise theexpected loss. The result from ordinary activitiesmore than doubled to EUR 37 million (EUR 16

million), while the cost/income ratio came to 9.4 %(12.0 %).

4. OutlookDespite the bleak economic outlook, we expect ourresult from ordinary activities for the 2003/2004

financial year to rise to roughly EUR 170 to EUR 175

million. This optimistic assessment is justified by

• an increase in the performance of practically everysegment;

• a reduction in the rate of growth of administrativeexpenses to below 4 %, as well as

• a balance of risk provisions only slightly higherthan that of the previous year.


With new business in our Corporate Lending Divisionon the increase, we expect to see growth in net inter-est income in particular. Because the German econo-my is unlikely to recover this year, growth can beachieved only by widening our market share. Butgiven the high quality of our consulting, we are confi-dent of being able to attain this goal. Moreover, wenow have an excellent array of products for enterpris-es and entrepreneurs at our disposal – thanks notleast to our cooperation partners.

Though many companies are still reluctant to invest,we assume that our Real Estate Financing Divisionwill continue to improve its result from ordinaryactivities. The reason for this positive performance isthe comprehensive range of products and services weoffer our customers. Together with IKB ImmobilienLeasing GmbH and IKB Immobilien ManagementGmbH, we can provide investors with a completearray of value-adding that customers expect withrespect to planning, development, constructionand marketing services of their real estate relatedprojects.

In the field of Structured Finance, we expect theupward trend to continue unabated this financialyear as well, and that the result from ordinary activi-ties will rise appreciably. This growth will be fuelledabove all by interest income from infrastructure,export and acquisition financing.

We expect to see a modest improvement in theresults of the Private Equity Division. That said, itshould be noted that the market for participationsstill shows no sign of recovery. Nor has there been anysustained upward trend in the stock markets as yet.

The results of our leasing units are likely to be on apar with this year’s performance.

We also see additional income potential in our invest-ments in international loan portfolios in a variety ofasset categories. In a carefully controlled fashion, weplan to expand our activities in this sector, augment-ing our income while increasingly assuming the roleof risk manager. In this way, we are able to achievegreater regional and sector diversification of our loanportfolio as well as significantly higher earnings.Moreover, our experience thus far indicates that bythis means we have succeeded in improving thebank’s risk position. Also contributing to this is thefact that the credit quality of our new loans hassteadily improved in recent years. Whereas in2000/2001 the creditworthiness of two thirds of ourloans fell into the categories “very good” to “satisfac-tory”, last year the figure increased to more than70 %, even though economic growth in Germany waspractically at a standstill during the past two years.We expect net provisions for risk to be significantlylower than for the 2002/2003 financial year.

Thanks to stringent cost management, we expectadministrative expenses to grow at a rate of lessthan 4 %.

To sum up, we are confident that the IKB Group willcontinue to develop along successful lines during thecurrent financial year.


II. Group Business Trends

1. Underlying Economic Conditions

2. Corporate Lending

3. Real Estate Financing

4. Structured Financing

5. Private Equity

6. Treasury and Financial Markets

7. Human Resources


During the period under review, the underlying con-ditions for our business operations were even moredifficult than the year before. This applies as muchto the economy as a whole as to the situation inselected sectors.

As late as spring 2003, the German economy stillshowed no sign of breaking free from a period ofstagnation that had already lasted two years. At just0.2 %, GDP growth in 2002 fell to its lowest level since1993. Although factory orders – especially fromabroad – gave rise to a certain increase in activity (seegraph), the general climate of uncertainty and the rel-atively low level of capacity utilisation at companiesmeant that this was not enough to prompt signifi-cant investment. Quite the contrary: corporate invest-ment in 2002 slumped by nearly 10 % compared tothe previous year (see graph below).

1. Underlying Economic Conditions

IKB-Barometer

Incoming Manufacturing OrdersSliding 12 Month Rate of Real Growth

■ from Germany■ from abroad

-10

-5

5

10

Sources: Federal Statistical Office Germany;own calculations

%

92 93 94 95 96 97 98 99 00 01 02

20

15

0

-15

03

Corporate Investment in Germany

Real Changes compared to Previous Year’s Quarterly Period

-16

-12

-4

4

Source:Federal Statistical Office Germany

%

-8

0

2001 2002 2003


The underlying cause of this profound lack of confi-dence and reluctance to invest had far less to do withthe looming conflict in Iraq and its possible conse-quences for the world economy than with the eco-nomic policy framework in Germany. Meriting specialmention here are the country’s rigid labour marketconditions and rising social costs. The results of oursemi-annual survey of some 500 medium-sized com-panies point in the same direction. The IKB Mittel-standsindex (MIX) revealed that in spring 2003, too,the majority of these companies still took a negativeview of their own business situation (see graph).

An analysis of the most important sectors of theeconomy reveals the following picture. Thanks tostrong foreign demand, growth in the chemicals sec-tor was still reasonably satisfactory. The same is trueof the automobile industry, which succeeded in 2002

in replicating its sound performance of the previousyear. German carmakers continued to benefit fromthe ongoing trend among buyers to choose higherquality vehicles, which is also reflected in theincreased use of automobile electronics. The mechan-ical and electrical engineering sectors experienced adecline in production of 3 % and 5 % respectively,even though incoming orders at the end of the periodunder review gathered pace again.

Far more difficult was the situation in sectors morestrongly oriented to domestic demand such as thetextile and garment trade, the furniture industry andretailing. Investment in new construction alsoslumped again in 2002, mainly because fewer resi-dential buildings were being built.

IKB Mittelstand Index: Assessment of the Current Economic Situation

Balance of Positive and Negative Estimations

-40

-20

20

Source:Survey of approx. 500 medium-sized IKB clients

0

40

Autumn2000

Spring2001

Autumn2001

Spring2002

Autumn2002

Spring2003


The bond markets were of course strongly influencedby the conflict in Iraq and other global economic fearsduring the past financial year resulting in decliningyields starting in mid 2002 (see graph). German inter-est rates continue to be heavily dependent on Ameri-can bond yields. However, it is worth noting that cap-ital market interest rates in the United States wereconsiderably below the German level at times. Thiswas due first and foremost to the massive move fromshares into bonds, driven not least by the collapse ofshare prices and the war in Iraq. In the meantime,however, a mild recovery has set in here.

In sum, this means that our operations have beenimpaired by weak domestic demand; conversely, thetrend in interest rates has had a positive impact onour business.

Rates of Return Development USA/GermanyGovernment Bonds with Term of 10 Years

2000 2001 2002 20033.0

4.0

5.0

6.5

7.0

Source:Global Insight

■ Germany■ USA

%

6.0

4.5

3.5

5.5


2. Corporate Lending

Increasing New Business, Rising Margins andHigh Creditworthiness with Innovative Products

Freya Luck and Steffen Volk,Corporate Lending Division,IKB Deutsche Industriebank AG


During the period under review, the Corporate Lend-ing division succeeded in growing its volume of newbusiness by some 17 % to EUR 2.7 billion. Becausecorporate investment in the economy as a wholeunderwent a further decline, with growth in Germanlending effectively coming to a halt, we achieved thisincrease in disbursements chiefly by expanding ourmarket share. We attribute our success in the marketto the high quality of our advice, the positive imageof our bank, as well as our clear commitment to theGerman Mittelstand.

Particularly in these difficult times, this sends animportant message to companies; all the more sogiven the fact that other banks have partly pulled outof long-term corporate lending or have in any casebeen pursuing rather erratic business and lendingpolicies. Conversely, IKB and KfW have concluded apartnership on behalf of the Mittelstand, dedicated tofinancing the investment activities of these compa-nies by continuing to provide them with long-termloans and equity. This partnership has met with a verypositive response from Germany’s Mittelstand ofmedium-sized companies. This is proven in part byour heavy volume of disbursements, but also by thepositive reaction encountered during conservationswith clients and the customer events, which weregularly conduct, also in cooperation with KfW.

Apart from the expansion in business outlined above,we also succeeded in further increasing our interestrate margin. Still 1.12 % for the 2001/2002 financialyear, this figure rose to 1.27 % during the periodunder review. Moreover, we also achieved a furtherslight improvement in the already good creditworthi-ness structure of our new loan accommodations. Inthe past, an increase in margin in combination withstricter creditworthiness criteria would almost invari-ably have meant a reduction in new business, makingthis positive development all the more gratifying.This proves that it is entirely possible for a bank togenerate earnings from long-term lending opera-tions, even in periods of economic downturn.

However, the volume of repayments also increasedappreciably, meaning that the loan volume of theCorporate Lending Division at the balance sheet datewas lower compared to the previous year’s figure. AtEUR 103 million, the result from ordinary activities forthe period under review was thus slightly below thelevel achieved the year before (EUR 105 million). Thisresulted in a return on equity of 16.4 % (16.6 %), whilethe cost/income ratio was 28.2 % (26.9 %).

Efficient market penetration: the IKB Target-

Customer Segmentation System and the

Innovation Campaign in Medical Technology

The Target-Customer Segmentation System. Thestrong trend in new business is also due in largemeasure to our new Target-Customer SegmentationSystem, which we put into place during the pastfinancial year. Specifically, by drawing on a compre-hensive data base, we analysed and selected from50,000 firms based on the following criteria:

• financing potential (based inter alia on sectorgrowth, the balance sheet total and annual depre-ciation);

• company rating (a rating better than 3.5); and

• company size (at least fifty employees and morethan EUR 15 million in annual turnover).


With this focus, we identified 12,000 companies witha strong financial standing, categorising them in turnby the magnitude of projected financing potentialand by region. This gives us the ability to approachnot only existing customers but also potential newones in a much more systematic and well-targetedway.

In a further step, we have reorganised our sales oper-ations in the branches based on the customer poten-tial identified in each region. This reorientationenables us to exploit the bank’s business potentialeven more efficiently than was previously the case.

Innovation Offensive. Much the same applies to ourInnovation Campaigns, in which our objective is tosecure a stronger presence in sectors displaying par-ticularly strong growth potential. Within the frame-work of this sector-specific sales drive, during the2002/2003 financial year we contacted customersand non-customers in the medical technology sector.The bright future prospects of this industry are notsimply the result of strong demand, but have muchmore to do with the fast pace of technologicalprogress. Of course, the investments necessary forachieving these advances pose major financing chal-lenges to the companies involved.

In order to reinforce our position as an effective andefficient financier, we have drawn up a catalogue ofmeasures aimed at identifying and analysing targetcustomers, as well as developing a range of specialfinancing products. Moreover, we have placed specialemphasis on the use of print media to strengthen ourmarket profile. Thus, we not only dispatched ourdetailed analysis of the sector to target customers,but also introduced ourselves at the press conferenceof the “Medica” trade fair in Düsseldorf in November2002, eliciting a very significant response.

Early indications show that this package of measures,consisting of product development, communicationsmedia and well-targeted sales activities, has suc-ceeded in portraying IKB as a competent partner forfinancing and expertise, particularly among medicaltechnology companies previously not forming part ofour customer base. A number of transactions havealready been concluded. During the current financialyear, we continue to press ahead with our InnovationCampaigns, this time focusing on the automotiveindustry. We are convinced that this sector in particu-lar harbours numerous potential new customers.

Innovative financial products – From

Schuldscheindarlehen and global loans to

partnership model, ABS transactions and

financial risk management

Another important aspect of our market activities isthe development and introduction of new financialproducts. Schuldscheindarlehen (certificates ofindebtedness) should be mentioned first, havingbecome an attractive alternative to long-term loans,especially in light of Basel II and the increasinglyrestrictive loan policies of some banks. During theperiod under review, we enforced our efforts in thisarea, noting that many companies have displayedgreat interest in this financial instrument.

Schuldscheindarlehen is a securitised claim againstthe borrower; it is issued by companies and under-written by institutional investors – especially bydomestic and foreign banks and insurance compa-nies. This financial instrument is fungible in off-exchange trading, thus representing a first step in thedirection of capital market financing.


Schuldscheindarlehen can be placed in sizes rangingfrom EUR 10 million to EUR 100 million and are thusespecially well suited to medium-sized companies,which cannot issue corporate bonds on the capitalmarket because of the minimum volume criteria. Inaddition, the issuer of a Schuldscheindarlehen doesnot require an external rating, while the time neededfor the arrangement is substantially shorter thanthat needed for issuing a corporate bond. Thus,Schuldscheindarlehen offer companies that wouldotherwise have no access to the capital market thepossibility of creditor diversification.

During the period under review, we arranged Schuld-scheindarlehen for ten issuers, the total volume ofwhich came to EUR 225 million (please see our casestudy of the Drägerwerk Group). We placed parts ofthese loans with other institutional investors, firstand foremost with KfW, our strategic partner. In twoother cases we also took part in the syndication ofsuch loans. As a result, in a very short period of time,we succeeded in flexibly expanding our range ofproducts. At the same time, this compellingly demon-strates IKB’s special expertise in structuring financingfor the Mittelstand.

The global loan facility developed in cooperation withKfW also encountered a welcome response from ourcustomers. This is indicated not least by the fact thatthe EUR 500 million loan underwritten by us in March2002 has since been completely disbursed. Work iscurrently underway on a new global loan agreementwith KfW that we expect to be concluded in summer2003.

The Drägerwerk Group is a world leader in the field of medical and safetytechnology. More than a century of experience forms the foundation of thecompany’s high-tech know-how, whose bounds are steadily pushed out-ward by its own research and development. Dräger products set the stan-dard worldwide. A further milestone was the joint venture recently agreedwith Siemens Medical Solutions, which offers both partners the opportunityto enter into new dimensions of medical technology for hospitals.

Today, Dräger Medical furnishes hospitals with high-tech medical systemsand complete solutions. Apart from workstation systems for anaesthetistsand intensive care units, Dräger customers turn to the company for man-agement, consulting and financial services, as well as solutions for hospitalinformation systems.

With mobile and stationary gas measuring systems, equipment forpersonal security and services Dräger Safety offers comprehensive securitysolutions from one source. For clients like fire brigades, mining companies,police and a multitude of industries Dräger Safety provides system solutionsworldwide.

With subsidiaries in 40 locations around the globe and sales offices in afurther 90 countries, the Dräger Group is very much a global player. Some70 % of sales are generated abroad, with other European countries account-ing for 34 % of this figure, America for 19 %, and Asia and Australia for14 %. Dräger preferred stock, which has been listed on the stock exchangesince 1979, was included in the MDAX in 2002; since the reorganisation ofthe stock market at the beginning of 2003 it has belonged to the TecDAX,which encompasses the thirty largest growth stocks of the prime standardsegment.

In order to repay a corporate bond, in January 2003 Dräger took up twoSchuldscheindarlehen arranged by IKB, which together amounted toEUR 50 million. In so doing, the company improved its financial structure byextending the maturity of part of its liabilities. At the same time, thelong-term safeguarding of liquidity which this entails helps to stabilise thecompany’s rating. IKB has placed parts of the two Drägerwerk Schuld-scheindarlehen with investors. The high demand among institutionalinvestors reflects the company’s strong financial standing.

Drägerwerk develops technology for life –IKB Schuldscheindarlehen assure adequate liquidity


Owing to an attractive interest rate, many of ourcustomers opted for switching from a previouslyagreed variable interest rate to a fixed rate within theframework of an interest rate swap. This reveals thatour customers are engaging in increasingly sophisti-cated forms of financial management in whichliquidity and interest rate management are keptmore and more apart.

An interesting new product development is the Part-nership Model, a means of providing companies withoff-balance sheet financing. The period under reviewwitnessed the bank’s first-ever use of this form offinancing, which thus far has been geared to financ-ing the development contracts of automotive partssuppliers. The response of the automotive industryand media alike has been distinctly positive. Onceagain, IKB has succeeded in developing a financingproduct specifically tailored to the needs of themedium-sized corporate sector.

Another innovative financing variant is the outplace-ment and securitisation of major loan portfolios inthe form of asset-backed securities (ABS), an area inwhich we have already concluded the first transac-tions. Here we apply our special expertise in loansecuritisation on behalf of our customers.

Furthermore, we also provide our customers withadvice relating to the complete restructuring of bal-ance sheet liabilities within the framework of contin-uous financial risk management. We will soon beoffering interest rate and foreign exchange manage-ment services via IKB CorporateLab, a company joint-ly owned by IKB and our cooperation partner Uni-Credito Italiano. By means of ABS transactions andprofessional financial risk management our cus-tomers can substantially improve their financialstructures. Against the backdrop of Basel II, this canmake a major contribution to placing a company’srating on a firm foundation in the long run.

Finally, our high volume of new business was due inno small measure to the excellent cooperationbetween the individual divisions, which is formalisedin our Networked Sales system. Meriting special men-tion here was the exchange of business leadsbetween Corporate Lending, Structured Financing,Private Equity and our leasing units. The NetworkedSales system is an essential component of our leansales structure, and partly explains our distinctly lowcost/income ratio compared with other banks.

The IKB Mittelstand rating system as the

pivotal point of our new business and

consulting activities – A renaissance in

relationship banking

Throughout the period under review, the issue ofBasel II – and especially the question of company rat-ing – was a central topic of discussion during ourmeetings with clients. This is because the world ofGerman financing is undergoing a period of profoundtransformation. This is apparent not least from theaforementioned trends in long-term financing andSchuldscheindarlehen, as well as the marginsachieved in new loan accommodations. In theprocess, the rating has emerged as an essential com-ponent of corporate lending – with respect both tothe intensity of advice provided by the bank and thecreditworthiness-driven pricing of financing. For itwill not be the competition between banks to offerthe lowest interest rate, but rather the ability to pro-vide a company with qualified financial advice for itsbusiness dealings and the right financing product for


its investments, that will be decisive in shaping thefuture landscape of Mittelstand corporate lending inthis country. We are thus convinced that a renais-sance in relationship banking is in the offing.

During the 2002/2003 financial year we also pres-ented the IKB Mittelstand rating system at numerousmeetings with clients as well as at customer events. Itis a system for categorising the creditworthiness ofcustomers, steadily perfected in recent years andadapted to meet the requirements of Basel II.

Specifically, the system consists of four evaluationcategories (see figure below). In the annual accountsrating section, apart from past balance sheet andincome statement data, it is above all the projectedfigures for the following three years that are of deci-sive importance, with their analysis depending onstatistical-mathematical models. The liquidity ratinganalyses the extent to which a company’s solvency isassured at all times. In order to assess the validity of

the planning, in form of a qualitative rating strategicfactors for success – such as management, the value-added process, innovation potential, position in themarket, and the overall environment a company oper-ates in – are studied and evaluated. In the fourth eval-uation category, our experts analyse the trendsaffecting the company’s particular industry. Attaininga factually correct assessment of the medium-sizedsector means having to have a sufficiently nuancedsystem of evaluating individual industries. According-ly, the IKB rating system differentiates between some360 separate sectors in which German Mittelstandcompanies operate.

Moreover, we also offer our customers a ratingreview. This contains a comprehensive report docu-menting our rating analysis as well as a supplemen-tary comparison of the company vis-à-vis its compet-itive environment. By explaining to our customers indetail how IKB assesses their creditworthiness, weaim to ensure a high degree of transparency regard-

FinancialStatement

Management

Value Added Process

Planning

CREDITWORTHI-NESS

QuantitativeRating

Business Environment

Annual AccountsRating

LiquidityRating

QualitativeRating

SectorRating

Balence SheetIncome

Statement

IKB Mittelstand Rating


ing the IKB Mittelstand rating system. Furthermore,the rating review contains a thorough analysis of acompany’s strengths and weaknesses, thereby serv-ing as a basis for in-depth financing advice.

By combining a comprehensive rating consultationwith the development of individually tailored financ-ing products, we offer our customers a genuineincrease in value, while simultaneously justifyingIKB’s unique position in the world of Mittelstandfinancing.

Sector Structure: Stable manufacturing

industry – Shifts between services

and selected segments of the retail sector

The structure of our Corporate Lending disburse-ments during the period under review is shown in thefollowing table: whereas manufacturing industrycontinued to account for the bulk of new business(70.1 %; previous year: 71.1 %), there were consider-able shifts in the share of disbursements destined forthe retail and service sectors. Thus, disbursementsgoing to the service sector fell to 16.5 % (19.7 %),while retail’s share rose to 13.3 %, up from 9.2 % theprevious year.

In no small measure, this trend reflects the distinctlyvarying fortunes of the different economic sectorsduring the period under review. Whereas the export-oriented manufacturing sector benefited from com-paratively stable foreign demand, the service sectorand many retailers have suffered severely from weakconsumer demand at home. Food discounters aloneconstituted an exception, in some cases generatingdouble-digit rates of growth in 2002 and continuingto enjoy healthy prospects. In line with our selectivepolicy on new lendings, we therefore focus on thesecompanies when it comes to the difficult retail sector.

The slight decline in manufacturing industry’s sharewas due entirely to weaker investment activity in thebasic materials and producer goods sector. Thedecline was sharpest in wood processing and paperproduction, dropping from 6.9 % to 1.4 %. However, itshould be noted that the figure attained the previousyear resulted from financing high-volume invest-ments in expansion by individual companies. Themetal processing sector also lost ground during theperiod under review, having held back on investmentin new capacity or measures to improve efficiency.Conversely, the energy and water resources sectordistinctly increased its share of disbursements again(9.5 %; 2001/2002: 6.2 %); this should be seen againstthe backdrop of EU market reforms, which are leadingto the creation of privately financed supplier struc-tures. In addition, the regulatory requirements toachieve objectives to prevent climate change are like-ly to result in high investment and demand forfinancing in future.

At 27.6 %, the capital goods industry’s share of ourdisbursement portfolio rose slightly (26.6 %). Thoughthe industry suffered from the sharp drop in invest-ment activity in Germany, it enjoyed far greater suc-cess in foreign markets during the period underreview. This is true of the mechanical engineeringsector, and applies even more so to the automotiveindustry. At 8.9 % and 7.7 %, respectively, both sectorscontinued to account for a major proportion of ournew loan accommodations. The electrical engineer-ing sector, currently profiting (among other things)from the increased application of electronic systemsin automobiles, saw its share of disbursements rise to6.1 % (5.0 %).


Compared to the previous year, the proportion of dis-bursements going to companies of the consumergoods industry remained essentially constant at17.7 % (2001/2002: 17.5 %). The largest segmentcontinued to be the food industry – as always largelyimmune from the business cycle – whose shareremained constant at 6.5 %. Demand for financing

arose from strong investment by the beverage indus-try in PET packaging as well as wide-ranging invest-ments to improve efficiency. Spurred on by the grow-ing importance of e-commerce, also the packagingindustry invested especially heavily last year.

Financial year Financial year2002/2003 2001/2002

Sectors Shares in %Producing Industry 70.1 71.1

Basic and producer goods industries 24.8 27.0

Energy, water resources 9.5 6.2

Construction 1.5 0.8

Non-metallic minerals 1.2 1.3

Iron and steel, foundry products 1.6 2.3

Non-ferrous metals and semi-finished metal products 0.3 1.1

Wire-drawing and cold rolling mills, steel forging,surface treatment 2.1 4.0

Chemicals and petroleum refining 4.5 4.3

Wood working; paper & pulp 1.4 6.9

Other sectors 2.7 0.1

Capitals goods industries 27.6 26.6

Steel construction 0.1 0.6

Mechanical engineering 8.9 9.0

Automotive industry 7.7 7.8

Electrical engineering 6.1 5.0

Metal working 1.7 1.4


Consumer goods industries 17.7 17.5

Ceramics and glass 1.8 2.4

Wood, paper and cardboard processing 2.7 1.9

Printed materials 2.0 3.1

Plastic products 2.3 2.0

Textiles and garments 2.2 1.5

Food and beverages 6.5 6.5


Services 16.5 19.7

Transport 1.6 2.8

Data processing, media, telecommunications 1.9 2.5

Waste management 0.4 1.2

Other services 7.7 9.3

Financial services 4.9 3.9

Distributive Trades 13.3 9.2

Wholesale trade 5.4 4.8

Retail trade 7.9 4.4

Total 100.0 100.0

Disbursements of the Corporate Lending Division by Sector


Within the highly diverse service industry, thereduced share of the transport sector (1.6 %;2001/2002: 2.8 %) was conspicuous. This decline canbe explained (among other things) by the fact thatmany companies no longer consider the constructionof logistics centres and warehouses to be core activi-ties, transferring them instead to third-partyinvestors. Accordingly, the financing of such projectsincreasingly falls within the purview of our RealEstate Financing Division. Conversely, the share ofnew loan accommodations earmarked for the finan-cial services sector increased to 4.9 % (3.9 %). Thisrelated first and foremost to the funding of our leas-ing activities, which developed along positive linesduring the period under review.

Attractive public programme loans – Now with

more flexible margins

During the past financial year as well, low-interestfinancing from the public-sector development banksproved very important to IKB customers. Accordingly,demand by our customers for industrial developmentloans was again very strong; it should be noted that a

substantial portion of new business in this field wasmet through the KfW global loan facility during theperiod under review. Some 30 % of newly disbursedinvestment loans made by the Corporate LendingDivision during the 2002/2003 financial year werefunded by public sector development banks. Thisunderscores the prominent role of industrial develop-ment loans in the IKB range of products and services.On account of our longstanding expertise in thisfield, we are particularly well positioned to offer ourcustomers an optimum mix of financing instrumentson attractive terms.

Since the end of 2002, Germany’s public developmentbanks have made their programmes more attractiveby permitting a risk-oriented interest rate marginspread within the framework of their industrialdevelopment programmes. When structuring terms,the banks channelling these loans are no longerbound by a uniform margin of 1 %, but instead arefree to price the costs of risk in accordance with thecreditworthiness of the borrower. We see this reori-entation as an important step in ensuring continuedMittelstand access to industrial development loans intoday’s shifting financial landscape.

Hans W. Reich (r.), Chairman of the Board of Managing Directors of KfW, and Dr. Alexander

v. Tippelskirch, Chairman of the Board of ManagingDirectors of IKB, on the IKB sales meeting in

January 2003. Already in the first year of theircooperation, the two banks were able to realise

encouraging results. By common activities, anadditional new volume of business at the value of

EUR 0.8 billion was achieved during the pastfinancial year.


KfW remains the most important source of IKB

funding – KfW Innovation and Environment

Programmes proved particularly popular

During the past financial year as well, KfW continuedto be far and away the most important funding part-ner of IKB. Apart from the KfW’s Mittelstand Pro-gramme for domestic and foreign investment,demand during the period under review wasstrongest for funds from the KfW Innovation andEnvironment Programmes.

In supporting innovation-oriented investment by theMittelstand, KfW’s ERP Innovation Programme makesan important contribution to safeguarding the tech-nological lead enjoyed by these companies in the faceof mounting international competition. Given theongoing march to greater globalisation, competitionfrom foreign companies and the pressure to innovatedue to ever-shorter product and technology cyclesrepresent major challenges to Germany’s Mittelstand.

But our clients also showed growing interest in thetopic of environmental protection during the periodunder review. Here, the KfW Environment Programmeoffers low-interest, long-term financing. A major rea-son for the steadily growing demand for theseresources in recent years has been the increasinglyrestrictive nature of regulations on environmentalprotection and energy conservation. On the otherhand – and due by no means least to the economicsituation – companies find themselves operatingunder substantial cost pressure, a decisive factor incalculating investments. Energy-saving solutions arethus becoming an increasingly important aspect ofinvestment planning. Furthermore, we have noted astrong rise in demand for funds earmarked for renew-able and/or environmentally sustainable power gen-eration (for example: wind power plants, bio powerplants and combined heat and power generation).

Just as in previous years, our working relationshipwith KfW was open-minded, friendly, efficient,successful and – especially in light of our strategicpartnership on behalf of Mittelstand enterprises –characterised by a high degree of mutual trust.

DtA Environment Programmes much sought

after by IKB customers

The burgeoning demand for industrial developmentresources in the field of environmental protectionwas reflected during the period under review in theexploitation of programmes offered by Deutsche Aus-gleichsbank (DtA).

Indeed, IKB customers have long since showed partic-ular interest in the environmental protection pro-grammes of DtA. New business in this field increasedonce again compared to the previous year, and nowrepresents more than 90 % of DtA-committed funds.This underscores the substantial contribution thatDtA – together with KfW – now makes in promotingenvironmental protection.

During the past financial year, cooperation with DtAonce again proved to be partner-like, pleasant, andgoal-oriented.

Intensive cooperation with regional develop-

ment banks in Germany – First LfA global loan

facility for EUR 100 million concluded

We have long maintained good working relationswith Germany’s regional development banks. Per-haps meriting special mention are LfA FörderbankBayern, Investitionsbank NRW, L-Bank (the state bank


of Baden-Württemberg) and Investitionsbank Rhein-land-Pfalz. For medium-sized companies, the devel-opment programmes offered by these banks consti-tute a rational supplement to those furnished by fed-eral-level lending institutions.

During the 2002/2003 financial year, we furtherintensified our cooperation with these regional insti-tutions, and at the beginning of the current financialyear became the first bank to conclude a redesignedglobal loan facility with LfA amounting to EUR 100

million. Under this arrangement, LfA makes low-interest funding available to IKB for loans to medium-sized companies in Bavaria. Calculating its marginbased on the creditworthiness of the borrower, IKBthen passes these advantageous terms directly on tothe customer. This measure is aimed at strengtheningthe financing base of the Bavarian Mittelstand whilesimultaneously bolstering its long-term competitive-ness. Funds from the global loan facility are primarilyintended for medium-sized companies with annualsales of up to EUR 500 million, and are to be usedeither for financing investment projects in Bavaria orby companies whose corporate seat is in Bavaria butwhich require funds for investments elsewhere inGermany or abroad.

We are currently holding discussions with otherregional banks on global loan facilities of this type.We view these as an interesting means of providingour customers with the widest possible array ofattractive industrial development products.

EIB global loan increasingly drawn on

We have been cooperating closely with the EuropeanInvestment Bank (EIB) for many years. EIB was thefirst development bank to offer global loan facilitiesas an attractive supplement to national-level pro-

grammes, with the added advantage that they couldbe very flexibly employed. Indeed, over the years wehave agreed no fewer than 12 global loans with EIB,the latest with a volume of EUR 125 million. In theprocess, we have noted that our customers are draw-ing increasingly on these funds.

The EIB global loan facility covers a wide spectrum ofaims (e.g. environmental protection, innovation,education, health, and infrastructure projects),whereby small and medium-size businesses canobtain low-interest loans irrespective of the typeof investment project being financed. Moreover,this credit facility also permits the interest rate forindividual loans to be set in accordance with thecreditworthiness of the borrower. The EIB develop-ment programme is thus attuned to the changingrequirements in the domain of loan funding, thusrepresenting a valuable supplement to the multi-plicity of development products now available.

As in previous years, our working relations with EIBproved to be pleasant, straightforward and confi-dence inducing.

The Development Bank of The Council of

Europe: Accent on promoting investment in

Central and Eastern Europe

Last year, the Development Bank of the Council ofEurope focused inter alia on creating jobs in smalland medium-sized businesses, on healthcare andeducation and on social housing. In particular, theinstitution focused its financing activities on thecountries of Central and Eastern Europe (CEE), includ-ing Poland, Hungary, the Czech Republic, Slovenia andSlovakia.


In light of the planned accession to the EU of thesecountries, we assume that the region will continue infuture to offer interesting possibilities for investmentby German businesses. To help in financing suchinvestments, the Development Bank of the Council ofEurope offers a global loan facility, which will contin-ue in future to be a sensible supplement to our rangeof products.

We thus look forward to another year of amicablecooperation with the Development Bank of the Coun-cil of Europe.

Equipment Leasing

In line with our market strategy, during the periodunder review we founded the company IKB Autoleas-ing GmbH in Hamburg, which, together with IKBLeasing GmbH (also in Hamburg) and IKB LeasingBerlin GmbH in Erkner, now forms part of our equip-ment leasing companies. Operational control of ouroverall equipment leasing operations is in the handsof a joint management team, thus ensuring anapproach to the market that is uniform, harmonisedand segment-oriented.

Last year, the German leasing market suffered fromthe clear reluctance of companies to invest. In 2002,macroeconomic investments in equipment droppedby nearly 10 % to EUR 177 billion. Despite of somesignificant transactions, the equipment leasing mar-ket declined to EUR 39 billion (against EUR 40 billionthe year before). This trend accelerated toward theend of the financial year, driven by the debate on theintroduction of a so-called leasing tax (to be added tothe trade tax) as well as the attitude of wait-and-see

that accompanied the war in Iraq and its long prel-ude. Accordingly, the first three months of 2003

witnessed an unparalleled contraction of the leasingmarket.

Our equipment leasing units could not escape entire-ly unscathed from this trend, especially since thefourth quarter – traditionally the period with thestrongest sales – coincided with the particularly diffi-cult first three months of 2003 alluded to above. Evenso, the three companies succeeded in achieving EUR380 million in new business, down from EUR 410

million the year before. Especially gratifying in thiscontext is the fact that orders in hand (i.e. transac-tions that have been contracted but not yet invoiced)rose sharply again at the beginning of the currentfinancial year.

Sales revenues (leasing payments and the revenuesfrom the sale of assets) rose again compared to theprevious year to EUR 335 million (EUR 321 million).The consolidated balance sheet total of the threecompanies came to EUR 886 million (EUR 895 mil-lion). The value of the portfolio of capital goods,based on the original cost of acquisition, remainedunchanged at EUR 1.5 billion.

During the year under review, the foreign subsidiariesof our equipment leasing group in Hungary andPoland were joined by a third company in the CzechRepublic. As planned, business continued to growvery satisfactorily. The companies have establishedthemselves in their respective markets as specialistsfor plant and equipment, and assist German manu-facturers in selling their products through leasing.Moreover, their growing presence in the market isalso resulting in a welcome increase in purely localbusiness.


3. Real Estate Financing

Sophisticated Structuring and InnovativeFinancing Solutions for Complex Real Estate Projects

Andrea Prante and Markus Müller,Real Estate Financing Division,IKB Deutsche Industriebank AG


Systematic implementation

of our marketing strategy leads to a clear

improvement in performance

New business in our Real Estate Financing Divisionduring the period under review developed along sat-isfactory lines. Despite weak domestic demand andthe accumulation of surplus capacity in importantGerman real estate markets, we came very close tomatching the high level of disbursements achievedthe previous year. Because the real estate sectorinvolves long periods of utilisation and repayment –and hence low repayment instalments – loan volumeat the balance sheet date was appreciably highercompared with previous year’s figure. Accordingly, netinterest income rose again. Since net commissionincome also improved and the rise in administrativeexpenses and the standard costs of risk were largelycontained, the result from ordinary activities grew byan impressive 30 % to EUR 41 million. Accordingly, thecost/income ratio improved appreciably, dropping to27.1 % (30.0 %), while return on equity rose to 17.1 %(14.4 %).

As we see it, the main reason for this encouragingperformance has been the systematic implementa-tion of our marketing strategy. A central element ofthis lies in systematically combining our know-howand our consulting activities. Organisationally, wehave achieved this by expanding IKB ImmobilienManagement GmbH and integrating IKB ImmobilienLeasing GmbH into the Real Estate FinancingDivision.

Operationally, this means that we are now able tooffer our customers a complete array of real estate-related value-adding services, ranging from the plan-ning of a building through to its development, com-pletion and marketing – and all from a single source.

Moreover, we are now in a position to provide ourcustomers with made-to-measure subordinatedloans. Since we concentrate on financing real estateprojects in the EUR 10 million to EUR 50 millionrange, efficient cost management is also possible. Allof these things have contributed to a sustainedimprovement in our competitive position over thepast two years.

New business: the focus is on above-average

creditworthiness coupled with top locations

Last year, too, we concentrated on fungible projectswith above-average creditworthiness in first-classlocations. In the process we succeeded in keeping ourcreditworthiness structure of our disbursements atthe high level achieved the previous year. More thanhalf of the projects were located in Frankfurt, Munich,Düsseldorf and Berlin. To one extent or another thesecities are all saddled with surplus capacity in the realestate sector at present; however, in our opinion theystill offer the brightest future prospects in Germany.

During the period under review we were also able toassist in a series of interesting construction projectsat other locations both at home and abroad. WithinGermany, a number of middle-ranking cities –Cologne, for example – have gained new significance,with sales per square metre rising in clear oppositionto the national trend. Outside of the country, weconcluded new transactions first and foremost inSwitzerland as well as in the Netherlands andBelgium.

With regard to the breakdown by sector of our newdisbursements during the past financial year, office


buildings continued to account for the largest shareof financing, 39 % (see graph) – followed by othercommercial real estate (26 %) and mixed-use facili-ties (17 %). A further 12 % of new loans went tofinance property and residential projects. Hotelsaccounted for a 4 % share of disbursements duringthe period under review, while retail properties madeup just 2 % of the total. We continue to make it apolicy not to engage in dealings with building pro-moters and investors speculating on a profitabledividing up of buildings.

Demand in the German office building market duringthe past financial year contracted, resulting in anaccumulation of surplus capacity. Owing to the num-ber of construction projects currently in progress,excess supply is set to increase still further. Againstthis backdrop, downward pressure on rents is likely topersist, while rates of vacancy will rise; these trendswill chiefly affect older buildings, however. According-ly, we have not financed projects of this type. Inextending new loans, we have focused instead on

modern, flexibly designed office space in the best citycentre locations, for which there is still strongdemand. A further prerequisite for our involvementwas a high pre-renting ratio for these buildings.

The most important disbursement segment in thecommercial real estate sector continued to be ware-house and logistics field. Although investment activi-ty in this segment was generally guarded during theperiod under review, we were nevertheless able toassist in a number of interesting projects. In theprocess, we concentrated exclusively on financingsmaller, efficiently manageable facilities.

In the property and residential sector, more and moreof the project developers we finance have turnedtheir attention to transforming unused inner citysites for commercial and residential use. Because thisentails the use of highly complex structuring andfinancing procedures, our Corporate Lending and RealEstate Financing Divisions – including IKB ImmobilienManagement GmbH – work together with the localproperty development companies.

The situation in the retail property sector is difficultat present. German retailers had to contend with asharp drop in sales in 2002, and the prospects for thefuture are no less gloomy. Not surprisingly, the sameapplies to real estate trends in this sector, though itmust be said that demand for top locations in majorGerman cities remains strong. Accordingly, what newloans we did make in this generally weaker sectorfocused almost entirely on this upmarket segment.

Real Estate Financing Disbursements

Shares by Sector in the Financial Year 2002/2003

Retail Facilities

Hotel Sector

Property and ResidentialProjects

Mixed-useComplexes

Office Buildings

Commercial Real Estate

2 %

4 %

12 %

17 %

39 %

26 %


The same is true of the hotel industry, where ouractivities were restricted to financing projects alreadyunderway – and then only at first-class city centrelocations involving hotel chains with strong creditratings. This is because we see the greatest potentialfor future growth in the sector in the business travel,convention and urban tourism segments of themarket.

Syndicated transactions are becoming increasinglyimportant to us. By outplacing parts of our loan port-folio on the one hand, and taking up tranches fromother banks on the other, we can diversify our portfo-lio and increase our earnings. A further objective is tostrengthen our equity ratio (Principle I), thereby cre-ating greater scope to extend new loans.

IKB Immobilien Leasing GmbH: A strong

standing in new building leasing – Decisive

enhancements in off-balance sheet financing

Despite the weak economy, IKB Immobilien LeasingGmbH continued to develop along positive lines. Themain reason for this is that – unlike practically anyother leasing company in Germany – our subsidiary isable to offer commercial and technical project man-agement from a single source, as well as being capa-ble of structuring complex financing transactions. Asin previous years, our business activities focusedalmost exclusively on new building leasing in themedium-sized corporate sector, an area in which oursubsidiary has since become the market leader.

Located in Kassel/Baunatal in central Germany, VW’s Original Parts SalesCentre supplies the worldwide trading organisation with spare parts forVW and Audi vehicles. It serves 260 depots in the various markets andregions, as well as 330 individual dealers in eastern Germany. This task hasbecome particularly challenging in light of the intensive diversification inthe automotive sector, which has led to great changes in the selection ofspare parts in recent years. In order to maintain and improve on the stan-dard of service – urgent orders are shipped out within 24 hours – addition-al capacity was needed in respect both to surface space and state-of-the-art equipment.

In terms of economic efficiency, worker comfort and environmentalsustainability, the new 105,000 m2 Original Parts Centre Building 2, had tomeet the most stringent requirements of modern logistics. Furthermore, afunctional unity with the existing Original Parts Centre Building 1 had tobe created in order to assure economic optimisation of the processsequences and high-quality delivery performance. An advanced materialflow computer guarantees the smooth and sure transport of original partswithin the facility via a variety of transport routes. What emerged was ahighly modern logistics centre with over 200,000 m2 of storage space,automated high-rise shelf systems and commissioner areas, as well as raillinks and numerous docking stations.

Just as with the construction project for Original Parts Centre Building 1,which was completed in 1994 and had since been expanded, the IKB realestate leasing group was appointed partner for the current logistics centre,too, responsible for the design concept, construction management andfinancing. Here, IKB Immobilien Leasing GmbH and IKB ImmobilienManagement GmbH work hand in hand. IKB Immobilien ManagementGmbH takes the lead in managing all those involved in the constructionproject, documenting the progress of construction, taking care of qualityand cost planning, and making sure that things proceed according toschedule. IKB Immobilien Leasing GmbH structures the investment, furnish-ing the necessary expertise as soon as an investment is even pondered, thusensuring that the business, tax, legal, and balance sheet aspects are takeninto account, and enabling a made-to-measure investment and financingplan to be drawn up.

The new VW Logistics Centre –Mobility for Millions


The company’s structuring volume for the periodunder review came to EUR 430 million (EUR 410

million); of this amount, EUR 300 million related toreal estate assets, while the remaining EUR 130

million related to plants and other objects. A greatdeal of this business was transacted in cooperationwith the Corporate Lending Division. In addition, IKBImmobilien Management GmbH (IMG) was involvedin practically every investment project. In such cases,the individual units of the bank work together as fol-lows: Immobilien Leasing structures the transactions,IMG takes care of the technical aspects, and theCorporate Lending division arranges for funding asneeded.

Also closely integrated in this process is IKB Struc-tured Assets GmbH, a subsidiary of ImmobilienLeasing. Structured Assets played a crucial role lastyear in developing a Partnership Model that repre-sents an innovation in the field of off-balance financ-ing.We were able to conclude the first transactions ofthis type during the period under review (our casestudy of the Kirchhoff Group treats this model ingreater depth). Automobile parts suppliers and car-makers alike have voiced their approval of this modelin discussions with us. Accordingly, we assume thatthis type of off-balance financing will soon take holdin other sectors of the economy such as mechanicalengineering or medical technology. Given this situa-tion, we expect to see a clear increase in business forIKB Structured Assets GmbH, whose special expertisemakes it the only company in Germany capable ofhandling these complex transactions at present.

Starting out as a producer of sewing needles over 200 years ago, the KirchhoffGroup has since developed into a top supplier of automotive technology, hand-tools and waste disposal vehicles. In the hands of the Kirchhoff family for fourgenerations, the company today is an internationally oriented group and aleading player in the automotive parts supplier industry.

The core competencies of the company’s Automotive division lie in metal form-ing, welding and assembly techniques, as well as in surface processing. Drawingon these skills, the company develops and manufactures the tools necessary forthe mass production of passenger cars and utility vehicles and produces onbehalf of the original equipment manufacturers (OEMs) complete frames, hinges,bumpers with brackets, axels, crosscar beams and other comparable products.The vehicle parts and system components are precisely tailored to match therespective vehicle models of the OEM.

To fulfil such orders needs a lead-time of 12 to 24 months in order to developand manufacture the necessary tools. It is only once actual production of partsbegins that the supplier’s development and manufacturing costs are reimbursedby the OEM. Typical for the automotive industry, the structure of this value-added process means that the financing possibilities of the subcontractor duringthe run-up to full-scale production are heavily stretched as a result of the associ-ated development, manufacturing and equipment costs. This places heavy pres-sure on credit lines and leads to a deterioration of balance sheet ratios, under-mining the company’s competitiveness and limiting its ability to borrow money.

In response to this problem, IKB Structured Assets GmbH developed the IKB Part-nership Model in consultation with major medium-sized auto parts suppliers. Insuch cases, IKB Structured Assets sets up a special purpose vehicle, that finances(and carries on its balance sheet) the order-driven development and manufac-ture of tools through to the completion of the parts and their acceptance by theautomobile manufacturer. The special purpose entity can include the automotiveparts supplier as a contractual partner and, if all partners agree, the OEM as well– hence the term “partnership”.

On the basis of a comprehensive contract, the special purpose entity takes overthe necessary financing for the cost-related remuneration of activities performedby the supplier, as well as the commercial processing of incoming orders. Thus, forthe supplier, the partnership model offers two decisive advantages: because thespecial purpose entity’s balance sheet is not consolidated, its balance sheetremains unaffected even when additional orders are taken on. Moreover, thecost-related remuneration for activities performed has no impact on its liquiditysituation. As a result, the subcontractor’s scope for additional growth and thecreation of innovative technical developments remains intact.

Intelligently financed development contracts – A casestudy of the IKB Partnership Model: the Kirchhoff Group.


IKB Immobilien Management GmbH:

High-quality advice and improved earnings

IKB Immobilien Management GmbH (IMG) onceagain succeeded in expanding and improving itsrange of services, which now extends to a multiplici-ty of professional activities. Among these are thedevelopment, realisation, appraisal and marketing ofbuildings.

A further focal point is the management of complexplanning and construction projects – be it a newbuilding, a renovation, a conversion or the reactiva-tion of a derelict industrial site. The company expert-ise encompasses commercial, industrial and laborato-ry buildings, office blocks, retail buildings and logis-tics facilities, as well as special structures and multi-functional buildings. In the process, IMG makes amajor contribution to minimising its customers’ risks,as well as reducing the investment costs and assuringoptimum exploitation strategies.

Within the framework of project development, weconduct a comprehensive study to determine if theplanned building can be erected under the termsenvisaged and then successfully marketed. Factorsanalysed here include the quality of the location, thetechnical feasibility, the competition situation andthe ultimate economic viability of the project. Beyondthis, our specialists ensure that costs, quality andtime plans are adhered to. By participating in lucra-tive projects and closely assisting in their develop-ment, we also have the possibility of generating exitearnings for the Real Estate Financing Division.

During the period under review, IMG – in cooperationwith IKB Immobilien Leasing and the Real EstateFinancing Division – succeeded in increasing its salesto EUR 8.4 million (EUR 7.4 million), 70 % of whichrelates to Group-external business. All elements ofIMG contributed to achieving this positive result.


4. Structured Financing

Leading Market Position with EuropeanMidcap Transactions – ReinforcingActivities in Global Syndication Markets

Elisabeth Kempen (l.), Jens Dienstbach and Simone Wanhoff,Structured Financing Division,IKB Deutsche Industriebank AG


The activities of the Structured Financing Divisionencompass three main areas:

• acquisition finance;

• project and export finance and

• the financing of direct investments by Germancompanies in foreign countries.

Structured Financing brings together all activities ofIKB – both in Germany and abroad – that come underthe product category of cash flow lending. Here, thetrend noted the previous financial year, i.e. a shift infavour of international acquisition and transactionfinancing, continued.

During the period under review, our StructuredFinancing Division continued to develop very muchalong on the positive lines mapped out in previousyears. Thus, the result from ordinary activities grew toEUR 59 million (2001/2002: EUR 54 million). Thecost/income ratio came to 28.8 % (27.2 %), whilereturn on equity rose to 32.9 % (29.5 %).

Acquisition Financing

European Transactions: IKB leads the way in

midcap transactions in Germany and France –

Profitable growth in own arrangements and

syndicated transactions

European acquisition finance is one of the fastestgrowing areas of IKB. Our activities centre onGermany, France and Great Britain, which are themost important markets for acquisition finance inEurope. Moreover, we are also active in a number ofother markets (e.g. Spain, Ireland, Switzerland, theBenelux countries, Sweden), to include Europeancross-border deals.

Here, we pursue two different approaches: in the caseof midcap transactions, i.e. those involving the acqui-sition of medium-sized companies in the EUR 20 mil-lion to EUR 250 million range, IKB acts as arrangeritself, meaning that we arrange and structure theacquisition finance, placing parts of the financingwith other financiers. We pursue this ap-proach pri-marily in Germany and France. For larger trans-actions, we join in (primarily London-based)syndicates, taking part either as co-underwriter orparticipant.

On the whole, the European market for acquisitionfinance remained relative stable during the yearunder review. In continental Europe, there were 525

publicised MBO transactions in 2002, considerablymore than the previous year’s 447 deals; at EUR 39

billion, total volume was higher as well (EUR 31 bil-lion). Germany accounted for 86 transactions in 2002

– followed by France with 77 – making it the mostdynamic market in Europe for MBOs at the moment.Moreover, this trend is set to continue, not leastowing to the number of succession cases pending atthe country’s many medium-sized companies – acopious source of interesting deals. Conversely, theU.K. market contracted slightly, due to the lack ofmajor transactions, which were fewer in number andsmaller in overall volume. In general, thanks to theprocesses of consolidation and restructuring under-way in many sectors of the economy, we continue totake a very positive view of the future prospects ofthe European acquisition finance market.

Another trend – particularly apparent in Germany –has been the withdrawal from the market of a num-ber of competitors. The principal reason for this is theprocess of consolidation in the German banking mar-ket, which is forcing some banks to pull out or is atleast seriously impairing their new loan business.


Thanks to its specialist know-how, IKB is benefitingfrom this trend; accordingly, we now number amongthe leading providers of midcap acquisition finance inboth Germany and France.

The positive trend in the market and IKB’s strongposition in it is reflected in the volume of new busi-ness generated by our European acquisition financingunits. During the period under review, our teams inFrankfurt, Paris and London acquired 68 transactions(2001/2002: 62) with a final take (i.e. the non-syndi-cated portion of the complete financing package) ofEUR 805 million (EUR 761 million).

First and foremost, however, we succeeded in sub-stantially increasing the financing volume of our ownarrangements to EUR 1.2 billion (EUR 1.0 billion),without having to increase our loan exposure to thesame extent. Thanks especially to our NetworkedSales system, we were able to acquire structuringmandates for major transactions, much of the fi-nancing of which we succeeded in placing with co-underwriters and participants. This has resulted inhigher structuring fees, in turn leading to an appre-ciable increase in profitability in this area.

Our partnership with KfW also had a positive impacton growth here. In eight cases, we were jointly activein financing transactions, the shared underwritingvolume of both banks being EUR 388 million, thetransaction volume coming to EUR 580 million.

Our policy in the acquisition finance field is governedby strict creditworthiness criteria and the need fordiversification. As of March 2003, 26 of Moody’s 32

The brand name B/A/S/L/E/R stands for exclusive women’s outer garmentsfor discerning women in the prime of life. More that 50 % of women inGermany are familiar with the Basler brand. The high degree of brandrecognition enjoyed by the fashion maker vis-à-vis its competitors indicatesits excellent position in the domestic market; and with 56 % of itsproduction slated for export to some 53 countries, the company also hasa strong presence on the international stage. This shows that Basler hassucceeded in achieving global acceptance of its collection. Thanks to aconsistent product philosophy based on high quality and exclusivity as wellas a clear focus on an attractive segment of the market, Basler hasachieved high double-digit rates of steady growth in recent years – evenagainst the general trend in the industry. The company’s special standing inthe market was underscored at the beginning of 2003 when it received theDrapers Record Award for “Brand of the Year” in the UK. Other citations andtop scores in fashion retailer rankings with regard to sales, manufacturingquality, fit and the quality of material all bear witness to the company’sunique status.

When the Hucke Group – Basler’s former owner – was restructured, thecompany was sold in 2002 to Alpha, a European investor group. This wasan important strategic step for Basler, for the financial freedom of actionafforded by no longer being part of big group meant that the fashionmanufacturer would henceforth be better able to exploit new marketopportunities.

Alpha is a Franco-German investment company that manages the moneyof European and American investors, investing in small and medium-sizedenterprises. In the process, Alpha makes a point of selecting just one com-pany from each sector; Basler’s outstanding management made it afavoured choice. Though now owned by Alpha, the company will continueto operate independently under its previous management.

Acting as lead arranger and underwriter, IKB structured the financing forthis transaction. A financing structure tailored to the cash flow of theBasler group was agreed in close cooperation with the investor and theBasler group, and financing of the entire sum approved. In a subsequentstep, two well-known German banks joined in the financing transaction asco-arrangers. Within the framework of this successfully concluded syndica-tion, IKB put together a consortium of selected international banks.

Acquisition finance for an exclusive brand


sectors were represented in our portfolio of IKB-struc-tured and syndicated acquisition financing loans,with no sector accounting for more than 11 % of thetotal, and no individual loan to more than 2 %. Geo-graphically, our portfolio breaks down as follows:Germany, 35 %; France, 30 %; Great Britain, 20 %; andthe rest of Europe, 15 %. IKB arrangements,co-arrangements and participations each comprise athird of total exposure.

Working on this basis, with a high deal-flow andwidely distributed risks, our European acquisitionfinancing operations have generated a steady streamof interest and commission income with distinctlyabove average margins.

US Transactions: IKB Capital Corporation’s

expanding business in LBO financing

Located in New York, IKB Capital Corporation partici-pates in the US market for leveraged buy-out (LBO)financing. As a rule, these tend to be large-volumetransactions, primarily for financing M&As, butsometimes involving other financing objectives, e.g.the restructuring of liabilities.

Last year, the US market had still not really recoveredfrom the plunge suffered on September 11, 2001. Inthis difficult environment, we nevertheless suc-ceeded in expanding our volume of new business toEUR 480 million (EUR 260 million), while carefullyadhering to our stringent risk criteria. In a remarkablyshort span of time, IKB Capital Corporation hasobtained an excellent standing in the US market,thanks above all to our high-quality credit analysisbut also to IKB’s fast and flexible decision-makingprocesses.

Here, too, our approach to the market is governed byour policy of participating only in those transactionsthat conform to the bank’s strict creditworthiness,diversification and earnings potential criteria. As aresult, the margins we earn in our US transactions aresignificantly higher than those we obtain in ourdomestic transactions, despite comparable risk pro-files. In addition, all of our US transaction customersare externally rated. Thus, the risk/earning profile ofour LBO financing operations is distinctly attractive.Just as in Europe, our portfolio of US transactionloans is highly diversified, with no single sectoraccounting for more than 11 % of the whole, and nosingle loan comprising more than 2 %.

Project and Export Finance

Underlying conditions in the project and

export finance markets remain difficult –

Creditworthiness and margin considerations

dominate new loan business

Owing to the rather weak state of the world econo-my, the markets for industrial project, infrastructureand export finance developed along unsatisfactorylines during the past financial year. Accordingly, thevolume of new business declined compared to theprevious year.

The downward trend in domestic industrial projectfinance in the midcap segment closely mirrored thedecline in German corporate investment activity. Inaddition, our competitors have responded to the con-tracting market with personnel cutbacks and a morerestrictive loan policy.

During the period under review, very few industrialfinancing projects were put out for tender. Againstthe backdrop of our unremittingly high standards of


quality regarding creditworthiness and risk, wereceived the mandate for structuring and arrangingtwo projects. The size and sluggish development ofthe market and our conservative risk policy meanthat also in future we will be focusing on a smallnumber of selected projects.

Nevertheless, we still believe that project finance ofmid-cap transactions up to EUR 250 million in volumealso ought to be of interest to the German Mittel-stand. In any case, with respect to their rating andcredit pricing medium-sized companies in this coun-try are increasingly thinking in terms of cash flow-oriented financing. As a result, we see continuedpotential for growth in the German project financingmarket.

With respect to international industrial projectfinancing, we adopted a cautious line during the peri-od under review when it came to participating in syn-dicated financing transactions, particularly onaccount of the structures and project-specific riskprofile regarding country risks and sponsor risks.Here, our focus is on petrochemicals, the metal indus-try, the pulp and paper business and the semiconduc-tor sector. The semiconductor industry was charac-terised by massive price reductions, which had adepressing effect on investment. Conversely, moretraditional industries displayed an increased willing-ness to invest.

In this market environment, we succeeded in obtain-ing the mandate for structuring two major interna-tional projects – one in Indonesia, the other in Slove-nia – and in both cases were able to bring KfW onboard as co-arranger. The total financing volume ofthe two mandates came to US$ 200 million and US$380 million, respectively, making them the largestinternational project financing transactions everstructured by IKB.

During the period under review we stepped up ouroperations in the field of infrastructure financing. Forinstance, we are participating in the British and Euro-pean public finance initiative (PFI) market via a teamat our London branch. In all, we were able to partici-pate in ten financing transactions. We consider thisform of financing public building programmes to betrend-setting for Germany, too.

In the past, our infrastructure financing operationsalso focused on major projects in the telecommuni-cations and energy fields. However, in the wake ofaccounting scandals in both of these industries, aswell as an accelerated process of concentration andinvestment saturation, activity in this market seg-ment dropped off markedly. In light of the still uncer-tain earnings prospects of the UMTS business, wecontinue to take a critical view of investment projectsin this segment. Owing to the sluggish US economy,the range of projects on offer in the energy sectorwas also limited. As a result, we participated in justfive projects. In a welcome development made possi-ble by our Networked Sales system, however, IKBStructured Assets GmbH successfully implemented amandate for structuring and arranging three on-shore wind farms for a major German power genera-tor.

Our export financing activities are oriented to localproducers mainly in Latin America and SoutheastAsia which are supplied with individual machines orentire production facilities by German manufacturersof plant and equipment (e.g. printing machines, tex-tile machine and polycondensation units). Loans ofthis type are normally insured at federal level againstthe risk of insolvency (Hermes). These loans enableour export-oriented Mittelstand clients not only tosell their products to customers in these countries,but also to get across to them long-term loans atcomparatively low German interest rates.


During the period under review, Brazil and Mexicoaccounted for the bulk of export financing loans.Especially in Brazil, the change of government gave asustained boost to business confidence, giving freshimpetus to investment. We continue to assess theprospects for export financing in Latin America, andparticularly in Brazil and Mexico, as quite positive.Turning to Southeast Asia, much the same applies toIndonesia, Thailand and the Philippines. Moreover, wehave recently notice an increase in enquiries forexport financing from Central and Eastern Europe,where local producers are primarily interested inlong-term financing for imported production plantand equipment, something which local banks areunable to provide.

In our portfolio of project, infrastructure and exportfinancing, too, we pursue a systematic strategy ofextensive diversification: our complete portfoliotakes in 30 Moody’s sectors, with no single industryaccounting for more than 9 % of the whole, and withno individual loan exceeding the 3 % limit.

International Direct Investments

Declining direct investment in CEE countries –

Selective new business in international

investment financing – EU candidate countries

remain an attractive growth market

Last year there was no upward trend in the invest-ment projects of German medium-sized companiesin Central and Eastern Europe (CEE), which in the pastwe had primarily financed in Poland, the CzechRepublic and Hungary. This reflects the general reluc-tance of German companies to invest at present.Added to this is the fact that economic growth inthese countries is no longer reaching the heightsattained in previous years. Moreover, competitivepressure from local banks has grown to such an

extent in recent years that the margins attainable ininvestment financing have in part fallen to such a lowlevel that we have adopted a highly restrictive stancewhen it comes to new lending.

With a view to our exposure in the region thus far, ourpolicy of lending only when our stringent creditwor-thiness and earning criteria are met has been thor-oughly vindicated. Our portfolio of internationaldirect investment loans, which amounts to EUR 350

million, has thus far never suffered from significantpayment irregularities. Within the framework of ouroutplacement agreement, the EBRD continues totake up a 35 % share in new loan accommodations.

Despite the current slowdown in economic growth inCEE – and particularly in light of the planned acces-sion to the EU of ten countries – we continue to seeexcellent prospects for growth in the region, with asteady flow of capital goods exports and directinvestment by German Mittelstand companies. How-ever, there will be a further shift in the relativeimportance of the motives governing direct invest-ment: in the 1990s, the countries of eastern CentralEurope were viewed primarily as attractive low-wageproduction locations; today direct investment isaimed first and foremost at entering local markets,where real incomes are rising disproportionatelyfaster than in the EU, thus promising to spur demandfor consumer goods. Furthermore, increasing politicalstability and dynamic economic growth are graduallytransforming Russia into an attractive productionlocation and market for the German Mittelstand.


5. Private Equity

Strengthening Corporate Equity to Seton Growth and TransformationProcesses of the German Mittelstand

Dr. Kerstin Waterloh and Holger Schragmann,IKB Private Equity GmbH


Turnaround successfully executed in a

difficult market – The process of consolidation

in the private equity market continues

During the period under review, the Private EquityDivision – after having generated a negative resultfrom ordinary activities for the 2001/2002 financialyear – moved back into the black, having successfullyexecuted the turnaround. The result from ordinaryactivities came to EUR 0.7 million.

Given the difficult conditions in the overall privateequity market, this development is all the more grat-ifying. Here, the weak level of business activity andthe sustained downward trend in the stock marketsled to a clear increase in the percentage of participa-tion exits owing to a renewed increase in write-offs inthe German participation market and a readily evi-dent decline in the total volume of gross investment(see figure on page 82 above). Furthermore, the stockmarket is still lacking as a possible exit option (seefigure on page 82 below), while the market for com-pany transactions has simultaneously contracted.

Consequently, the process of consolidation in the pri-vate equity market has proceeded unabated. In thiscontext, we note that the portfolios of many com-petitors are still beset by bad investments, and thatthese companies are currently busy restructuringtheir business models. In addition, a number of par-ticipation companies have already dropped out of themarket.

By restructuring our activities in the field of privateequity at the beginning of 2002, we have placed thisdivision on a new footing, thereby taking account ofthe steadily changing conditions underlying theprivate equity market.

By specialising in certain sectors, this reorientationaims to create the right conditions for a more effi-cient approach to the market with regard to earningsand risk. We now focus our efforts on well-estab-lished medium-sized companies in the following sec-tors:

• automotive parts suppliers and production goods,

• mechanical and electrical engineering,

• the consumer goods industry, logistics andservices;

• high-tech production technologies(physical science);

• life sciences/biotechnology and

• information and communication technologies.

In these sectors, we offer our customers – in allfinancing phases and for all financing purposes (earlystage, later stage, expansion financing, MBO/MBI) –direct participations and mezzanine financing. Tai-lored to the respective risk/profit profile, these formsof financing are furnished by our subsidiary IKB Pri-vate Equity GmbH.


Faced with these difficult market conditions, thePrivate Equity Division was unable to escape entirelyunscathed: this is reflected above all in our volume ofnew investments, which fell during the period underreview to EUR 32 million, down from EUR 55 millionthe year before. This was due not least to our highlyselective business policy. Focusing on certain sectors,we set stringent standards regarding the risk/profitpotential of the company to be financed and, takinginto account the company’s creditworthiness criteriaand prospects for growth, we invest only when areasonable return seems attainable. Thus, givenGermany’s current economic malaise, it is hardlysurprising that the private equity market offeredfewer attractive financing opportunities in the lastfinancial year.

Even so, thanks to three trade sales (entailing the saleof a participation to industrial investors) we wereable to generate considerable exit earnings, meaningthat the division’s other operating results increasedto EUR 11 million, up from – EUR 14 million the previ-ous year. This also reveals our success in exploitingthe most important exit channel currently available.In future, too, we will stick to the strategy of investingin direct participations only when the exit perspec-tive is clearly visible.

At March 31, 2003, the Private Equity investmentportfolio came to EUR 191 million (EUR 204 million),representing participations in 86 companies.

Development of Institutional Participation Investments andDisinvestments in the German Private Equity Market

-3

-2

2

Source:Bundesverband deutscher Kapital-beteiligungsgesellschaften e.V.

0

1995 2000

-1

1

3

4

5

1996 1997 1998 1999 2001 2002

■ Gross investments

■ Disinvestments■ thereof: Disinvestments due to

depreciations (since 1999)

EUR billion

IPOs at the German Stock Exchange1997 to 2002

0

5

15

25

Source:Deutsche Börse AG

10

20

1997 1998 1999 2000 2001 2002

Number


Expansion financing currently focused –

IKB/KfW Mezzanine Fund set up to fuel growth

of established medium-sized companies

New business during the past financial year focusedfirst and foremost on expansion financing for estab-lished, fast-growing companies of the Mittelstand.Here, we have noted a marked tendency of our cus-tomers to finance their growth either through exter-nal equity or mezzanine capital. Basel II has prompt-ed many companies to improve their creditworthi-ness and rating by bolstering their equity ratio.

Responding to this need, we cooperated with KfW insetting up a mezzanine fund in November 2002. Thefund offers atypical silent capital, i.e. financing withsuccess-dependent interest and partial loss participa-tion with limited rights of participation, with a totalvolume of EUR 100 million.

A prerequisite for the stability and success of the fundis an appropriate risk/profit profile for each loan. Toensure this, we have established a series of bench-marks with regard to minimum requirements of cor-porate creditworthiness. A well-balanced portfoliostructure is another key factor for success. Therefore,the foremost objective of the fund’s investment poli-cy is to achieve a sufficiently high degree of diversifi-cation to guarantee an adequate distribution of risk.

Of the more than 200 participation financiers cur-rently operating in Germany, fewer than 5 % ofproviders offer mezzanine financing at an amount ofmore than EUR 5 million relevant to the larger com-panies of the medium-sized sector. To this extent, theIKB/KfW mezzanine fund fills a gap in the market. Wehave already executed two investments with a com-bined volume of EUR 11 million (please see our casestudy on Poppe & Potthoff). Moreover, several otherpotential participations are currently beingprocessed. Our objective is to have the fund fully sub-scribed by mid 2004, with investments in approxi-mately 20 companies.

Buy-out market as an interesting growth

segment – IKB Private Equity and Sal. Oppen-

heim join forces to set up an evergreen fund

The market for financing management buy-outs(MBOs), i.e. the sale of a company to its own manage-ment, is growing fast and thus offers interestingpotential for Private Equity. A buy-out of this type canbe a suitable means of settling questions of succes-


sion, a predicament that many well-establishedmedium-sized companies will soon be facing. Thesame applies for spin-offs, in which single divisions oflarge industrial companies are outsourced to formindependent enterprises. This phenomenon can bewitnessed in many sectors in which companies dur-ing a phase of consolidation shed peripheral opera-tions in order to focus on core competencies.

In the past, we have already participated in a series ofMBO transactions, and plan in future to pursue thisactivity even more intensively in cooperation withSal. Oppenheim, our new partner. IKB Private Equity isthus working in tandem with Sal. Oppenheim to cre-ate a new private equity fund with an intended totalvolume of EUR 200 million. This fund will make buy-out capital available in the form of individual partici-pations of up to EUR 20 million, which will enable usto issue majority participations in MBO transactions.Furthermore, expansion financing on a larger scalecan now be undertaken. The fund will have an ever-green structure, meaning that it will have an unlimit-ed lifespan.

Poppe & Potthoff (P&P) has been in family hands for four generations.Founded in 1928, the company has recently made the transition from nichesupplier of seamless precision steel pipes, pipe parts and components to aspecialised supplier of the automotive industry in the field of electronicallycontrolled diesel injection systems (Common Rail). Owing to P&P’s coopera-tion with major industrial companies in this field, its Common Rail opera-tions are likely to grow disproportionately faster than its other activities.P&P’s many decades of experience in developing and manufacturinghigh-pressure pipes and fuel injection tubing paved the way for a productconcept that takes particular account of the special pressure requirementsof modern diesel engines, and which have placed the company on thetechnological cutting edge of this vital sector. Moreover, the P&P conceptoffers the system manufacturers flexibility of design, low costs and shortdevelopment timeframes.

Growth means having to invest in new production capacity. P&P hasresponded to this need by building a new production facility at Ajka inHungary. A silent participation by the IKB/KfW Mezzanine Fund furnishedthe financial basis for this major expansion, meaning that P&P was ableto acquire financing based on solid equity. This has made a substantialcontribution to maintaining the company’s strong financial standingwhile at the same time enabling it to expand its market share in a highlycompetitive environment.

The IKB/KfW Mezzanine Fund offers atypical participations (with profit andloss sharing) to competitive, strong-earning medium-sized companies withannual sales of EUR 50 million to EUR 500 million in order to financeinvestment in growth. The participations range in volume from a minimumof EUR 2.5 million to a maximum of EUR 8 million per individual invest-ment, with a maturity of five to seven years. In the process, the Fund seeksto achieve a return on each investment of at least 13 % p.a. The earningsexpectations vary depending on the company rating and the earnings andrisk profile of the investment to be financed, and contain both the fixed andvariable profit-dependent components of the interest payments. In total,the Fund has EUR 100 million at its disposal. In choosing its participations,care is taken to achieve a diversified sector mix, with no single sectoraccounting for more than 20 % of the total.

Stronger equity for fuelling growth in future markets –Poppe & Potthoff: a development and service partnerof the automobile industry


The establishment of a joint private equity fund byIKB Private Equity and Sal. Oppenheim represents animportant supplement to our activities in the field ofparticipation financing, and especially with regard tothe IKB/KfW mezzanine fund. Thanks to this move,we can now offer our customers a full spectrum ofparticipation financing products for every phase offinancing and in all relevant volumes.

The internal restructuring of the Private Equity Divi-sion, coupled with the new activities carried out incooperation with our partners, constitute importantsteps in the major reorientation embarked on duringthe period under review. As a result, we succeeded ininitiating a process of consolidation in the division ontime. Against this backdrop we believe that thebank’s Private Equity Division is poised for profitablegrowth, the difficult operating environment at pres-ent notwithstanding.

At the beginning of 2003, IKB andSal. Oppenheim entered into a cooperation.

Against the backdrop of almost identicaltarget groups and a complementary

procuct offer, the aim of the partnership isto realise additional earnings.

The photo shows Dr. Alexanderv. Tippelskirch, Chairman of the Board of

Managing Directors of IKB, and MatthiasGraf von Krockow (r.), Chairman of

Personally Liable Partners ofBankhaus Sal. Oppenheim.


6. Treasury and Financial Markets

Structuring and Mobilising Loan Portfolios:Profitable Investments in International Loan Portfolios –Reinforced Activities of Securitising Clients’ ClaimPortofolios via ABS – IKB as a Financial Arranger betweenCapital Markets and Companies

Barbara Ohlhaver and Michael Pinkus,Treasury and Financial Markets Division,IKB Deutsche Industriebank AG


Funding

For many participants in the market, turbulence inthe capital markets and the downgrading of manybanks and insurers means that the funding situationhas in part deteriorated persistently; in particular,margins in the money and capital markets havewidened appreciably. Since IKB is one of the fewbanks displaying a positive earnings trend and a sta-ble rating, the bank continued to have full access tothe market and, contrary to the general trend, wasable to obtain funding at comparatively moderatemargins.

We continued our traditional policy of individualfunding with public sector development banks cou-pled with capital market funding, further refining theproduct mix. Capital market funding consists of ourtap issues (customised and issued at particularlyfavourable terms), large-volume syndicated bondsand Schuldscheindarlehen (certificates of indebted-ness). These issues were also partly arranged under adebt issuance programme (DIP), enabling a simpleissuance process for issuer and investor alike. Espe-cially in light of the increasingly international charac-ter of our funding operations, the DIP represents animportant instrument, providing a harmonised stan-dard platform. Our circle of investors has widenedbeyond the traditional target countries of theBenelux states, Switzerland, Austria and France, andnow encompasses the UK and southern Europe.We were once again able to meet investor demandfor interest rate-structured issues or Schuldschein-darlehen at favourable terms.

We continued to place great emphasis on safeguard-ing the market value of our tap issues. For theinvestor, they are a guarantee of liquidity at all times.In the domain of asset and liability management, wecontinued to adhere to a cautious policy of funding atmatching maturities.

We took special care to ensure that our comparative-ly favourable terms of financing would remain intactdespite the general trend toward wider spreads in thefinancial sector. With this objective in mind, we initi-ated a European Commercial Paper Programme (ECP)in order to further hedge our money market funding.This involves issuing short-term securities with matu-rities of up to one year, which are placed with Germanand international money market investors. In thisway, we have rounded out our issuance platform, tak-ing in shorter-term maturities and thus diversifyingour funding structure.

Securitisation

Own Assets. With a volume of EUR 5.3 billion, IKB hassince outplaced a significant portion of credit risks ofits loan portfolio. The bulk of these syntheticallyexecuted securitisations were performed using theKfW PROMISE platform and contain replenishmentclauses, meaning that payments that become duecan, in accordance with predetermined parameters,be replenished either in whole or in part. By means ofthese replenishments we re-securitised a loanvolume of EUR 1.3 billion during the period underreview, as planned.

Our strategy is to structure the loan and securitiesassets on our balance sheet so flexibly that they canbe outplaced at any time. From the regulatory andrisk management standpoints, this type of portfoliomanagement has become a crucial prerequisite for asuccessful positioning in the market. We will there-fore continue to pursue these activities on an inten-sive basis, and together with KfW push new develop-ments in this field.


Investments in international loan portfolios. In part,we use the freedom for manoeuvre resulting fromthese outplacements as a means of expanding ourdomestic loan operations; on the other hand, weinvest in international loan portfolios in order furtherto improve the diversification of our loan assets aswell as the bank’s earning structure. In the process,we exploit IKB’s longstanding, wide-ranging experi-ence in analysing and monitoring risks, and also drawon our considerable expertise in the field of CLOtransactions.

At March 31, 2003, our portfolio of balance sheet-relevant investments in international loan portfolioscame to EUR 1.9 billion. These investments are madein highly diversified portfolios in a wide range ofasset classes. We invested especially in asset-backedsecurities (ABS) issues, whose strongly segmentedclaims structures guarantee a high degree of diversi-fication. Furthermore, we also invested in securitisedcorporate portfolios in the United States and WesternEurope. With respect to regions two thirds of ourinvestments accounted for Northern America andone third for Western Europe. Over 40 % of ourinvestments have an AAA rating, while more than95 % are rated as investment grade. Our risk costs arecorrespondingly low.

Apart from our own investments, we also advise aninternational investment company (conduit). Withinthe framework of an investment advice contract, weprovide management advisory for an investmentportfolio of EUR 4.4 billion. Furthermore, in coopera-tion with other banks, we also furnish the conduitwith liquidity and security lines, for which we receivea commission.

The results of our own outplacements and our invest-ments in international loan portfolios are posted forthe first time in the “Securitisation” segment of ourSegment Report 2002/2003. Net interest and com-mission income came to EUR 47.7 million, while theresult from ordinary activity was EUR 36.7 million.

Capital market products for customers

Asset-backed securities transactions. Having accumu-lated comprehensive know-how in the course ofstructuring and placing our CLOs, as well as from ourextensive investments in securitised structures, wehave begun making this expertise available to select-ed customers. This involves the securitisation of sup-plier or service claims of these customers to third par-ties, which are sold in the form of ABS securitisationsand thus taken off the balance sheet and mobilisedfor funding purposes.

We primarily target companies with a sufficientlydiversified receivables portfolio and annual sales of atleast EUR 200 million. For our customers, having theirreceivables securitised is interesting primarilybecause it enables them to improve their balancesheet ratios while simultaneously reducing theirneed for borrowing. At times when credit tends to betight, securitisation can serve as a welcome source offurther diversification in the structure of operatingfinance.

During the year under review, we received our firstmandates within the framework of these ABS trans-actions. In coming years we expect to see a dynamicgrowth in earnings in this field.


Schuldscheindarlehen. The so-called Schuldscheindar-lehen (certificates of indebtedness) are negotiableloans, forming a link between conventional financingand the corporate bond. In cooperation with the Cor-porate Lending Division, during the past financialyear our team of specialists arranged Schuldschein-darlehen for ten companies with an aggregatevolume of EUR 225 million. When it came to place-ment, the bank was able to exploit its good relationswith national and international investors. As afurther means of reducing risk, securitisation eithertogether with corporate loans or in the form of aSchuldschein-CLO is also an option. In the area ofSchuldscheindarlehen, too, we expect to see rapidexpansion in coming years.

Fixed Income

When it comes to investing the bank’s equity andmanaging interest rates and currency (fixed income),we pursue the goal of sustained, assured liquidity, aswell as the stabilisation and optimisation of theGroup’s earning structure. Once again, the manage-ment of our liquid funds during the past financialyear made an appreciable contribution to earnings. Atthe same time, valuation reserves are built up which,in the event of certain market developments, can berealised in order to influence the results.

Whereas our cash investments are placed in exceed-ingly low risk, highly rated variable interest rate mort-gage bonds (Pfandbriefe) and other high-liquiditysecurities, innovative interest rate products areemployed in order to achieve greater optimisation. Inthis way it is possible to attain a higher yield thanwith conventional Federal Government Bonds. Theinvestment positions are carried out within definedlimits and measured daily.

Equity measures

In order further to reinforce our equity position,during the period under review we took up hybridcapital totalling EUR 450 million. Group capitalisationwas augmented by EUR 250 million via IKB FundingLLC I, Delaware; the silent participation of CapitalRaising GmbH, Norderfriedrichskoog, worth EUR 200

million, increased the capitalisation of both theGroup and the AG. As a result of these capital meas-ures, the Group fulfilled the Principle I equity ratiowith 12.1 % (12.1 %); the core capital rose to 7.4 %, upfrom 6.4 % the previous year.

IKB as Designated Sponsor of IKB shares

The mission assigned to us by Deutsche Börse AG toserve as designated sponsor of our own shares is aresponsibility we take very seriously. The regular quo-tation of bid and asked prices in the Xetra electronictrading system ensures the marketability and liquidi-ty of our stock throughout the trading day. Our per-formance of these duties once again earnedDeutsche Börse AG’s highest seal of quality, an AArating. At the balance sheet date, the bank held noneof its own shares.


Derivatives

In the field of interest rate and currency hedging,derivatives continue to play a substantial role forhedging and optimising our fixed income manage-ment operations. This is particularly true of interestrate swaps and options. Here, we invest in highlyrated floating rate notes that are combined withswaps in order to transform the floating interest rateinto the desired fixed interest rate. In addition, theseswaps can be combined with options so as to opti-mise earnings.

At just below EUR 26 billion, the total reference vol-ume of the derivatives remained at the previousyear’s level. In loan operations this corresponds to arisk equivalent of EUR 2.3 billion. Just as in the past,we engage in derivatives operations solely with top-ranking domestic and foreign banks, apart from situ-ations where these operations are in any case trans-acted via the stock markets. There has been anincreasing tendency to hedge against potential risksto derivative positions by means of collateral agree-ments, a mutually beneficial approach.

Trading operations

Although our trading for own account is run as a prof-it centre, it does not constitute a strategic source ofrevenue. Essentially, we operate it for reasons of mar-ket positioning, and have long since focused on theEuro interest rate and Euro stock market. In a difficultenvironment characterised by high volatility in themarket, we are pleased to have achieved a positiveresult for the past financial year of EUR 0.8 million.

IKB International

and the IKB Luxembourg branch

The core business of our two Luxembourg-basedunits, IKB International S.A. and the Luxembourgbranch, is lending – increasingly involving the use offinancial derivatives for interest rate and currencymanagement – predominately to medium-sized Ger-man companies and commercial investors in realestate, as well as structured international finance.Luxembourg serves as the Group’s centre of compe-tence for foreign currency loans and financial riskmanagement (derivatives) for our customers, whilesimultaneously functioning as a service centre for theback office functions of our foreign branches.

Financial risk management in particular has gained insignificance. First and foremost, this entails the use ofinterest rate and currency swaps for optimising ourcustomers’ financing structures.With this objective inmind, the bank has developed a consulting model fordetermining the ability of a company to bear risk,taking into account the company’s previous perform-ance data, individual plans for the future and antici-pated industry trends. Building on this foundation,conclusions are drawn on the risk profile of individualpositions under various market scenarios, thusenabling us to assess the impact of using made-to-measure financial risk management instruments andto draw up a risk strategy.


Cooperation with UniCredit Banca Mobiliare (UBM).

During the past financial year, our customers dis-played greater interest in concluding derivativestransactions, especially interest rate swaps, the lowinterest rates prompting many of our customers toshift from floating to fixed rates at a very favourablelevel.

Owing to rising demand for more complex interestrate and currency management products as well asin-depth advice on risk, IKB International doubled itsconsulting capacity during the year under review. Theincreasingly complex nature of the products andthe related consulting requirements pose a majorchallenge to our customer advisors, as well as placinga burden on our monitoring and processing systems.

In order to respond effectively to these requirements,the bank signed a joint venture agreement with Uni-Credit Banca Mobiliare (UBM) of Milan. In so doing,we have joined forces on behalf of the German Mit-telstand with a highly reputable bank with a strongtrack record in this sector. Located in Luxembourg,this joint venture will begin advising IKB clients onfinancial risk management starting in autumn 2003,offering customised derivative products for interestrate and currency management.

Corporate Bonds. During the past financial year thebank also set up a new Corporate Bonds unit, the aimbeing to establish a portfolio of investment gradeEuropean issues. Thanks to this new activity, our port-folio of securities rose compared to the previous yearby nearly 50 % to EUR 200 million.

The underlying macroeconomic conditions for ourLuxembourg subsidiary were very difficult during theyear under review. Even so, the unit attained a dis-bursement volume of EUR 1.1 billion; net income forthe year was EUR 8.6 million.

According to a cooperation agreementwith UniCredito Italiano IKB will be

establishing together with the investmentunit UniCredit Banca Mobiliare (UBM) a

joint venture in Luxembourg this autumncalled IKB CorporateLab. This company will

offer consulting and financial servicesoptimising the balance sheet structures of

our customers.

The photo shows (from left to the right)Dr. Alexander v. Tippelskirch, Chairman of

the Board of Managing Directors of IKB,Pietro Modiano, Deputy Chief Executive

Officer of UniCredito Italiano,Stefan Ortseifen, Member of the Board of

Managing Directors of IKB, on the occasionof signing the agreement on March 20,

2003 at Düsseldorf.


We would like to thank all of our employees for theirdedication, hard work and strong identification withthe bank. We are highly convinced that with theirskills, knowledge and commitment, we are building astrong foundation for a successful future develop-ment.

During the past financial year as well IKB employedmodern instruments of human resource policy inorder to keep pace with the dynamic developments inthe market and adapt to a changing operating envi-ronment, helping our employees to fulfil their taskswith increasingly well-targeted assistance. Accord-ingly, change management played an important rolein our human resource activities. The implementationand continuous modification of the human resourceinstruments introduced in recent years was pursuedjust as avidly as the simultaneous introduction ofnew instruments.

Staff Survey

In times of dynamic transformation, structural andpersonnel changes strongly influence the imageemployees have of the company they work for; theyare decisive in determining their attachment andcommitment to the bank. Following the changes inthe shareholder structure, the strategically motivatedreorganisation of the bank into divisions, and theintegration of more than 350 new employees overthe last three years, we were eager to obtain feed-back from the staff. Thus, aided by an external con-sultancy, we carried out a survey of our employees inorder to get a realistic picture of staff opinion. Theresults reveal the positive attitude of our employeesto their work. Especially noteworthy is the extraordi-narily high degree of identification with the bank.Over 90 % of the staff said they were very highly sat-isfied with IKB as an employer. Our employees alsotook a very positive view of the bank’s strategic ori-

entation and of their own job (79 % in each case).However, the results also revealed the need for actionwith regard to workflows and decision-making struc-tures. We take this criticism very seriously and areworking hard to bring about fast and lastingimprovements.

Human resource development

In parallel to the reorientation of the Corporate Lend-ing Division, a restructuring of our sales-related train-ing activities took place (Qualification Concept“Market”). Here, the primary aim was to strengthenthe Network Sales system by providing training in thesales-relevant knowledge of other divisions, with theprime focus during the year under review on Acquisi-tion Financing and Private Equity.

We have adopted a so-called blended learningapproach, consisting of a combination of e-learningand classroom instruction. A prerequisite for takingpart in these training courses was a certificateawarded for having successfully passed an intranet-supported test of knowledge. The 100 % participationand certification of our customer advisors can beevaluated as a considerable success. Apart from thesimple transmission of knowledge, sales-relatedmarketing instruments were developed which can beused in meetings with customers, thereby ensuringthat the knowledge transferred is put to practicaleffect. After the successful implementation of thefirst elements of the Qualification Concept, furthere-learning modules are currently being prepared andwill soon be implemented.

Furthermore, programmes for developing the skills ofjunior market unit employees and junior executivescontinued to be successfully pursued, with specialemphasis placed on activities that promote Net-worked Sales.

7. HumanResources


Initial and Advanced Training

At IKB we attach great importance to qualifiedadvanced training, and continue to develop our inter-nal programme accordingly. At 85 %, the ratio of staffmembers taking part in advanced training remainedat a high level (see graph).

Recruitment

In the field of recruitment we have intensified the useof the Internet. By using IKB’s website as well as bycooperating with Internet job markets, we havecreated an effective platform for seeking potentialapplicants. This platform has proved to be a highlyefficient means of attracting new personnel.

Salary transformation proposals/

private retirement insurance

In addition to public and company pension plans,since November 2002 we have offered two additionalmodels of private retirement arrangements: ouremployees can use the benefits provided by Ger-many’s Retirement Savings Act (Altersvermögens-gesetz), deciding each year which model to partici-pate in. In this way, financial planning for retirementcan be regularly adjusted to one’s phase in life andcurrent financial situation.

Health management

Health, a sense of wellbeing, and job satisfaction areclosely interconnected and crucial to the bank’s com-petitiveness. Thus, IKB has been promoting companysporting activities for some years now. Moreover, thehealth programme unveiled during the past financialyear aims to achieve a sound work-life balanceamong our staff members. During the first year of itsexistence, 116 employees took part in our new healthmaintenance measures.

Key human resources data

At March 31, 2003 the Group had 1,496 employees,up from 1,429 a year earlier. Of these, 563 wereassigned to the market units, 481 to head officedepartments, while 452 worked for subsidiaries. Inthe Group, a total of 12 trainees were undergoingtraining as bank officers or computer specialists.During the period under review, 142 new peoplejoined the IKB Group, while 75 departed the company.The termination-related rate of fluctuation droppedfrom 4.2 % last year to just 2.2 %, the lowest rate forthe IKB Group in eight years.Women made up 41 % ofthe staff, the same figure as the previous year. Theaverage age of our employees came to 41 years, whilethe average length of service with the bank was 9

years. Last year, 65 employees celebrated their tenthanniversary with the bank, and 15 their 25th anniver-sary. The subscription ratio for staff shares remainedat the high level of 75.3 %, the cost to the Group com-ing to EUR 160,000.

A word of thanks to the Staff Representatives

Within the framework of their tasks, the Staff Repre-sentatives pleaded for the interests of the employesswith large commitment. Our thanks go to the StaffRepresentatives for their constructive, trustful andobjective cooperation in the last financial year.

IKB Internal Training Seminars 2002/2003

Number of Participants

Advanced Seminars

Acquisition

Leadership/Junior Executives

IT-Seminars

Methods and Reponse

Foreign Languages

Workshops for newEmployees

434

92

110

126

133

152

174


97

Financial Statements

Consolidated Balance Sheet andConsolidated Income Statementof IKB Deutsche Industriebank

Balance Sheet andIncome Statementof IKB Deutsche Industriebank AG

Notes to the Consolidated and the AG’sFinancial Statements

Auditors’ Report


98

March 31, 2003 March 31, 2002

Assets EUR thousand* EUR thousand EUR thousandLiquid fundsa) Cash 94 127

b) Balances with the central banks 26 961 10 445

of which: with the Deutsche Bundesbank 26 852 (10 225)

c) Balances on postal giro accounts 110 7

27 165 10 579

Claims on banksa) payable on demand 1 341 480 311 321

b) other claims 798 150 1 293 626

2 139 630 1 604 947

Claims on customers 24 803 021 24 600 308

of which: loans to public authorities 2 192 654 (1 799 696)

Debentures and other fixed interest securitiesa) Bonds and debentures

aa) from government issuers – –

ab) from other issuers 5 858 361 4 782 165

5 858 361 4 782 165

of which: eligible as collateral for advances from the Deutsche Bundesbank 4 198 150 (3 710 931)

b) own bonds 68 494 145 598

face value 65 555 (74 027)

5 926 855 4 927 763

Shares and other non-fixed interest securities 37 520 37 691

Investments 38 157 38 878

of which: in banks 37 086 (37 269)

of which: in financial services companies – (–)

Shares in subsidiary companies 6 966 8 068

of which: in banks – (–)


Trust assets 5 688 6 018

of which: loans on a trust basis at third party risk 4 262 (4 574)

Tangible fixed assets 245 416 214 706

Leasing items 2 466 056 2 346 384

Outstanding capital of minority shareholders 48 867 48 465

Other assets 528 555 891 325

Deferred items 135 850 138 868

Total assets 36 409 746 34 874 000

Consolidated Balance Sheet of IKB Deutsche Industriebank

* in parentheses: Previous year’s figures


99

as at March 31, 2003

March 31, 2003 March 31, 2002

Liabilities EUR thousand* EUR thousand EUR thousandLiabilities to banksa) payable on demand 1 383 609 754 273

b) with agreed maturity or period of notice 14 839 721 14 682 012

16 223 330 15 436 285

Liabilities to customersOther liabilitiesa) payable on demand 115 620 61 014


2 019 132 2 250 446

Securitised liabilitiesBonds and notes 13 699 786 12 975 080

Trust liabilities 5 688 6 018


Other liabilities 539 307 531 493


Provisionsa) provisions for pensions and similar obligations 128 642 123 494

b) tax provisions 149 353 131 644

c) other provisions 59 478 45 517

337 473 300 655

Special items including reserves 5 934 7 570

Subordinated liabilities 631 756 868 413

Participation certificate (Genussschein) capital 613 759 623 759

of which: with remaining maturities of less than two years 51 129 (51 129)

Fund for general bank risks 80 000 80 000

Participations of minority shareholders 11 434 14 483

Equitya) subscribed capital 225 280 225 280

contingent capital: 22 528 (22 528)

b) hybrid capitalba) silent capital 370 000 170 000

bb) preferred shares 250 000 –

620 000 170 000

c) capital reserves 567 416 567 416

d) revenue reservesda) statutory reserves 2 399 2 399

db) other revenue reserves 359 747 316 292

362 146 318 691

e) consolidated profit 11 140 29 231

1 785 982 1 310 618

Total liabilities 36 409 746 34 874 000

Contingent liabilitiesa) contingent liabilities arising from rediscounted bills of exchange 1 280 459

b) contingent liabilities arising from guarantees and indemnity agreements 2 158 340 1 747 709

2 159 620 1 748 168

Other obligationsIrrevocable loan commitments 6 872 346 5 800 047



100

2002/2003 2001/2002

Expenses EUR thousand* EUR thousand EUR thousandInterest expenses 2 331 353 2 424 069

Commission expenses 11 849 5 303

Net expenses from financial operations – –

General operating expensesa) Personnel expenses

aa) Salaries and wages 110 698 101 088

ab) Social security contributions and employeebenefit and pension expenditure 27 111 32 343

of which: for pensions 12 799 (19 509)

137 809 133 431

b) other administrative expenses 65 143 54 889

202 952 188 320

Depreciation and value adjustments on intangibleand tangible fixed assets 19 373 20 214

Depreciation of leasing items 396 167 312 777

Rental expenditure on leasing items andother service related expenses 12 499 11 869

Other operating expenses 33 072 38 494

Write-downs and value adjustmentsto claims and securities, plus transferto provisions for possible loan losses 183 421 175 186

Write-downs and value adjustments on investments,holdings in subsidiary companies andsecurities treated as long-term investments 193 –

Expenditure for loss takeovers 6 –

Allocations to special items including reserves 361 2 651

Transfer to the fund for general bank risks – –

Taxes on income and earnings 76 804 73 508

Other taxes not entered under “other operating expenses” 4 153 3 681

Profits transfered on the basis of a profit pool, a profit transfer agreement or a partial profit transfer agreement – –

Net income for the year 85 839 83 129

Total expenses 3 358 042 3 339 201


Attributable to other partners Profit –3 070 –4 360

Loss 10 605 9 845

Loss carried forward from the previous year –39 234 –17 433

54 140 71 181

Release of revenue reservesof revenues for own shares – 529

Allocation to revenue reservesto revenues for own shares – –

to other revenue reserves –43 000 –42 479

Unappropriated profit 11 140 29 231

Consolidated Income Statement of IKB Deutsche Industriebank

* in parentheses: Previous year’s figure


101

2002/2003 2001/2002

Income EUR thousand EUR thousandInterest income froma) lending and money market operations 2 478 596 2 541 512

b) fixed interest securities and government-inscribed debt 178 398 211 029

2 656 994 2 752 541

Current income froma) shares and other non-fixed interest securities 645 730

b) investments 1 160 4 071

c) holdings in subsidiary companies – –

1 805 4 801

Income from profit pooling, profit transfer, andpartial profit transfer agreements – –

Commission income 75 960 44 800

Net income from financial operations 842 1 939

Earnings from write-ups relating to investments,holdings in subsidiary companies,and securities treated as fixed assets – –

Income from leasing operations 566 239 462 689

Earnings from the release of special items including reserves 1 997 283

Other operating income 54 205 72 148

Total income 3 358 042 3 339 201

for the Period April 1, 2002 to March 31, 2003


102

March 31, 2003 March 31, 2002

Assets EUR thousand* EUR thousand EUR thousandLiquid fundsa) Cash 85 120

b) Balances with central banks 26 880 10 338

of which: with the Deutsche Bundesbank 26 852 (10 225)

c) Balances on postal giro accounts 100 6

27 065 10 464

Claims on banksa) payable on demand 1 766 572 878 219

b) other claims 6 413 008 5 942 494

8 179 580 6 820 713

Claims on customers 21 840 364 22 200 570

of which: loans to public authorities 2 192 654 (1 799 696)

Debentures and other fixed interest securitiesa) Bonds and debentures

aa) from government issuers – –

ab) from other issuers 5 635 468 4 635 500

5 635 468 4 635 500

of which: eligible as collateral for advances from the Deutsche Bundesbank 4 038 550 (3 608 056)

b) own bonds 68 494 145 598

face value 65 555 (140 225)

5 703 962 4 781 098

Shares and other non-fixed interest securities 13 000 15 411

Investments 946 923

of which: in banks 294 (294)


Shares in subsidiary companies 390 465 367 915

of which: in banks 164 839 (164 839)


Trust assets 5 688 6 018


Tangible fixed assets 58 428 52 977

Treasury shares – –

nominal amount – (–)

Other assets 416 600 756 399


Total assets 36 768 032 35 143 819

Balance Sheet of IKB Deutsche Industriebank AG



103

as at March 31, 2003

March 31, 2003 March 31, 2002

Liabilities EUR thousand* EUR thousand EUR thousandLiabilities to banksa) payable on demand 1 135 746 1 299 105


17 277 020 16 560 930

Liabilities to customersOther liabilitiesa) payable on demand 134 996 72 580


2 034 089 2 125 902

Securitised liabilitiesBonds and notes 13 653 204 12 919 627

Trust liabilities 5 688 6 018


Other liabilities 380 558 399 438


Provisionsa) provisions for pensions and similar obligations 113 450 108 833

b) tax provisions 139 883 114 853

c) other provisions 57 846 39 073

311 179 262 759

Subordinated liabilities 881 781 868 413

Participation certificate (Genussschein) capital 613 759 623 759

of which: with remainingmaturities of less than two years 51 129 (51 129)

Fund for general bank risks 80 000 80 000

Equitya) subscribed capital 225 280 225 280

contingent capital: 22 528 (22 528)

b) silent capital 200 000 –

c) capital reserves 567 416 567 416

d) revenue reservesda) statutory reserves 2 399 2 399

db) reserves for treasury shares – –

dc) other revenue reserves 344 832 302 232

347 231 304 631

e) distributable profit 67 760 67 760

1 407 687 1 165 087

Total liabilities 36 768 032 35 143 819

Contingent liabilitiesa) contingent liabilities arising from rediscounted bills of exchange 1 280 459

b) contingent liabilities arising from guarantees and indemnity agreements 4 621 489 4 000 936

4 622 769 4 001 395

Other obligationsIrrevocable loan commitments 6 548 341 4 981 719



104

2002/2003 2001/2002

Expenses EUR thousand* EUR thousand EUR thousandInterest expenses 2 316 064 2 448 583

Commission expenses 9 214 2 090

General operating expensesa) Personnel expenses

aa) Salaries and wages 80 270 73 878

ab) Social security contributions and employeebenefit and pension expenditure 22 288 27 351

of which: for pensions 11 939 (17 997)

102 558 101 229

b) other administrative expenses 57 523 47 618

160 081 148 847

Depreciation and value adjustments on intangibleand tangible fixed assets 12 425 13 865

Other operating expenses 12 454 10 330

Write-downs and value adjustmentsto claims and securities, plus transfersto provisions for possible loan losses 153 417 141 228

Expenditure for loss takeovers 142 42 922

Taxes on income and earnings 72 110 63 734

Other taxes not entered under“other operating expenses“ 484 478


Total expenses 2 846 752 2 968 187


Release of revenue reservesof revenues for own shares – 529

Allocation to revenue reservesto other revenues reserves –42 601 –28 879

Unappropriated profit 67 760 67 760

Income Statement of IKB Deutsche Industriebank AG

* in parentheses: Previous year’s figure


105

2002/2003 2001/2002

Income EUR thousand EUR thousandInterest income froma) lending and money market operations 2 519 874 2 616 921

b) fixed interest securities and government-inscribed debt 170 918 203 042

2 690 792 2 819 963

Current income froma) shares and other non-fixed interest securities 645 730

b) investments 1 871 52 071

c) holdings in subsidiary companies 5 503 5 323

8 019 58 124

Income from profit pooling, profit transfer,and partial profit transfer agreements 39 325 15 416

Commission income 91 030 55 993

Net income from financial operations 837 1 940

Earnings and write-ups relating to investments,holdings in subsidiary companies,and securities treated as fixed assets – –

Other operating income 16 749 16 751

Total income 2 846 752 2 968 187

for the Period April 1, 2002 to March 31, 2003


The consolidated Group accounts and the financial statements of IKB Deutsche Industriebank AG are prepared in accordancewith regulations contained in the German Commercial Code (HGB), in conjunction with the accounting regulations for financial institutions (RechKredV), as well as with the relevant provisions of German Stock Corporation Act (AktG). Further-more the financial statements of the IKB Deutsche Industriebank Group are drawn up in accordance with the SeventhCouncil Directive of June 13, 1983 based on the Article 54 (3) (g) of the Treaty on consolidated accounts (83/349/EEC) andCouncil Directive of December 8, 1986 on the annual accounts and consolidated accounts of banks and other financialinstitutions (86/635/EEC) and the requirements for publication of the European Union. The financial statements complywith the Standards adopted by the German Accounting Standards Board (GASB) and published by the Federal Ministry ofJustice in accordance with Article 342, Section 2, of the German Commercial Code (HGB).

The notes to the financial statements of IKB Deutsche Industriebank AG and the Group accounts have been presentedtogether in accordance with Article 298, Section 3, HGB.

Consolidated Companies

Apart from the parent company, fifteen domestic and five foreign companies are included in the consolidated financialstatements at March 31, 2003. In accordance with Article 285, No. 11 of the German Commercial Code (HGB) and Article 313,Section 2, HGB we have entered the consolidated companies in the List of Investments under “A.”, while in accordance withArticles 325 and 287, HGB the list of 425 real estate special purpose entities, as well as 23 corporate participations held byIKB Private Equity GmbH and IKB Venture Capital GmbH respectively will be filed with the Commercial Register in a separateschedule. Partnerships eligible for exemption in accordance with Article 264 b HGB are listed in a separated category.

Four newly founded companies – IKB Autoleasing GmbH, Hamburg, IKB Funding LLC I, Wilmington, Delaware, USA, as well asthe indirect participations in IKB Mezzanine Verwaltungs GmbH, Düsseldorf, and IKB Mezzanine GmbH & Co. KG, Düsseldorf– augmented the number of companies to be consolidated. These companies are fully included in the consolidated financialaccounts. The objective of IKB Autoleasing GmbH is to purchase and to lease any sort of vehicle, superstructure as well asfacilities and equipment related to the automotive sector. In order to strengthen regulatory capital of IKB Group IKB FundingLLC I, issued noncumulative trust preferred securities, which are disclosed in the balance sheet item “Equity” as hybrid capital.

In the period unter review our subsidiary IKB Private Equity GmbH in cooperation with Kreditanstalt für Wiederaufbau (KfW)founded the mezzanine fund IKB Mezzanine GmbH & Co. KG, Düsseldorf, in which IKB Mezzanine Verwaltungs GmbH par-ticipates as general partner (Komplementärin). The mezzanine fund with volume of EUR 100 million has a life-span of tenyears. The funds, provided by KfW (40 %) and IKB Equity (60 %) in the form of subordinated loan, are to be invested especiallyby means of atypical silent participations.

Pursuant to Article 296, Section 2, HGB, we have not included other subsidiary companies (List of Investments under “B.”) inthe consolidated Group accounts due to their minor impact of the Group’s assets, liabilities, financial and income position.

Notes

Notes to the Consolidated and the AG’s Financial Statements


Principles of Consolidation

The Group accounts were prepared in strict accordance with IKB Deutsche Industriebank AG accounting and valuationmethods contained in the following section. The financial statements of the companies included were – if necessary –adapted to conform with the accounting and valuation regulations of the parent company. Both american subsidiaries, drawup the balance according to the accounting principles of US-GAAP. As far as substantially necessary we adopted thesubsidiaries accounts to HGB-regulations by offsetting and reconciliation.

Capital consolidation was carried out in accordance with the book value method. For Group companies, the cost of invest-ment is set against the Group’s share of equity at the date of acquisition or first-time consolidation. Debit differencesamounted to EUR 41.5 million, and credit differences to EUR 6.3 million. The balance of these differences, which is EUR 35.2

million, were set off with revenue reserves.

The claims and liabilities as well as expenditure and income between consolidated companies are eliminated on consolida-tion.

Normally the financial statements of consolidated companies and those of the parent company are drawn up at the sameaccounting date. Differing from this rule the annual financial statements of the companies listed below are dated Decem-ber 31, 2002:

● AIVG Allgemeine Verwaltungsgesellschaft mbH● IKB Capital Corporation● IKB Facility Management GmbH● IKB Financière France S.A.● IKB Grundstücks GmbH and their special purpose entities● IKB Immobilien Leasing GmbH● IKB Private Equity GmbH and their subsidiaries.

In the case of IKB Capital Corporation, we prepared interim accounts at March 31, 2003 in accordance with Article 299,Section 3 HGB.

Accounting and Valuation Methods

Claims on banks and customers are shown at their nominal value, less provisions for bad and doubtful debts.Differences between amounts actually paid and nominal values are included in deferred income and credited to the incomestatement according to plan.

We have provided for potential loan loss risks by building reserves in the form of general provision for bad and doubtful debts. We calculated the general provision for bad and doubtful debts based on our past experience and weightedamounts.


Securities, which are disclosed under the heading “Debentures and other fixed interest securities”, as well as “Shares andother non-fixed interest securities”, are valued in accordance with the lower of cost principle applying to current assets, i. e.the purchase price or the lower market price. Pursuant to Article 280 of the German Commercial Code (HGB), we wereobliged to write up the value of securities written down in previous years at the current market value, the maximum amountof which is the historical purchase price.

Securities kept as fixed assets exclusively comprise issues of international industrial companies (corporate bonds and cred-it linked notes), which we purchased intending to hold them up to the final maturity.

Investments in subsidiary companies and companies in which the bank has a participatory interest are shown atthe purchase price currently adjusted.

Fixed assets and leasing items are valued at price of purchase or manufacturing cost, reduced by scheduled depreciation and– as the case may be – (fiscally permissible) special depreciation. When a permanent diminution in value is expected,unscheduled depreciation is applied. Low-value assets are completely written off during the year of purchase.

Liabilities are stated at redemption amount. To the extent that proceeds vary from the redemption amount, the differenceis shown on the assets side as a deferred item and charged to income according to plan.

Provisions for pension and similar obligations are computed in accordance with actuarial principles, based on the Heubeckactuarial tables and a 6 % rate of interest and using the German Teilwert method for pension expectancies and the net pres-ent value of current pensions. Provisions for taxes and uncertain liabilities are stated at amounts which are likely to beincurred. In accordance with the tax regulations, we discounted provisions for cash payments with 5.5 %.

Derivative transactions (swaps, futures, options) need not be disclosed in the balance sheet. Depending on the purpose trad-ing in derivatives is entered either under trading operations or hedging transactions, whereby positions in trading opera-tions can have hedging functions. If derivative operations are considered trading operations they are then valued in accord-ance with the imparity and realisation principle. If they are part of a hedging operation, valuation units are formed. Profitsand losses resulting from these transactions are offset. Provisions are formed for remaining valuation losses, while remain-ing valuation profits are not realised.

Currency Conversion

Balance sheet and non-balance sheet amounts denominated in foreign currency are converted in accordance with Article340 h, HGB. In the case of foreign currency-denominated fixed assets that are not specifically hedged, we have calculatedthe historic cost of exchange rates.


Notes to the Balance Sheet and Income StatementBreakdown of Maturities of Selected Balance Sheet Items

Of the debentures and other fixed interest securities in the Group EUR 853 million (2001/2002: EUR 180 million) and in theAG EUR 847 million (2001/2002: EUR 179 million) will mature next year. Of the issued debentures included in the balancesheet under securitised liabilities, EUR 5,198 million (2001/2002: EUR 2,239 million) will come due next year in the Groupand in the AG.

All other foreign currency-denominated assets, liabilities and other outstanding spot transactions are converted at the ref-erence rate of the European Central Bank (ECB) at balance sheet date. Premiums or discounts on the spot exchange rateresulting from interest hedging operations on balance sheet items are included in net interest income pro rata temporis.Hedged expenses or profits are converted at the contracted forward rate.

In the income statement only expenses from currency conversion according to Article 340 h, Section 2, HGB are taken intoaccount.

in EUR million March 31, 2003 March 31, 2002 March 31, 2003 March 31, 2002

Other claims on banks 798 1 294 6 413 5 942

with a remaining maturity– up to three months 311 477 4 920 4 873

– more than three months up to one year 290 592 1 156 798

– more than one year up to five years 165 183 282 248

– more than five years 32 42 55 23

Claims on customers 24 803 24 600 21 840 22 201

with a remaining maturity– up to three months 3 915 3 615 3 709 3 444

– more than three months up to one year 2 981 2 587 2 537 2 304

– more than one year up to five years 11 447 11 330 9 801 9 975

– more than five years 6 460 7 068 5 793 6 478

Liabilities to banks with agreed maturity or period of notice 14 840 14 682 16 141 15 262

with a remaining maturity– up to three months 4 210 4 245 5 108 5 338

– more than three months up to one year 2 044 1 301 3 064 1 273

– more than one year up to five years 4 891 5 138 4 807 5 072

– more than five years 3 695 3 998 3 162 3 579

Other liabilities to customerswith agreed maturity or period of notice 1 904 2 189 1 899 2 053

with a remaining maturity– up to three months 116 165 130 151

– more than three months up to one year 170 111 169 84

– more than one year up to five years 863 1 147 862 1 078

– more than five years 755 766 738 740

Group AG


Treasury Shares

At the General Meetings held on September 7, 2001 and August 30, 2002, we obtained authorisation to acquire our ownshares for the purpose of securities trading (max. 5 % of share capital).

During the 2002/2003 financial year, we purchased 4,901,713 treasury shares. The average purchasing price was EUR 12.37

per share. The same amount of shares was sold at an average share price of EUR 12.44 per share. The resulting revenues ofEUR 328 thousand are included in the net result from financial operations. The highest daily balance of treasury sharesamounted to 2.09 % of subscribed capital. Our affiliates did not engage in the sale or purchase of IKB shares. As at thebalance sheet date no treasury shares were hold by the bank.

In order to enable our employees to acquire shares under employee purchase schemes during the year under review we pur-chased 26,869 shares at an average price of EUR 11.90, of which we then sold 19,849 to the employees of the AG at apreferential rate of EUR 5.95. A further 7,020 shares were acquired under the same conditions from employees of the Group.

Fixed Asset Schedule

Group

Cost of Additions Disposals Accumulated Depreciation Net book Net bookacquisition depreciation financial year value value

in EUR million March 31, 2003 March 31, 2002

Tangible fixed assets 366.4 50.3 2.1 169.2 19.4 245.4 214.7

Securities – 937.8 – – – 937.8 –

Investments 40.6 0.1 0.6 1.9 0.2 38.2 38.9

Shares insubsidiary companies 8.1 0.7 1.8 – – 7.0 8.1

Leasing items 3 135.0 616.8 455.3 830.4 396.2 2 466.1 2 346.4

AG

Cost of Additions Disposals Accumulated Depreciation Net book Net bookacquisition depreciation financial year value value

in EUR million March 31, 2003 March 31, 2002

Tangible fixed assets 140.0 17.9 1.8 97.7 12.4 58.4 53.0

Securities – 937.8 – – – 937.8 –

Investments 2.2 0.0 – 1.3 – 0.9 0.9

Shares insubsidiary companies 427.1 22.5 – 59.1 – 390.5 367.9

On March 31, 2003, the book value of the Group’s land and buildings used by the Group amounted to EUR 203.7 million,and those of the AG to EUR 33.5 million. The principle item in the Group was the headquarters building in Düsseldorf.

On the Group balance sheet, equipment and furniture, amount to EUR 35.8 million, and for that of the AG, to EUR 23.7

million. They are included in “Tangible fixed assets”.


Receivables and Payables Relating to Subsidiary and Related Companies

Negotiable Securities

The negotiable securities contained in the balance sheet captions listed below are differentiated as follows:

Trust Transactions

Marketable debentures and other fixed-interest securities as well as stocks comprise assets with a volume of EUR 929.6

million, which are allocated to the fixed assets and thus are not valued at lowest value (Niederstwert). These are securitiesexclusively issued by international industrial companies (corporate bonds and credit linked notes), which we purchased inconnection with our loan business intending to hold them up to the final maturity.

Group AG

Not Notin EUR million Total Listed Listed Total Listed Listed

Debentures and other fixed interest securities 5 926.2 5 839.3 86.9 5 704.0 5 627.1 76.9

Shares and other non-fixedinterest securities 1.0 1.0 – 1.0 1.0 –

Investments 36.8 36.8 – – – –

Shares in subsidiary companies – – – 151.8 – 151.8

Group AG

Subsidiary Related Subsidiary Relatedin EUR million companies companies companies companiesClaims on banks 59.9 30.6 6 177.3 0.0

Claims on customers 110.8 50.7 2 085.6 0.0

Debentures and other fixed interest securities – 1.5 – 1.5

Liabilities to banks 641.9 6.6 2 296.9 –

Liabilities to customers 15.1 – 87.3 –

Group AG


Claims on customers 4.3 4.6 4.3 4.6

Investments 1.4 1.4 1.4 1.4

Trust assets 5.7 6.0 5.7 6.0

Liabilities to customers 5.7 6.0 5.7 6.0

Trust liabilities 5.7 6.0 5.7 6.0


Subordinated Assets

Subordinated assets are included in the following balance sheet items:

in EUR million Group AGClaims on customers 130.0 14.6

Shares and other non-fixed interest securities 0.5 0.5

Shares in subsidiary companies – 71.6

Foreign Currency Assets and Liabilities

Currency amounts converted into euro are presented in the following table. The differences between assets and liabilitiesare covered by currency hedging transactions.

Other Assets and Other Liabilities

For both the Group and the AG, the largest single item in “Other assets” are amounts due from pro rata interests from inter-est swaps, cross-currency-swaps and guarantee agreements totalling EUR 346 million in the Group and EUR 336 million inthe AG. The remaining amount relates besides participations in companies of EUR 78 million held by IKB Private EquityGmbH and it’s subsidiary primarily to trade receivables and claims arising from payment procedures.

In both the Group and AG financial statements, the amounts distributed on the participation rights capital (Genussscheine)for 2002/2003 (EUR 47 million), the pro rata interest for the subordinated liabilities with EUR 11.9 million are entered under“Other liabilities”. The pro rata interest from interest rate swap agreements constitute the largest item in the Group(EUR 258 million) and AG (EUR 229 million). Other significant items include trade payables, amounting to EUR 69 million andEUR 1 million respectively.

Accrued and Deferred Income

Prepaid expenses of the Group and AG, amounting to EUR 107 million and EUR 106 million respectively relate to differencespursuant to Article 250, Section 3 of the German Commercial Code and Article 340 e, Section 2, Sentence 3 of the GermanCommercial Code (Disagios from the nominal value of liabilities reported in the balance sheet).

Deferred income of the Group amounting to EUR 117 million (AG: EUR 111 million) was posted, which show differences pur-suant to Article 250, Section 2 of the German Commercial Code and Article 340 e, Section 2, Sentence 2 of the German Com-mercial Code (Disagios from the nominal value of claims reported in the balance sheet).

Group AG


Assets 5 093 5 326 4 805 5 170

Liabilities 2 321 2 420 2 566 2 425


Special Items including Reserves

The special items including reserves absorbed by the Group from the special purpose entities of IKB Immobilien LeasingGmbH represent with EUR 0.3 million a reserve in accordance with Article 6b of the German Income Tax Act and with EUR5.6 million investment grants.

Subordinated Liabilities

The subordinated liabilities qualify under the German Banking Act as liable capital. An early repayment is not possible. Incase of bankruptcy or liquidation they will be repaid only after non-subordinated creditors have been satisfied.

Individual items which exceed 10 % of the total amount:

Book value Issue Interest rateYear of issue EUR million Currency % Maturity1995/96 90.8 NLG 7.75 June 16, 2005

1999/00 125.0 EUR 5.00 Dec. 28, 2007

2000/01 150.0 EUR 6.00 Feb. 27, 2009

2002/03*) 250.0 EUR 4.54 Dec. 31, 2031

Subordinated liabilities in the Group amount to EUR 631.8 million and in the AG to EUR 881.8 million. Interest expense onthis amount during the financial year came in the Group to EUR 59.6 million (2001/2002: EUR 60.6 million) and in the AG toEUR 63.8 (previous year: EUR 60.6) million.

Participation Rights Capital (Genussscheine)

The issued participation rights capital of EUR 613.8 million meets the requirements set out in Article 10, Section 5 of theGerman Banking Act at an amount of EUR 560.2 million and serve to strengthen the bank’s liable capital. This amount isliable in the event of a loss. Interest payments are made solely on the basis of unappropriated profits for the year. The claimsof holders of participation rights to repayment of the capital are subordinate to those of other creditors. Participation rightscapital includes in detail:

*) Issue with floating rate

Book value Issue Interest rateYear of issue EUR million Currency in % Maturity1991/92 51.2 DM 9.10 March 31, 2003

1993/94 92.0 DM 7.30 March 31, 2005

1994/95 92.0 DM 6.45 March 31, 2006

1995/96 81.8 DM 8.40 March 31, 2007

1997/98 102.3 DM 7.05 March 31, 2009

1999/00 20.0 EUR 7.23 March 31, 2010

2001/02 100.0 EUR 6.50 March 31, 2012

2001/02 74.5 EUR 6.55 March 31, 2012

613.8


Interest Payments for the 2002/2003 financial year, amounting to EUR 44.7 million, are contained in interest expenses.

The Management Board is authorised to issue participation rights capital – also combined with conversion or option rights– nonrecuring or repeatedly at a total amount of EUR 300 million and with a maximum maturity of 15 years until August30, 2007. To the bearers of these participation rights conversion and option rights can be granted with a share in subscribedcapital of up to EUR 22.5 million. So far, no use was made of this authorisation.

Development of Capital

Equity

Subscribed share capital amounted to EUR 225,280,000.00 on March 31, 2003 and is divided into 88,000,000 shares.

In order to grant conversion or option rights to the bearers of convertible bonds and warrant-linked bonds with anaggregate nominal value of EUR 300 million issued before September 3, 2004, conditional capital of EUR 22.5 millionis authorised. Furthermore, the company is authorised to issue share capital amounting to EUR 76.8 million untilAugust 30, 2007.

Hybrid Capital

At March 31, 2003, hybrid capital in the Group amounts to EUR 620 million (previous year: EUR 170 million) and to EUR 200

million in the AG, respectively. This capital complies with the requirements of Article 10, Section 4 of the German BankingAct and is therefore attributed to our regulatory tier 1 capital.

Hybrid capital instruments comprise issues in the form of silent participations or preferred shares, the latter being issued bya subsidiary exclusively founded for this purpose. Different to supplementary capital these instruments are subject tostricter requirements with respect to maturity. As to silent participations – basically issued as perpetuals – only the issuer isallowed to terminate the contract after 10 years at the earliest; as to the preferred shares for the investor an unlimitedmaturity is agreed.

Moreover, in the case of insolvency hybrid capital instruments are subordinated to subordinated liabilities and participationrights capital (Genussscheine).

Interest expenses for hybrid capital instruments in the Group amount to EUR 26 million and to EUR 4 million in the AG,respectively.


Changes in the Group’s equity

Changes in the AG’s equity

in EUR million

As at April 1, 2002 1 165.1

Distribution of unappropriated profits for the financial year 2001/2002 – 67.8

Transfer to other revenue reserves from net income of the AG for the financial year 2002/2003 42.6

Addition of hybrid capital 200.0

Unappropriated profit for the financial year 2002/2003 67.8

As at March 31, 2003 1 407.7

Key Figures relating to Bank Regulatory Requirements

The risk-weighted assets in EUR million, as well as capital and Principle I ratios in the Group, break down as follows at thebalance sheet date:

Attributable amounts in %at March 31, 2003 in EUR million 100 50 20 10 TotalBalance sheet transactions 17 811 1 729 562 348 20 450

Non-balance sheet transactions 2 127 885 43 3 055

Derivative transactions in the investment portfolio 97 502 599

Weighted risk assets, total 19 938 2 711 1 107 348 24 104

Amount attributable for market risk 425

Total of items obligatory for inclusion 24 528

Liable capital *) 2 972

Capital eligible for inclusion *) 2 972

Tier 1 capital ratio (in %) 7.4

Equity ratio (in %) 12.1

*) Following adaption of the annual financial statements

in EUR million 2003 2002

Balance of the parent company's equity at March 31 of the previous year 1 311 1 294

Subscribed capital of the parent company+ hybrid capital 450 –

+ capital reserves – –

+ gained Group equity 43 38

+ accumulated other Group result, inasmuch as to be allocated to shareholders of the parent company –18 –21

= equity of the parent company according to Group balance sheet 1 786 1 311

– treasury shares, not determined for withdrawl – –

= equity of the parent company at March 31 1 786 1 311

Balance of minority shareholder’s equity at March 31 of the previous year 14 25

– changes in minority shareholder’s equity –3 –11

– there from: minority capital 4 –15

– there from: accumulated other Group result,inasmuch as to be allocated to minority shareholders –7 4

Equity of the minority shareholders at March 31 11 14

Equity of the Group at March 31 1 797 1 325


Attributable amounts in %at March 31, 2002 in EUR million 100 50 20 10 TotalBalance sheet transactions 15 447 2 064 503 330 18 344

Non-balance sheet transactions 1 471 640 45 2 156

Derivative transactions in the investment portfolio 42 254 296

Weighted risk assets, total 16 918 2 746 802 330 20 796

Amount attributable for market risk 350

Total of items obligatory for inclusion 21 146

Liable capital 2 556

Capital eligible for inclusion 2 559

Tier 1 capital ratio (in %) 6.4

Equity ratio (in %) 12.1

At the balance sheet date our “Contingent liabilities” also comprise credit derivative contracts in the form of a Credit DefaultSwap (guarantors) within the item “Guarantees and indemnity agreements” amounting to EUR 1,334 million (2001/2002:EUR 767 million). In this context we have taken over credit risks of certain credit portfolios for well-defined incidences with-in the credit engagements. More than two third of the single portfolios are rated in the best rating classes Aaa to A by theindependent rating agency Moody’s.

The item “Other obligations” comprises 14 loan commitments to special entities at an amount of EUR 4.9 billion, which onlytake effect in the case of short-term liquidity squeeze.

Notes to the Cash flow Statement

The Cash flow Statement complies with the accounting requirements of the German Accounting Standards Commitee(GAS 2-10) and shows the balance as well as the changes of the Group’s liquid funds. In conformity with its sources, thedevelopment of cash flow is divided into three parts: operating activities, investment activities and financing activities. The

Contingent liabilitiesin EUR million Group AGGuarantees 1 921 4 384

Liabilities from security for third-parties 239 239

Total 2 160 4 623

Other obligationsin EUR million Group AGLoan commitments up to one year 5 216 5 085

Loan commitments more than one year 1 657 1 463

Total 6 872 6 548

Contingent Liabilities / Other Obligations


2002/2003 2001/2002

Net income for the year 86 83

Non-cash items contained in net income for the year and leading into the cash flow from operating activities

Changes of risk provisioning 260 227

Depreciation of tangible fixed assets, leasing items, and investments 301 333

Profit/loss attributable to other partners 8 5

Changes in other non-cash items (primarily change of provisions) 103 85

Result from the sale of investments and tangible fixed assets –2 –35

Other adjustments (primarily reallocation of received or paid interestincluding profits for leasing transactions and paid income tax) –877 –767

Subtotal –121 –69

Changes in assets and liabilities from operating activities after corrections for non-cash componentsClaims

on banks –454 –702

on customers –330 –387

Debentures and other fixed interest securities –1 008 –1 135

Shares and other non-fixed interest securities –1 –3

Leasing items –266 –301

Other assets from operating activities 479 60

Liabilitiesto banks 644 125

to customers –231 –160

Securitised liabilities 715 2 150

Other liabilities from operating activities –180 –340

Participations of minority shareholders –3 –11

Interest and dividends received 3 087 3 101

Interest paid –2 344 –2 436

Payment of income taxes –62 –69

Cash flow from operating activities –75 –177

Proceeds from the sale ofInvestments 3 8

Tangible fixed assets 4 30

Payments for the purchase of Investments –1 –3

Tangible fixed assets –50 –19

Effects of the change in the set of companies to be consolidated – –11

Cash flow from investment activities –44 5

Dividend payments –68 –68

Changes in liquid funds deriving from other financing activities (balance)(mainly subordinated liabilities / participation rights capital / revenue reserves) 203 250

Cash flow from financing activities 135 182

Balance of liquid funds at the end of the previous period 11 1

Cash flow from operating activities –75 –177

Cash flow from investment activities –44 5

Cash flow from financing activities 135 182

Balance of liquid funds at the end of the period 27 11

Cash flow Statementin EUR million


cash flow from investment activities primarily comprises the revenue from the sale and the payment for the purchase offinancial assets and tangible fixed assets. Under financial activities all cash flows from transactions relating to equity andhybrid capital instruments as well as subordinated and participation rights capital are shown. In accordance with interna-tional practice all other cash flows are assigned to the operating activities.

Cash flow status corresponds to the balance sheet item “Liquid funds”, and contains balances held with Central Banks andcash.

Further InformationOther Financial Commitments

Outstanding obligations to pay up share capital, and company investments and investments in related companiesamounted on March 31, 2003, to EUR 278 thousand for the Group (of which: IKB Leasing Tschechien GmbH EUR 277

thousand) and to EUR 1.3 thousand for the AG.

The bank has a pro rata additional funding obligation to Liquiditäts-Konsortialbank GmbH of Frankfurt. In addition, we beara proportional contingent liability for fulfilling the funding obligations of other partners in the Federation of the Associationof German Banks. In addition, pursuant to Article 5, Section 10 of the Statutes for the Deposit Insurance Fund, the bank hascommitted itself to protect the Association of German Banks from any losses arising due to measures favouring banks inwhich it owns a majority interest.

At its balance sheet date December 31, 2002, the IKB Immobilien Leasing Group had incurred EUR 249 million in financialobligations arising from contracted leases not yet contained in the balance sheet leasing assets.

Declaration of Backing

In accordance with Article 285, No. 11 HGB/Article 313, Section 2 HGB, IKB ensures, excluding political risk, that the wholly-owned subsidiary companies appearing on the list of investments of IKB Deutsche Industriebank AG and marked as coveredby the declaration of backing will be able to meet their contractual liabilities. On behalf of its subsidiaries IKB Finanz Leas-ing AG, Budapest, and IKB Leasing Hungaria GmbH, Budapest, IKB Leasing GmbH of Hamburg issued letters of comfort toCommerzbank Rt., Budapest.

Forward Contracts

While the IKB Group engages in forward contracts (swaps, forward rate agreements, and futures), these are carried outalmost exclusively for hedging balance sheet-relevant transactions. Trading volume in these instruments is kept within nar-row limits. Operational volume is restricted by the use of overall exposure, contractual and product-related limits, and aresubject to permanent monitoring by our risk management.


Some 93 % of the Group and 97 % of the AG derivatives operations are with OECD banks with first-class ratings. The remain-der consists essentially of contracts with customer companies. The greater part of the bank‘s derivatives business volumerelated with an amount of EUR 20.4 billion (AG: EUR 18.8 billion) to interest rate transactions, with interest swap trans-actions forming the dominant product.

Breakdown of Product Groups and Remaining Maturities as of March 31, 2003

Group

CreditNominal amount Credit equivalent risk

up to 1 up to longer than up to 1 up to longer thanin EUR million 1 year 5 years 5 years Total 1 year 5 years 5 years Total Total1. Interest-rate based operationsOver-the-counter-products (OTCs)

Forward rate agreements 18 – – 18 0 – – – 0

Interest swaps 3 333 5 221 10 836 19 390 27 111 2 189 2 327 2 138

Interest options 5 242 239 486 0 2 18 20 15

Forward bonds 195 5 263 463 2 0 75 77 73

2. Currency-based operationsOver-the-counter-products (OTCs)

Currency futures 2 046 – – 2 046 39 – – 39 30

Cross-currency swaps 630 1 222 1 431 3 283 13 94 135 242 67

Currency options 32 – – 32 2 – – 2 2

3. Index-based operationsOver-the-counter-products (OTCs)

Index swaps 20 – – 20 2 – – 2 0

Total 6 279 6 690 12 769 25 738 85 207 2 417 2 709 2 325

AG

CreditNominal amount Credit equivalent risk

up to 1 up to longer than up to 1 up to longer thanin EUR million 1 year 5 years 5 years Total 1 year 5 years 5 years Total Total1. Interest-rate based operationsOver-the-counter-products (OTCs)

Interest swaps 2 896 5 320 9 799 18 015 34 167 2 190 2 391 2 218

Interest options 5 130 274 409 0 1 19 20 15

Forward Bonds 195 5 5 205 2 0 0 2 2

Forward forward deposits 66 55 – 121 0 0 – 0 0

2. Currency-based operationsOver-the-counter-products (OTCs)

Currency futures 2 003 – – 2 003 38 – – 38 30

Cross-currency swaps 579 935 1 474 2 988 14 79 145 238 75

Currency options 32 – – 32 2 – – 2 2

3. Index-based operationsOver-the-counter-products (OTCs)

Index swaps 20 – – 20 2 – – 2 0

Total 5 796 6 445 11 552 23 793 92 247 2 354 2 693 2 342


In order to illustrate the Group’s credit risk, the table shows, in addition to the nominal volumes, the credit-based weight-ings as credit equivalents and the so-called positive market values (credit risk) of the forward transactions are presented,based on the bank oversight regulations (derived from the figures for Principle I). Defined as the sum of all positive marketvalues, the credit risk amounted to EUR 2.3 billion to the Group and the AG at the balance sheet date, representing 9 % and10 % of the nominal value. Existing netting agreements, which, in case of insolvency, enable the setting off of existing claimsand liabilities to counterparties, are not taken into account.

Segment Report

The segment report is aligned with the divisions of the bank. These divisions operate at the market as independent units.Segment information is presented to show the divisions as independent enterprises responsible for their own earnings andcosts, and with their own capital resources. The operational divisions are:

● Corporate Lending● Real Estate Financing ● Structured Financing● Private Equity● Leasing and● Securitisation.

The results arising from the bank’s activities in the fields of investmentsin international loan portfolios, advisory services for special funds andthe securitisation and outplacement of credit risks are shown seperatly for the first time in the segment “Securitisation”.

The basis for the segment reports are the internal, controlling-orienteddivision accounts, which form part of IKB’s management system. This procedurecorresponds to the information recommendations of the German AccountingStandards Committee e.V. (DRSC) for banks.

The figures of the Private Equity Division correspond with the statementof the sub-group IKB Private Equity GmbH according to commercial law.

Segment Report


in EUR millionNet interest incomeNet commission incomeNet interest and commission incomeAdministrative expenses

Personnel expensesOther administrativeexpenses

Other operating result *)

Risk provisioning balance

Result fromordinary activities

Ø Allocated tier 1 capital

Loan volume at balancesheet date March 31

Cost/income ratio in %Return on equity in %Ø Number of staffVolume of new business


Income and expenses of the other divisions are assigned in accordance with their respective responsibility. Net interestincome from loan business is posted for the units using the market interest method; it also comprises the investmentincome from economic capital resources. This investment income is allocated to the respective divisions in line with theassigned average tier 1 capital. In doing so a 4.8 %-tier 1 capital ratio based on the risk assets is allocated to the divisions.The negative figure of the average allocated tier 1 capital shown in the segment “Securitisation” results from capitalreleases caused by CLO transactions including the offsetting against capital requirements for investments in internationalloan portfolios. Whenever they could be assigned on the basis of causation, personnel and material expenses of the headoffice were credited to the divisions.

The allocation of loan exposure risk costs to the divisions adheres to the method of standard risk costs using the “expectedloss” technique. The risk costs of the head office derive from the difference between the standard risk costs calculated forthe units and the risk provisioning balance from the Group profit and loss accounts.

The result of each segment is shown using the result from ordinary activities for the individual division. Moreover, we meas-ure the results generated by the divisions by means of the return on equity and cost/income ratio figures.The return on equi-ty is based on the ratio of the result from ordinary activities to the average assigned tier 1 capital. We determine the cost/income ratio from the quotient of administrative expenses to earnings.

by Business Division for the Financial Year 2002/2003

Corporate Real Estate Structured PrivateLending Financing Financing Equity Leasing Securitisation Head Office Total

1.4.02 – 1.4.01 – 1.4.02 – 1.4.01 – 1.4.02 – 1.4.01 – 1.4.02 – 1.4.01 – 1.4.02 – 1.4.01 – 1.4.02 – 1.4.01 – 1.4.02 – 1.4.01 – 1.4.02 – 1.4.01 –

31.3.03 31.3.02 31.3.03 31.3.02 31.3.03 31.3.02 31.3.03 31.3.02 31.3.03 31.3.02 31.3.03 31.3.02 31.3.03 31.3.02 31.3.03 31.3.02

225.1 227.9 81.7 70.5 94.0 95.2 4.1 3.9 43.6 42.5 2.4 –8.3 34.1 39.6 485.0 471.3

5.7 4.4 7.9 7.4 14.4 6.0 –0.6 –0.6 –3.7 –4.4 45.3 27.4 –4.9 –0.7 64.1 39.5

230.8 232.3 89.6 77.9 108.4 101.2 3.5 3.3 39.9 38.1 47.7 19.1 29.2 38.9 549.1 510.8

65.2 62.4 24.3 23.4 31.3 27.6 7.4 7.3 25.5 22.8 4.5 2.3 61.7 60.7 219.9 206.5

49.8 47.9 17.9 16.9 21.1 18.6 4.8 4.0 16.2 15.4 2.2 1.3 25.8 29.3 137.8 133.4

15.4 14.5 6.4 6.5 10.2 9.0 2.6 3.3 9.3 7.4 2.3 1.0 35.9 31.4 82.1 73.1

0.0 0.0 0.0 0.0 0.2 0.2 10.9 –14.2 9.7 10.6 0.0 0.0 0.2 34.6 21.0 31.2

62.8 64.5 24.1 22.8 18.4 20.2 6.3 24.7 5.2 2.6 6.5 0.6 60.1 39.8 183.4 175.2

102.8 105.4 41.2 31.7 58.9 53.6 0.7 –42.9 18.9 23.2 36.7 16.2 –92.4 –26.9 166.8 160.3

626 636 241 220 179 182 24 24 47 37 –204 –264 199 237 1 112 1 072

16 022 16 266 5 532 5 355 4 209 4 191 191 204 2 659 2 550 1 937 676 45 56 30 595 29 298

28.2 26.9 27.1 30.0 28.8 27.2 51.4 – 51.4 47.0 9.4 12.0 38.6 38.1

16.4 16.6 17.1 14.4 32.9 29.5 2.9 – 40.2 62.1 – – 15.0 15.0

311 324 126 121 126 103 46 44 125 116 10 5 689 637 1 433 1 350

2 658 2 274 765 793 1 494 1 399 32 55 710 710 1 402 676 –117 183 6 944 6 090


Segment Report by Geographical Region

Assignment of the segments by geographical region occurs – with adjusted previous year’s figures – in accordance with therespective location of our offices or Group companies.

With this presentation we simultaneously fulfil the requirement of EU accounting regulations for banks, which calls for aregional breakdown of earnings.

Germany Other Europe America Head Office Total1.4.02 – 1.4.01 – 1.4.02 – 1.4.01 – 1.4.02 – 1.4.01 – 1.4.02 – 1.4.01 – 1.4.02 – 1.4.01 –

in EUR million 31.3.03 31.3.02 31.3.03 31.3.02 31.3.03 31.3.02 31.3.03 31.3.02 31.3.03 31.3.02

Net interest income 328.6 325.5 111.8 99.0 10.5 7.2 34.1 39.6 485.0 471.3

Net commission income 60.3 36.3 8.6 4.1 0.1 –0.2 –4.9 –0.7 64.1 39.5

Net interest and commission income 388.9 361.8 120.4 103.1 10.6 7.0 29.2 38.9 549.1 510.8

Administrative expenses 139.1 129.6 15.0 12.1 4.1 4.1 61.7 60.7 219.9 206.5

Other operating result *) 20.3 –3.8 0.3 0.3 0.2 0.1 0.2 34.6 21.0 31.2

Risk provisioning balance 89.0 101.4 32.8 32.2 1.5 1.8 60.1 39.8 183.4 175.2

Result fromordinary activities 181.1 127.0 72.9 59.1 5.2 1.2 –92.4 –26.9 166.8 160.3


Allocations/Releases of Risk Provisioning at Group Level

Risk Provisioning Status at Group Level

in EUR million 2002/2003 2001/2002

Allocation to specific provisions for bad and doubt debts/direct depreciation less payments received on claims written off 269 248

Allocation to general provisions for bad and doubtful debts 4 4

Release of provisions for bad and doubtful debts 25 48

Net risk provision 248 204

Result from securities in the liquidity reserve 65 29

Risk provisioning balance 183 175

As at As atin EUR million April 1, 2002 Utilisation Release Allocation March 31, 2003

Specific provisions for bad and doubtful debts/provisions for contingent liabilities 836 146 25 245 910

General provisions for bad and doubtful debts 39 – – 4 43

Total risk provisioning status 875 146 25 249 953

Group

Group


in EUR thousend Group AGMembers of the Board of Managing Directors

Fixed remuneration 2 150 1 975

Variable remuneration 2 200 2 200

4 350 4 175

Members of the Supervisory BoardFixed remuneration 101 101

Variable remuneration 780 780

Travel expenses/turnover tax 107 107

988 988

Members of the Advisory Board 625 625

Former Members of the Board of Managing Directors and their Surviving dependents 2 135 2 135

Administrative Services

We engage in administrative services relating to our loan and deposit operations especially to guarantee business, theearnings from which are contained in commission income.

Remuneration of the Organs of the Bank and its Advisory Board

Loans extended to Members of the Organs

Average Number of Staff during the Financial Year(calculated on the basis of fulltime workers)

in EUR thousand Group/AGBoard of Managing Directors 255

Supervisory Board 119

Group AG2002/2003 2001/2002 2002/2003 2001/2002

Male 846 797 597 563

Female 587 553 407 392

1 433 1 350 1 004 955

An amount of EUR 19.3 million was set aside for pension obligations to former members of the Board of ManagingDirectors and their surviving dependents.


Corporate Governance

Declaration concerning the German Corporate Governance Code pursuant to Article 161 of the German Stock

Corporation Act (AktG)

On November 7, 2002, the Management Board and the Supervisory Board submitted the first Declaration of Conformitypursuant to Article 161 of the German Stock Corporation Act (AktG), which shareholders can access at the IKB website(www.ikb.de) on a permanent basis.

Directors' Dealings persuant to Article 15a of the German Securities Exchange Act (WpHG)

Hereinafter we give an overview of purchases and sales of IKB shares by members of the Management Board and the Super-visory Board as well as by respective related parties:

Date of the Purchase/ Number of Share pricetransaction Name Function Sale stocks in EURDecember 19, 2002 Hermann Franzen Member of the Supervisory Board Purchase 3 500 11.46

January 27, 2003 Hermann Franzen Member of the Supervisory Board Purchase 2 950 12.05

January 27, 2003 Hermann Franzen Member of the Supervisory Board Purchase 500 12.04

January 27, 2003 Hermann Franzen Member of the Supervisory Board Purchase 300 12.03

There have been no shareholdings that shall be reported according to Code Item 6.6, Section 2, Sentences 2 and 3, of theGerman Corporate Governance Code.

Report Concerning Relations to Considerable Related Parties

The following shareholders hold shares in IKB Deutsche Industriebank AG (IKB) of considerable amount:

● KfW Beteiligungsholding GmbH 34.11 %.● Stiftung zur Förderung der Forschung für die gewerbliche Wirtschaft 11.46 %.

The other share capital is – as far as notified – free float.

KfW Beteiligungsholding GmbH is a fully owned subsidiary of Kreditanstalt für Wiederaufbau (KfW). KfW is a public corpo-ration, in which the Federal Republic of Germany participates with 80 % and the Federal States (Bundesländer) with 20 %respectively. Persuant to Article 12, Section 1, Sentence 1, of the Act concerning Kreditanstalt für Wiederaufbau (Gesetz überdie Kreditanstalt für Wiederaufbau) KfW is subject to supervision of the German Government.In the last two annual general meetings of IKB KfW was present with calculated voting rights of more than 50 %.

With 80 % of the shares of KfW and a material influence on the composition of KfW's Administration Board (Verwaltungs-rat) the Federal Republic of Germany can exert predominant influence on KfW. IKB shares held by KfW are thereforepursuant to Article 16, Section 4, of the German Stock Corporation Act (AktG) defined as shares of the federal Republic ofGermany. Thus IKB is deemed dependent on the German Government according to the German Stock Corporation Act(AktG). Pursuant to Article 312 of the German Stock Corporation Act (AktG) IKB has prepared a Report of Dependency, whichis not published.


Organs

In the following schedule of the members of the Supervisory Board and the Management Board are listed:

a) Membership in other legally required Supervisory Boards and

b) Membership in comparable domestic and foreign Supervisory Bodies.

Supervisory Board

ChairmanDr. h. c. Ulrich Hartmann, Düsseldorf Chairman of the Supervisory BoardE.ON AG

a) Group mandates pursuant to Article 100 Section 2,

Sentence 2 of the German Stock Corporation Act (AktG)are marked with ●

E.ON Energie AG ● (Chairman)Ruhrgas AG ● (Chairman)Münchener Rückversicherungs-Gesellschaft(Chairman)RAG Aktiengesellschaft (Chairman)Deutsche Lufthansa AGHochtief AG

b) Powergen Limited (Chairman/Group mandate)Henkel KGaAARCELOR

Deputy ChairmanProf. Dr.-Ing. E. h. Hans-Olaf Henkel, BerlinPresidentWissenschaftsgemeinschaft Gottfried Wilhelm Leibniz e.V.

a) Bayer AG Continental AGEconia AG (until September 30, 2002)European Aeronautics and Defense System AGIBM Deutschland GmbH (until September 23, 2002)SMS AG

b) ETF GroupOrange S.A.Ringier AG

Deputy ChairmanHans W. Reich, Frankfurt (Main)Chairman of the Board of Managing DirectorsKreditanstalt für Wiederaufbau

a) ALSTOM GmbHAareal Bank AGDeutsche Telekom AGHUK-COBURG Holding AGRAG AktiengesellschaftThyssen Krupp Steel AG

b) DePfa Bank plc.Deutsche Energie-Agentur GmbHHUK-COBURG Haftpflicht-Unterstützungs-Kassekraftfahrender Beamter Deutschlands a.G.

Dr. Jürgen Behrend, LippstadtManaging PartnerHella KG Hueck & Co.

a) Leoni AG

Jörg Bickenbach, Düsseldorf Undersecretary of State, North Rhine-WestphaliaMinistry for Economics and Labour

a) Messe Düsseldorf GmbH

b) WIR-NRW GmbH (Chairman)Gesellschaft für Wirtschaftsförderung mbHNRW-Japan K.K.ZENIT GmbH


Wolfgang Bouché, Düsseldorf Elected by the staff

Hermann Franzen, DüsseldorfPersonally Liable PartnerPorzellanhaus Franzen KG

a) NOVA Allgemeine Versicherung AG(Vice-Chairman)

b) BBE-Unternehmensberatung GmbH (Chairman)IDUNA Vereinigte Lebensversicherung aGfür Handwerk, Handel und Gewerbe

Herbert Hansmeyer, MunichFormer Member of the Board of Managing DirectorsAllianz Aktiengesellschaft

a) Dresdner Bank Lateinamerika AG

Dr. Jürgen Heraeus, HanauChairman of the Supervisory BoardHeraeus Holding GmbH

a) Group mandates pursuant to Article 100 Section 2,

Sentence 2 of the German Stock Corporation Act (AktG)are marked with ●

Heraeus Holding GmbH ● (Chairman)Heraeus Tenevo AG ● (Chairman)Messer Griesheim GmbH (Chairman)Buderus AGEPCOS AGHeidelberger Druckmaschinen AG

b) Argor-Heraeus S.A. (Chairman)

Gunnar John, Berlin (until December 31, 2002)Head of Department VII AFederal Ministery of Finance

Roswitha Loeffler, BerlinElected by the staff

Wilhelm Lohscheidt, DüsseldorfElected by the staff

Jürgen Metzger, HamburgElected by the staff

Roland Oetker, Düsseldorf Managing Partner ROI Verwaltungsgesellschaft mbH

a) Mulligan BioCapital AG (Chairman)Degussa AGVolkswagen AG

b) Gamma Holding N.V.Scottish Widows Pan EuropeanSmaller Companies OEICDr. August Oetker KG-Gruppe

Dr.-Ing. E.h. Eberhard Reuther, Hamburg Chairman of the Supervisory BoardKörber Aktiengesellschaft

a) Körber AG ( Chairman)Vereins- und Westbank AG

Randolf Rodenstock, Munich Managing PartnerOptische Werke G. Rodenstock KG

a) E.ON Energie AG


Rita Röbel, Leipzig Elected by the staff

Dr. Michael Rogowski, Berlin (from August 30, 2002)PresidentFederation of German Industry

a) Voith AG (Chairman)Deutsche Messe AG

b) European Aeronautic, Defense and Space Company EADS N.V.Freudenberg & Co. (Vice-Chairman)HDI Haftpflichtverband der Deutschen Industrie V.a.G.Klein Pumpen GmbHKreditanstalt für WiederaufbauAdolf Würth GmbH & Co. KGCarl Zeiss

Dr. Carola Steingräber, Berlin Elected by the staff

Dipl.-Ing. Hans Peter Stihl, Waiblingen(until August 30, 2002)Chairman of the Supervisory BoardSTIHL AG

a) Robert Bosch GmbH

b) Robert Bosch Industrietreuhand KG

Ulrich Wernecke, Düsseldorf Elected by the staff

Prof. Dr. h. c. Reinhold Würth, KünzelsauChairman of the Advisory CouncilWürth Gruppe

a) Würth Gruppe (Chairman)Waldenburger Versicherung AG (Chairman)

b) Robert Bosch Stiftung GmbHWürth Dänemark A/SWürth Finance International B. V.Würth Frankreich S. A.Würth Italien S. r. l.Würth Ltd.Würth Nederland B. V.Würth Neuseeland Ltd.Würth Handelsges. m. b. H.Würth AGWürth España S. A.Würth Group of North America Inc.Würth South Africa Co. (Pty) Ltd.Würth Canada Ltd.Würth Otomotiv ve Montaj San. Ürün. Paz. Ltd. Sti.Reca Danmark A/S


Board of Managing Directors

Dr. Markus Guthoff

a) MetaDesign AG

b) IKB Private Equity GmbH (Chairman)IKB Venture Capital GmbH (Chairman)Firmengruppe Poppe & Potthoff (from April 4, 2003)

Claus Momburg

b) IKB Immobilien Leasing GmbH (Vice-Chairman)IKB International S. A.

Joachim Neupel

b) IKB Immobilien Leasing GmbH (Chairman)IKB Immobilien Management GmbH (Chairman)IKB Autoleasing GmbH (Vice-Chairman)IKB Facility Management GmbH (Vice-Chairman)IKB Leasing GmbH (Vice-Chairman)IKB Leasing Berlin GmbH (Vice-Chairman)IKB International S. A.IKB Private Equity GmbHIKB Venture Capital GmbH

Stefan Ortseifen

a) Dura Tufting GmbH

b) IKB International S. A. (Chairman)IKB Capital Corporation (Chairman)DEG – Deutsche-Investitions- undEntwicklungsgesellschaft mbH (Vice-Chairman)AKA Ausfuhrkredit-Gesellschaft m.b.H. (from April 2, 2003)Lohmann GmbH & Co. KGRich. Hengstenberg GmbH & Co.

Dr. Alexander v. Tippelskirch

a) Deutsche Gelatine-Fabriken Stoess AG (Chairman)

b) IKB Autoleasing GmbH (Chairman)IKB Leasing GmbH (Chairman)IKB Leasing Berlin GmbH (Chairman)IKB Facility Management GmbH (Chairman)IKB Capital Corporation (Vice-Chairman)IKB International S. A. (Vice-Chairman)IKB Private Equity GmbH (Vice-Chairman)IKB Venture Capital GmbH (Vice-Chairman)Johanniter-Krankenhaus Rheinhausen (Chairman)Hako Holding GmbH & Co.Hans Martin Wälzholz-Junius FamilienstiftungKreditanstalt für Wiederaufbaunobilia-Werke J. Stickling GmbH & Co.Wirtschaftsförderung Berlin GmbH

Employees of

IKB Deutsche Industriebank AG

Information pursuant to Article 340 a,Section 4, Number 1, HGB

Günter Czeczatka (until March 31, 2003)Schöck AG

Klaus NeumannCURANUM AG

Klaus ReinekeGKD Gebr. Kufferath AG

Claus-Dieter WagnerGauss Interprise AG


List of Investments as required by Article 285 N0. 11 HGB / Article 313, Section 2, HGB

Declaration Share of Equity Profit/Lossof capital in EUR in EUR

backing in % thousand thousandA. Consolidated Subsidiaries1. Foreign banks

IKB International S.A., Luxembourg x 100 308 9354) 8 621

2. Other domestic companiesIKB Autoleasing GmbH, Hamburg x 100 2 000 – 1)

IKB Facility Management GmbH, Düsseldorf x 100 1 828 538

IKB Grundstücks GmbH, Düsseldorf x 100 37 11

IKB Grundstücks GmbH & Co.Objekt Degerloch KG, Düsseldorf x 100 1 341 –153 5)

IKB Grundstücks GmbH & Co.Objekt Holzhausen KG, Düsseldorf x 100 1 094 –432 5)

IKB Grundstücks GmbH & Co.Objekt Uerdinger Straße KG, Düsseldorf x 100 7 007 62 5)

IKB Grundstücks GmbH & Co.Objekt Wilhelm-Bötzkes-Straße KG, Düsseldorf x 100 48 698 –1 342 5)

IKB Immobilien Leasing GmbH, Düsseldorf x 100 5 194 – 1)

IKB Leasing GmbH, Hamburg x 100 10 481 – 1)

IKB Leasing Berlin GmbH, Erkner x 100 2 031 – 1)

IKB Mezzanine GmbH & Co. KG, Düsseldorf x 100 31 –69 3) 5)

IKB Mezzanine Verwaltungs GmbH, Düsseldorf x 100 21 0 3)

IKB Private Equity GmbH, Düsseldorf x 100 24 035 – 1)

IKB Venture Capital GmbH, Düsseldorf x 100 1 000 – 1) 3)

AIVG Allgemeine Verwaltungsgesellschaft mbH, Düsseldorf x 100 799 124

3. Other foreign companiesIKB Capital Corporation, New York 100 32 9267) 924

IKB Finance B.V., Amsterdam x 100 7 337 383

IKB Financière France S.A., Paris x 100 73 948 2 444

IKB Funding LLC I, Wilmington, Delaware x 100 249 9944) –31

B. Other Investments 2)

1. Domestic IKB Projektentwicklung GmbH, Düsseldorf x 100 520 –2

Linde Leasing GmbH, Wiesbaden 25 5 394 2 951 3)

MORSUS Immobilien GmbH, Düsseldorf x 100 3 679 –24

2. ForeignIKB Finanz Leasing AG, Budapest x 100 480 7 3)

IKB Funding Trust I, Wilmington, Delaware 100 0 0

IKB Leasing Hungaria GmbH, Budapest x 100 598 34 3)

IKB Leasing Polska GmbH, Posen x 100 224 –889 3)

IKB Leasing Tschechien GmbH, Praha x 100 822 –123 3)

(277)

Figure in parentheses shows capital outstanding

1) Profit and loss transfer agreement exists 5) Company has shown no Notes to the Financial Statement2) Not included in the Group accounts, pursuant Article 296, Section 2, HGB according to Article 264 b, HGB3) Indirect holding 6) Subordinated declaration of backing4) Incl. silent capital/preferred shares 7) Incl. capital increase of US$ 20 million at February 28, 2003

6)


In accordance with Articles 325 and 287, HGB, our complete investment portfolio, including the listing by name of the 425

special purpose entities of IKB Immobilien Leasing GmbH and its partnership companies as well as 23 participations of IKBPrivate Equity GmbH and IKB Venture Capital GmbH, is on file in the commercial registers of the Municipal Courts ofDüsseldorf (HRB 1130) and Berlin-Charlottenburg (HRB 8860); if required, we can provide a copy of the list at no charge.

Collateral Items given for Own Liabilities

The following table shows the liabilities of the Group and of the AG, for which assets totaling EUR 8,355.3 million werepledged as security.

These collateral items relate largely to loans from the Kreditanstalt für Wiederaufbau, as well as to similar institutions,which require these collateral items for the granting of loans.

Transfer of Collateral for Own Liabilities (Information pursuant to Article 35, Section 5 of RechKredV)

EUR 3,872 million in fixed interest securities is deposited with the Deutsche Bundesbank to serve as collateral for thetendering operations of the European Central Bank (collateral pool). At the balance sheet date, recourse had been made tocredit facilities totalling EUR 1,162 million.

In connection with credit derivative transactions we have provided the following banks with cash collaterals (call accounts):

• JP Morgan Chase Bank, London EUR 150 million• Wachovia Bank N.A., Charlotte/California EUR 250 million• Westdeutsche Landesbank, Düsseldorf EUR 126 million.

in EUR million

Liabilities to banks 8 336.9

Liabilities to customers 18.4

Total 8 355.3


For the adherence of payment obligations in connection with transactions in securities, securities are pledged in favour ofClearstream Banking AG, Frankfurt, at a nominal amount of EUR 2 million. In the framework of future transactions at theEUREX Deutschland for margin obligations securities at a nominal amount of EUR 5 million are pledged in favour ofING BHF-Bank AG, Frankfurt. A security with a nominal value of EUR 7 million is deposited with Clearstream Banking,Luxembourg, to serve as collateral for securities trading in Luxembourg.

For a EUR 50 million global loan facility obtained from Bayerische Landesanstalt für Aufbaufinanzierung (LfA), the bankpledged a negotiable instrument with a nominal value of EUR 51.1 million in favour of LfA.

Within the framework of the emission of credit-linked notes with a nominal value of US$ 534 million (before amortisation),we deposited at the balance sheet date securities from Kreditanstalt für Wiederaufbau nominally valued at US$ 148 millionwith a trustee.

Moreover, securities with a nominal value of US$ 67 million are pledged in favour of Westdeutsche Landesbank, London,serving as collateral in the framework of an issue.

Düsseldorf, May 20, 2003

IKB Deutsche Industriebank AGThe Board of Managing Directors


Auditors’ Report

The effectiveness of the internal control system rela-ting to the accounting system and the evidence sup-porting the disclosures in the books and records, theannual and consolidated financial statements andthe report on the position of the Company and theGroup are examined primarily on a test basis withinthe framework of the audit. The audit includes asses-sing the accounting and consolidation principles usedand significant estimates made by management, aswell as evaluating the overall presentation of theannual and the consolidated financial statementsand the report on the position of the Company andthe Group. We believe that our audit provides a rea-sonable basis for our opinion.

Our audit has not led to any reservations.

In our opinion, the annual and the consolidatedfinancial statements give a true and fair view of thenet assets, financial position and results ofoperations of the Company and the Group, respecti-vely, in accordance with German principles of properaccounting. On the whole the report on the positionof the Company and the Group provides a suitableunderstanding of the Company‘s and the Group‘sposition and suitably presents the risks of futuredevelopment.

Düsseldorf, May 28, 2003

KPMG Deutsche Treuhand-GesellschaftAktiengesellschaftWirtschaftsprüfungsgesellschaft

Wohlmannstetter Pukr0pskiGerman Public Auditor German Public Auditor

KPMG Deutsche Treuhand-Gesellschaft Aktiengesell-schaft Wirtschaftsprüfungsgesellschaft has confirmedthe German annual accounts of IKB Deutsche Indust-riebank as follows:

We have audited the annual financial statements,together with the bookkeeping system, of IKBDeutsche Industriebank Aktiengesellschaft as well asthe consolidated financial statements and its report on the position of the Company and the Groupprepared by the Company for the business year fromApril 1, 2002 to March 31, 2003. The preparation ofthese documents in accordance with Germancommercial law are the responsibility of the compa-ny‘s management. Our responsibility is to express anopinion on the annual financial statements, togetherwith the bookkeeping system, as well as on the con-solidated financial statements and the report on theposition of the Company and the Group based on ouraudit.

We conducted our audit of the annual and consolida-ted financial statements in accordance with § 317

HGB (Handelsgesetzbuch/German Commercial Code)and the German generally accepted standards for theaudit of financial statements promulgated by theGerman Institut der Wirtschaftsprüfer (IDW). Thosestandards require that we plan and perform the auditsuch that misstatements materially affecting the pre-sentation of the net assets, financial position andresults of operations in the annual and the consolida-ted financial statements in accordance with Germanprinciples of proper accounting and in the report onthe position of the Company and the Group aredetected with reasonable assurance. Knowledge ofthe business activities and the economic and legalenvironment of the Company and the Group and eva-luations of possible misstatements are taken intoaccount in the determination of audit procedures.


Income Statement and Balance Sheet Trends

in EUR million2002/03 2001/02 2000/011) 1999/002) 1998/99 1997/98 1996/97 1995/96 1994/95 1993/94

Interest Income,income from leasing operations 3 223.2 3 215.2 3 097.6 2 524.3 2 334.3 2 138.9 2 093.6 2 107.9 2 120.3 2 021.5

Current income form shares,investments etc. 1.8 4.8 2.7 36.7 12.9 20.0 11.0 9.4 11.6 11.6

Interest expenses,expenditure and depreciation arisingfrom leasing operations 2 740.0 2 748.7 2 661.6 2 141.3 1 953.6 1 793.7 1 753.9 1 780.7 1 818.3 1 748.4

Net interest income 485.0 471.3 438.7 419.7 393.6 365.2 350.7 336.6 313.6 284.7

Net commission income 64.1 39.5 12.3 7.7 8.8 7.6 5.6 4.0 6.0 5.5

Net earnings from financial transactions 0.8 1.9 2.5 –2.6 6.6 8.1 4.9 1.9 0.5 3.8

Personnel expenditure 137.8 133.4 117.2 107.2 87.4 82.5 78.6 76.1 73.9 70.5

Other administrative expensesincluding depreciation of fixed assets 82.1 73.1 66.0 59.1 51.3 49.6 41.4 39.6 36.2 35.0

Other operating result 20.2 29.3 91.8 77.8 –3.5 –8.1 –12.0 2.0 7.0 3.9

Risk provisioning balance –183.4 –175.2 –187.2 –165.5 –88.4 –78.7 –80.6 –78.1 –82.0 –76.2

Result from ordinaryactivities 166.8 160.3 174.9 170.8 178.4 162.0 148.6 150.7 135.0 116.2

Other income/expenditure – – –1.5 –10.0 –3.1 –7.7 – – – –

Taxes 81.0 77.2 87.5 85.3 84.3 77.9 74.6 81.2 73.8 58.5

Net income for the year 85.8 83.1 85.9 75.5 91.0 76.4 74.0 69.5 61.2 57.7

Income Statement Trends of the IKB Deutsche Industriebank Group

1) Figures since 2000/01 including IKB Private Equity GmbH and IKB Venture Capital GmbH; therefore previous years’ figures are not fully comparable

2) Figures since 1999/00 including IKB Immobilien Leasing Group; therefore previous years’ figures are not fully comparable


March 31, in EUR million 2003 2002 20011) 20002) 1999 1998 1997 1996 1995 1994

Liquid funds 27 11 1 12 171 8 2 14 9 15

Claims on banks 2 140 1 605 804 1 650 2 273 1 641 1 506 1 915 2 042 1 784

Claims on customers 24 803 24 600 24 276 22 635 22 188 20 771 19 174 18 238 17 213 16 344

Debentures and other fixedinterest securities 5 927 4 928 3 814 2 652 1 629 1 364 1 551 1 395 1 528 1 436

Shares and other non-fixedinterest securities 38 38 36 13 153 139 2 25 24 34

Investments and sharesin associated and subsidiary companies 45 47 44 91 176 174 199 211 196 192

Tangible Fixed assets 245 215 212 214 223 223 197 137 117 56

Leasing items 2 466 2 346 2 239 2 114 462 451 447 473 466 514

Outstanding capital ofminority shareholders 49 49 49 61 – – – – – –

Deferred items 136 139 153 164 158 166 163 161 152 148

Other assets 534 896 812 335 228 232 413 359 192 108

Liabilities to banks 16 223 15 436 15 182 13 181 13 991 11 876 10 045 10 099 9 777 9 200

Liabilities to customers 2 019 2 250 2 411 2 414 2 501 2 482 2 663 2 703 2 865 3 191

Securitised liabilities 13 700 12 975 10 825 10 803 8 280 8 053 8 333 7 464 6 899 6 213

Provisions 337 301 282 266 237 235 242 227 189 164

Subordinated liabilities 632 868 803 582 472 473 473 473 382 382

Participation rights capital 614 624 439 439 419 419 317 317 235 235

Fund for general bank risks 80 80 80 80 77 8 – – – –

Participations of minority shareholders 11 14 27 45 – – – – – –

Equity 1 775 1 282 1 243 1 142 1 049 1 022 1 004 990 971 770

Subscribed capital 225 225 225 225 225 225 225 225 225 184

Hybrid capital 620 170 170 100 – – – – – –

Capital reserves 568 568 568 568 568 568 568 568 568 420

Revenue reserves 362 319 280 249 256 229 211 197 178 166

Deferred items 456 469 514 498 297 299 303 329 332 318

Other liabilities 563 575 634 491 338 302 274 326 289 158

Total liabilities 36 410 34 874 32 440 29 941 27 661 25 169 23 654 22 928 21 939 20 631

Balance Sheet Trends of the IKB Deutsche Industriebank Group

1) Figures since March 31, 2001 including IKB Private Equity GmbH and IKB Venture Capital GmbH; therefore previous years’ figures are not fullycomparable

2) Figures since March 31, 2000 including IKB Immobilien Leasing Group; therefore previous years’ figures are not fully comparable

Income Statement and Balance Sheet Trends


Points of Contact of IKB Deutsche Industriebank AG

Düsseldorf

Wilhelm-Bötzkes-Straße 1 · D-40474 DüsseldorfPostfach 10 11 18 · D-40002 DüsseldorfTelephone ++49-2 11-82 21-0

Telefax ++49-2 11-82 21-39 59

www.ikb.deE-Mail: [email protected]

Berlin

Markgrafenstraße 47 · D-10117 BerlinPostfach 11 04 69 · D-10834 BerlinTelephone ++49-30-3 10 09-0

Telefax ++49-30-3 10 09-38 00

Frankfurt

Eschersheimer Landstraße 121 · D-60322 Frankfurt (Main)Postfach 50 07 41 · D-60395 Frankfurt (Main)Telephone ++49-69-7 95 99-01

Telefax ++49-69-7 95 99-38 60

Hamburg

Heidenkampsweg 79 · D-20097 HamburgPostfach 10 32 66 · D-20022 HamburgTelephone ++49-40-2 36 17-0

Telefax ++49-40-2 36 17-38 20

Leipzig

Käthe-Kollwitz-Straße 84 · D-04109 LeipzigPostfach 31 03 15 · D-04162 LeipzigTelephone ++49-3 41-4 84 08-0

Telefax ++49-3 41-4 84 08-38 30

Munich

Seidlstraße 27 · D-80335 MünchenPostfach 20 06 61 · D-80006 MünchenTelephone ++49-89-5 45 12-0

Telefax ++49-89-5 45 12-38 84

Stuttgart

Kronprinzstraße 24 · D-70173 StuttgartPostfach 10 24 64 · D-70020 StuttgartTelephone ++49-7 11-2 23 05-0

Telefax ++49-7 11-2 23 05-38 70

from 1. September 2003:Löffelstraße 4 · D-70597 StuttgartPostfach 70 04 62 · D-70574 StuttgartTelephone ++49-7 11-2 23 05-0

Telefax ++49-7 11-2 23 05-38 70

Hongkong

Room 5503, Central Plaza18 Harbour Road / Hong KongTelephone ++8 52-25 31-51 00

Telefax ++8 52-25 11-32 11

London

80 Cannon Street · GB-London EC4N 6HL

Telephone ++44 20-70 90 72 00

Telefax ++44 20-70 90 72 72

Luxembourg

2, rue Jean Monnet · L-2180 LuxembourgTelephone ++3 52-42 37 77-1

Telefax ++3 52-42 06 03

Paris

7, Place Vendôme · F-75001 ParisTelephone ++33 1-53 45 95-60

Telefax ++33 1-53 45 95-70


Subsidiaries and Related Companies

IKB Capital Corporation

555 Madison AvenueNew York, NY 10022 / USATelephone ++12 12-4 85-36 00

Telefax ++12 12-5 83-88 00

IKB International

2, rue Jean MonnetL-2180 LuxembourgTelephone ++3 52-42 41 11-1

Telefax ++3 52-42 06 03

IKB Finance B.V.

Strawinskylaan 3111,Atrium, 6th FloorNL-1077 ZX AmsterdamP.O. Box 1469

NL-1000 BL AmsterdamTelephone ++31 20-4 42 02 95

Telefax ++31 20-4 42 02 95

IKB Private Equity GmbH

Wilhelm-Bötzkes-Straße 1 · D-40474 DüsseldorfPostfach 10 11 18 · D-40002 DüsseldorfTelephone ++49-2 11-82 21-14

Telefax ++49-2 11-82 21-39 49

www.ikb.de

IKB Leasing GmbH

Heidenkampsweg 79 · D-20097 HamburgPostfach 10 32 05 · D-20022 HamburgTelephone ++49-40-2 36 26-0

Telefax ++49-40-2 36 26-38 26

www.ikb-leasing.com

IKB Leasing Berlin GmbH

„Seepassage“ Friedrichstraße 1-3 · D-15537 ErknerTelephone ++49-33 62-58 24-0

Telefax ++49-33 62-58 24-38 19

IKB Immobilien Leasing GmbH

Uerdinger Straße 90 · D-40474 DüsseldorfPostfach 10 11 18 · D-40002 DüsseldorfTelephone ++49-2 11-82 21-10

Telefax ++49-2 11-82 21-39 10

www.ikb-il.de

IKB Immobilien Management GmbH


Telefax ++49-2 11-82 21-39 93

www.ikb-img.de

IKB Structured Assets GmbH

Uerdinger Straße 90 · D-40474 DüsseldorfPostfach 10 11 18 · D-40002 DüsseldorfTelephone ++49-2 11-82 21-41 56

Telefax ++49-2 11-82 21-21 56

www.ikb-sta.de

IKB Facility Management GmbH


Telefax ++49-2 11-82 21-39 24

www.ikb-fm.de


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Annual Report2002/2003

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