KfW braves challenging markets with flexible funding strategy

• Stable funding volume of EUR 55-60 billion for 2015
• High share of foreign currencies expected to continue
• Broadening of Green Bond approach
• ABS investments on a European level envisaged

KfW has raised around EUR 30 billion in international capital markets by June 30 of this year. With a range of EUR 55-60 billion the targeted funding volume for the whole of 2015 remains stable.

KfW’s crisis proven “Three-Pillar Strategy” served as a strong backbone within extremely challenging markets affected by the QE-programme of the ECB and woes around Greece. As a consequence, KfW tapped the market only with some reservation under its EUR Programme in the first half of this year and issued only two global bonds with maturities of 7 and 10 years. Furthermore, KfW issued a EUR 2 billion 15-year transaction outside the global format, which is the largest in the segment of supras and agencies since the start of the year. With over 70%, the bulk of the funding was raised in foreign currencies with USD accounting for over 50% alone. This marks a historical high and is a direct consequence of KfW’s excellent access to the USD market. Four USD Globals amounting to USD 15 billion were issued under KfW’s USD Programme across the whole maturity spectrum from 3 to 10 years. “We see a structural shift in demand. On the one hand, regulation increasingly requires banks to buy safe and liquid assets such as KfW bonds. On the other hand, we have seen central banks less active”, Dr Günther Bräunig, the member of the Executive Board of KfW Group in charge of capital markets, comments the changes of demand in USD.

Further highlights of the increasingly international funding activities are KfW’s inaugural NZD 650 million Kauri Bond, named after the largest endemic tree species in New Zealand, and which specifically appeals to domestic investors, and its first AUD Green Kangaroo Bond.

Within the seminal market of the Chinese Renminbi KfW was able to issue CNY 2.85 billion (CNY 1 billion previous year) until June 30th. “Our transactions 2015 are all Frankfurt listed. We keep supporting the initiative for establishing Frankfurt as a financial hub for the Chinese Renminbi. While this won’t happen overnight, we believe that the market will grow significantly in importance going forward”, Bräunig depicts his vision.

For the second half of 2015 KfW expects a continuation of the trend of the first six months. “Peculiar markets require a very flexible funding strategy. Our task is to most efficiently fund our promotional but also the increasing international activities. Thus, if necessary we are prepared to skip certain bond maturities we typically offered in the past under our EUR programme. The same degree of flexibility may be required as to the typical size of the issues. Overall, I expect a higher share of funding in foreign currencies, also in our green bond format”, Bräunig explains the situation.

Pursuant to its announcement of last December on expanding its greenbond approach, KfW issued the largest ever Green Kangaroo Bond with a volume of AUD 600 million in March 2015. The greenbond market becomes increasingly diversified with new issuers and currencies, and KfW intends to support this development by issuing green bonds in further currencies while also offering EUR and USD.

“Transparency and impact reporting are increasingly in the centre of interest. Here we feel very well positioned within our issuance activities. Also within our greenbond portfolio, investments need to comply with our own high standards as to transparency as well as reporting, and issuers need to provide a second party opinion for their green bonds”, Bräunig highlights.

Following its announcement of April 2015 to build a Green Bond portfolio of up to EUR 1 billion, per the end of June KfW found around EUR 134 million of investment opportunities qualifying under its own strict taxonomy and consisting of issues from SSAs as well as banks and corporates.

KfW’s ABS investments as an instrument to promote financing options for small and mid-sized enterprises in Germany amounted to EUR 360 million by the end of June. Going forward, KfW intends to expand those activities into Europe as a means of supporting the initiative of the European Commission for more growth in Europe, the so-called “Juncker-Plan”. “Thereby we aim at closely cooperating with the European Investment Bank, the European Investment Fund as well as other promotional banks”, Bräunig comments on KfW’s role as to the contribution to European growth. “We believe securitisations can substantially facilitate access to credit and for that matter stimulate growth. One important prerequisite for reanimating this market as an instrument for financing, risk-transfer and balance sheet management is an appropriate regulatory framework that helps creating a level playing field for securitisations and comparable financial instruments. Hence, we support the concept of ‘High-Quality Securitisations’ and share our expertise within the ongoing consultations on a pan-European level to bring this market forward”, Bräunig concludes.

For more details on KfW’s funding please go to

www.kfw.de

KfW’s next green bond reporting is due at the end of July 2015.