KfW diversifies sources of funding and adjusts capital markets funding volume

• Funding through bond issues in capital markets revised from EUR 75 billion to EUR 65 billion for 2020
• In the current crisis, KfW is creating a comfortable liquidity position by tapping into new sources of funding
• Green bond activities in focus in the second half of the year

After a very good start to the year, KfW successfully implemented its funding strategy in capital markets in the first half of the year despite the COVID-19 crisis.
The ECB’s March 2020 announcements on the new PEPP (Pandemic Emergency Purchase Programme) and the increase of the existing PSPP (Public Sector Purchase Programme) have stabilised the market relatively quickly and continue to provide strong support. After the announcement of the PEPP, KfW was one of the first issuers to reopen the market at the end of March, issuing a Euro Benchmark Bond with a maturity of five years. Soon after, its Euro Benchmark Bond with a maturity of three years recorded a remarkable order book of more than EUR 15 billion. KfW contributed to stabilising the market with its transactions while securing liquidity in capital markets early on. Overall, KfW issued securities in 86 transactions in the international capital markets in 14 currencies in the first six months of this year, raising around EUR 36 billion.

KfW expands sources of funding in extraordinary year
KfW participated in the targeted long-term refinancing of the Eurosystem through TLTRO III for the first time at the end of June 2020 with a volume of EUR 13.4 billion. “In this extraordinary year, taking part in TLTRO III is a coherent, economically sensible step that takes the treasury department into new territory”, explained Tim Armbruster, who was appointed KfW Group’s treasurer in May 2020.
The new Economic Stabilisation Fund (Wirtschaftsstabilisierungsfonds, WSF) set up by the German Federal Government also provides KfW with a further new source of funding. KfW can draw down funds made available from the Economic Stabilisation Fund for the KfW Special Programme 2020, which the bank is implementing on behalf of the Federal Government to support the German economy through the COVID-19 crisis, up to a maximum of EUR 100 billion. The bank plans to draw down up to EUR 30 billion from the Economic Stabilisation Fund for the first time in the third quarter of 2020. In this way, KfW will not have to expand its capital markets funding operations despite its strong integration into the Federal Government’s special programme.

The additional sources of funding available this year play an important role in the half-yearly review of KfW´s funding requirements, which takes into account both new lending business as well as interest and principal payments received. As a result, KfW will revise its funding in the international capital markets for the year 2020 from EUR 75 billion to a volume of EUR 65 billion.

Green bond activities
In the first half of 2020, KfW was also active in the green bond market in a range of currencies. The bank issued green bonds with a total volume of some EUR 435 million, including five new bonds and one tap denominated in Polish zloty, Hungarian forint, Norwegian kroner and Hong Kong dollars. With these KfW has expanded the range of currencies in its green bonds, thereby attracting new investors.
KfW is particularly well-known in capital markets for its strategy of issuing liquid, large-volume green bonds in euros and US dollars. “We plan to issue large-volume green bonds in the second half of the year and are pleased to contribute to the development of liquidity in this market segment. KfW will continue to focus on advancing the topic of sustainability in capital markets as well as on promoting environmental protection and climate action”, explained Armbruster.
KfW also continued its investment activities in its green bond portfolio, completing investments totalling EUR 181 million in the first half of 2020. The portfolio volume currently amounts to approx. EUR 1.7 billion.

Outlook
Capital markets will continue to face challenges in the second half of the year, as they seek to find a new balance due to the economic impact of the COVID-19 crisis and the associated funding of large stimulus packages around the world on the one hand, and the impact of central bank activities on the other.
KfW is in an ideal position for this and will be present again on a regular basis in capital markets with the issuance of liquid bonds in the second half of the year. In the context of its outstanding funding requirements of around EUR 30 billion, KfW will also step up its issuing activities in the US dollar again.
Its green bond issues are contingent on the development of the underlying loan programmes for financing projects in renewable energy and energy-efficient construction. Here the promotional bank continues to anticipate a target volume of up to EUR 8 billion for the year as a whole. KfW will offer its investors large-volume green bonds of the highest possible liquidity in a range of currencies.

Service:
An overview of KfW’s funding activities in capital markets as of 30 June 2020 is available here.