KfW with historic funding of around EUR 90 billion in 2022

• Euro bonds account for 65% of capital market funding
• Liquid bonds and variety of currencies are highly valued features of KfW funding
• 'Green Bonds – Made by KfW' exceed EUR 50 billion mark
• 2023: KfW plans to raise funds of EUR 80 to 85 billion, including at least EUR 10 billion through green bonds

2022 was another exceptional year for KfW, too. The war in Europe, the associated energy price crisis, high inflation rates and the initiated turnaround in interest rates have created an environment characterised by uncertainty and volatility. Despite these circumstances KfW provided the highest financing volume in its history and also raised a record volume equivalent to around EUR 90 billion through bond issues on the international capital markets alone. In addition, as announced in July 2022, it expanded its money market activities to provide short-term liquidity (“bridge financing”) in relation to mandated transactions of the Federal Government to ensure the energy supply in Germany and Europe.

“This year required rapid adaptability and action on our part to tackle new tasks in the short term in a volatile market environment with sharply rising interest rates. Treasury met these challenges in a highly professional manner; cooperation with other departments and with the Federal Government was very efficient. As a result, there is clear evidence of our ability to deliver to the Federal Government and our business partners, customers and investors,” says Tim Armbruster, Treasurer of KfW Group, at today’s KfW capital market press conference in Frankfurt.

While KfW had already raised around two thirds of its planned funding requirements on the global capital markets in the first half of the year thanks to its forward-looking strategy, the second half of the year was once again strongly characterised by uncertainty, in particular with regard to double-digit inflation rates; capital market investors therefore demanded significantly higher risk premiums.

Liquid euro bonds are paramount, at the same time variety of currencies is a valuable feature of KfW funding

In 2022, the cost of euro funding was comparatively so attractive that euro bonds accounts for 65% of KfW’s total capital market funding as of 15 December 2022. On the other hand, funding in US dollars is lower this year due to the volatile market environment and decreasing demand due to the strong exchange rate (19% of borrowing). At the same time, with a volume of around USD 18 billion (EUR 17 billion) KfW remains the second largest US dollar issuer worldwide in its market segment (Sovereigns, Supranationals, Agencies – SSA).

KfW can regularly provide its investors large-volume, liquid bonds, which they particularly appreciate. This year, a total of 11 new EUR and USD benchmark bonds were issued and 13 outstanding EUR benchmark bonds were stepped up in order to further increase their liquidity. The share of all benchmark bonds, including step-ups, is equivalent to around EUR 56 billion (63% of the funding volume in 2022).

In addition to benchmark bonds, around 180 bonds in 12 foreign currencies and euros were issued this year. “KfW ranks in a top position in different currency markets, thus combining the most relevant aspects of capital markets: diversification and liquidity.” says Tim Armbruster. This is a particular strength of KfW funding, as it allows the promotional bank to raise funds flexibly with less dependence on individual currencies, and these bonds offer investors around the world “German credit risk” in various currencies.

For example, with its issue volume of GBP 6.8 billion (EUR 8.1 billion) this year, KfW is by far the largest foreign issuer in the sterling market and the largest foreign issuer in the Australian capital market (AUD 3.3 billion/EUR 2.1 billion). At almost EUR 10 billion, the volume of private placements this year was also at an all-time high.

“Green Bonds – Made by KfW” exceed EUR 50 billion mark
KfW is one of the top three green bond issuers worldwide. In 2022, “Green Bonds – Made by KfW” totalling EUR 10.6 billion were issued. KfW has thus exceeded the EUR 50 billion mark for “Green Bonds – Made by KfW” issued to date this year.
This market segment also reflects KfW’s typical characteristics this year, namely liquid euro issues and variety of currencies: two highly liquid euro green bonds were complemented by 17 transactions in nine different currencies, including a green bond in Danish krone for the first time. The promotional bank’s green bond framework, which was expanded at the beginning of the year, was very well received by global investors.

KfW bridge financing relating to mandated transactions is gradually being replaced by WSF funds
Outside of its promotional business, KfW committed financing of EUR 52.2 billion as of 30 November 2022 as part of the Federal Government’s mandated transactions to ensure energy supply in Germany and Europe. This “bridge financing” required in the short term was mainly funded via the money market. Since the beginning of November, KfW has been able to gradually replace these prefinancings with funding via the Economic Stabilisation Fund (Wirtschaftsstabilisierungsfonds - WSF) due to the amended Federal legislation. To this end, the WSF is providing the promotional bank with around EUR 20 billion by the end of the year.

Digitalisation of issuance process
One highlight at the end of 2022 was KfW’s first digital issuance based on the German Electronic Securities Act (eWpG). There are now many initiatives by market participants in the area of digitalisation of the issuance process. KfW is currently devoting particular attention to increasing the efficiency of the issuance process and will maintain this focus in the coming year. When evaluating innovative procedures, the promotional bank attaches particular importance to taking into account the liquidity of digital bonds, because, in addition to the credit quality of the issuer, the liquidity of its bonds is extremely important for investors.

Outlook for 2023
To fund its promotional business, KfW plans to raise EUR 80 to 85 billion on the international capital markets next year. The lion’s share of the funding will be raised via the very successful benchmark programmes in EUR and USD. The initial issuance volume of EUR benchmark bonds may be raised up to EUR 6 billion in the future. Due to the continuing strategic importance of the USD market, one large-volume bond is to be issued in this segment every quarter if possible.

In the case of “Green Bonds – Made by KfW”, the promotional bank envisages an issue volume amounting to at least EUR 10 billion. It is planning at least one large-volume green EUR bond and will offer green bonds in other (core) currencies depending on market conditions.

“2023 will certainly be another challenging year, especially since, in addition to the expected volatility, a lot of issue activity can be expected,” says Tim Armbruster. He sees a very active first quarter on the capital markets, particularly in the euro, also in view of the the ECB’s announcement of last week that from March 2023 on, APP holdings will be reduced. “We have strong success factors: our excellent communicative networking in the markets and our many years of experience with regard to product selection and the timing of issues. Coupled with our broad range of currencies, this gives us confidence in our funding in the new year,” says Tim Armbruster, Treasurer of Germany’s largest promotional bank.

Service:
Detailed facts and figures on KfW’s funding activities on the capital market as of 15 December 2022 can be found here.