KfW succeeds in digitalisation and funding

• As of 30 June 2023 KfW has raised already EUR 54 billion in the international capital markets - confirms funding volume of EUR 85 billion for 2023
• Investors appreciate taps of outstanding KfW bonds in view of increased liquidity
• Green bonds: equivalent of EUR 6.7 billion raised via issues in five currencies, annual target unchanged at EUR 10 billion
• Digitalisation initiatives remain a priority

KfW raises the majority of the funds needed to fulfil its promotional mandate by issuing bonds on the international financial markets. As a means of further optimising these funding activities, KfW for some time now has increasingly focused on digitalisation initiatives and has reached several important milestones in recent months.

The end of last year, for example, marked the first time that KfW issued a digital fixed-income bond in the form of a central register security on the capital market based on the German Electronic Securities Act (eWpG) via the Deutsche Börse D7 platform operated by Clearstream. In the first half of 2023, it followed up with innovative transactions by issuing its first commercial paper via a digital communication platform developed by Onbrane, a fintech from France; furthermore, the first transaction was carried out using the 'transport currency' settlement methodology in the derivatives business in cooperation with LCH SwapAgent, a subsidiary of the London Stock Exchange.

"As one of the largest and most active issuers on the international money and capital markets, we have a strategic interest in making our processes as efficient as possible. We are currently pushing forward with innovative and digital solutions that improve the degree of automation and efficiency of our funding activities,"

explains Tim Armbruster, Treasurer of KfW Group.

On a strategic level, KfW has adopted a multi-pronged approach that advances various digitalisation initiatives and pilot projects. Based on this approach, it is also promoting the ongoing digitalisation of the financial market and actively helping to shape it.

“In this way, we are also implementing the basic idea of our KfWplus transformation agenda, which, in addition to climate and environmental action, includes digitalisation and innovation as key core elements,”

adds Armbruster.

Funds raised in first half of 2023: objectives achieved

KfW raised the equivalent of around EUR 54 billion in the first half of 2023 (previous year: EUR 57 billion) on the global capital markets to fund its promotional business, meaning it has already achieved 63% of the funding volume planned for 2023 as a whole.

"The market environment continues to be challenging due to the high degree of volatility. Nevertheless, in the first half of the year we took advantage of market opportunities, which is to say we responded to investor demand in the best possible way while ensuring optimal funding. We have achieved our targets for the first half of the year,"

declared Armbruster.

KfW’s funding is implemented on a global level, and thanks to the German federal guarantee the bank can offer institutional investors around the world “German credit risk in a wide range of currencies”. By adopting a very flexible approach to responding to market opportunities, it also takes advantage of attractive funding conditions. Overall, KfW issued bonds in seven different currencies in the first half of the year; the euro portion of the total funding volume is 65% (previous year: 58%), while that of the US dollar is 21% (previous year: 24%). The British pound has a share of 7% (previous year: 10%), while the Australian dollar made a relatively substantial contribution at 6% (previous year: 2%).

Around 66% of the issue proceeds (previous year: 65%) stemmed from the issuance of benchmark bonds, KfW’s most liquid and therefore strategically most important funding instrument. A total of seven new benchmark bonds (four in EUR and three in USD) were issued. Including the taps of existing lines, the issue proceeds amounted to the equivalent of EUR 35.5 billion in total. As investors particularly value highly liquid bonds, KfW issued a EUR benchmark bond with an initial volume of EUR 6 billion for the first time in January 2023. In addition, KfW has to date already increased seven outstanding EUR benchmark bonds to EUR 7 billion each.

Demand for 'Green Bonds – Made by KfW' remains high

The issue proceeds of the green bonds issued by KfW in the first half of 2023 amount to EUR 6.7 billion, which corresponds to 12.5% of the funding volume; a total of seven green bonds were issued in five different currencies. The fact that there is persistently high investor demand for 'Green Bonds – Made by KfW' was demonstrated in particular by the order book (more than EUR 34 billion) – oversubscribed more than 10 times – for the EUR green bond issued in February 2023 with a term of 10 years. The total volume of all 'Green Bonds – Made by KfW' issued to date currently amounts to over EUR 60 billion.

KfW is continuing to act as an investor in green bonds with a targeted green bond portfolio of EUR 2.0 to 2.5 billion. In the first half of 2023, KfW invested EUR 412 million in green bonds. The total volume of the portfolio is currently EUR 2.6 billion.

WSF funds for mandated energy transactions

Since November 2022, KfW has had the opportunity to use funds from the Economic Stabilisation Fund (Wirtschaftsstabilisierungsfonds - WSF) to refinance the mandated energy transactions transferred to it by the Federal Government to cushion the economic and social consequences of the war in Ukraine. As of 30 June 2023, a total of around EUR 25 billion had been drawn from the WSF for this purpose, of which around EUR 5 billion has been drawn this year. The outstanding volume amounts to around EUR 17 billion as of 30 June 2023.

Issues of around EUR 31 billion planned in second half of 2023

Based on the current business sector planning, KfW expects a funding volume of EUR 85 billion for 2023 as a whole, and is therefore on course for the upper end of the EUR 80 to 85 billion volume that was planned at the beginning of the year. Depending on how the markets evolve, KfW plans to keep focusing on the US dollar as a strategically important currency (in addition to the euro) in the second half of the year. Further green bond issues are also planned, depending on the disbursements of the promotional loan programmes that underlie the green bond framework.

Service:

Further information on KfW’s funding is available here

Press releases on the aforementioned digital transactions:

KfW: First digital issue via Clearstream's D7 | KfW

LCH SwapAgent processes first trades for KfW using EUR Transport Currency | LCH Group

Onbrane: Press release | Onbrane