Strong first half-year in KfW’s funding activities
Press Release from 2018-07-05 / Group, Investor Relations
- Liquid KfW benchmark bonds shape bank’s long-term funding
- Persistently high demand from international investors in volatile market environment
- KfW revises funding requirements for 2018 slightly upward
- KfW is active in European Commission’s High-Level Expert Group on Sustainable Finance
In the first six months of 2018, KfW already raised EUR 46.3 billion in the international capital markets to fund its promotional business. The bank looks back on a successful first half-year. “Markets were marked by volatility in the first half as a result of political turmoil and the announced unwinding of the Eurosystem’s purchase programme. However, with its federal guarantee KfW continues to be regarded as a safe haven. We have fulfilled the expectations of our international investors by continuously placing liquid bonds internationally on a solid basis”, explains Dr Günther Bräunig, Chief Executive Officer of KfW.
High share of benchmark and euro in the lead again in first half-year
As expected, the trend in 2018 is pointing to a clear investor preference for large-volume, liquid bonds in the core currencies EUR and USD. In the first half of this year, KfW already issued eight benchmark bonds in EUR and USD and increased two euro benchmark bonds, and all main maturities have been issued. Benchmark bonds make up a strong 74% of its overall funding volume. In the current interest rate environment, international investors value liquid EUR bonds with long maturities in particular. Demand for these bonds has met with a broad supply of liquid KfW EUR bonds with maturities up to the year 2037.
Around 89% of funding in the first half-year was in the core currencies EUR and USD. As in the previous year the euro was KfW’s main funding currency, with a share of around 56%. Most noteworthy was a euro benchmark bond issued in April with a seven-year maturity. With a volume of EUR 12.3 billion, this bond recorded the largest ever order book of a bond issue of this type. “The entire segment of supranational, government-guaranteed and public issuers has benefited enormously from the purchase programme in the past. Funding costs in the EUR market have dropped to a historic low. However, we generally welcome the winding-down of the purchase programme, which will initiate a normalisation of the markets”, the CEO observes.
The second strongest funding currency of the first half was the US dollar, with a share of 33%. KfW achieved particular visibility in January with the issuance of its first ten-year USD benchmark bond after nearly three years. The time window for this issuance was an excellent choice. As the interest rate curve flattened out increasingly in the further course of the year, KfW then achieved good funding results in the USD market, particularly in short maturities.
KfW issued 84 bonds in twelve different currencies in the first half of 2018. It thus exceeded the number of currencies issued in all of 2017 (ten currencies) in just six months. In the sterling market KfW placed its largest ever bond issue with a volume of GDP 1 billion. The development in Swedish kroner also deserves special mention. KfW has so far issued four SEK bonds in the equivalent of more than EUR 650 million. In addition to two private placements, KfW issued two green bonds, including its largest ever SEK transaction in a volume of SEK 5 billion. That made Swedish kroner KfW’s fourth strongest funding currency in the first half of 2018.
Outlook on the second half of 2018
KfW raises the target corridor of its funding needs for 2018 by EUR 5 billion to EUR 75-80 billion. This is mainly the result of an updated forecast of off-schedule repayments in lending business for the whole year 2018.
“The unwinding of the bond purchase programme of the Eurosystem along with political uncertainties and cyclical warning signs will create higher volatility in the markets in the second half as well. However, reinvestments in the Eurosystem will give the markets the necessary stability. The purchase programme is valuable for KfW but not crucial”, explains Bräunig. In the second half of 2018 KfW will remain present in all important markets with a funding strategy that is appreciated by international investors, and it will respond to demand with the usual flexibility. “Achieving the best possible funding results remains our goal. This will benefit our promotional business and, hence, our borrowers”, says the CEO.
Responsible banking, also at European level
Responsible action, including in the capital market, and a holistic sustainability approach are part of KfW’s culture. KfW provides valuable impetus with its pronounced commitment to the green bond market. This impetus is ultimately a catalyst for the further establishment of a holistic sustainability approach which comprises environmental aspects as well as social and governance aspects.
Particularly in its capacity as an issuer and investor in the green bond market, KfW welcomes the EU Action Plan for Financing Sustainable Growth, which makes sustainability the focus of the financial sector. The European Commission has adopted a package of legal proposals to implement the action plan. It has also set up a high-level expert group with representatives of civil society, academia, the business and finance community which, among other things, will submit proposals for an EU-wide classification system for sustainable economic activities and a Green Bond Standard. As one of the representatives of the financial sector, Dr Karl Ludwig Brockmann, KfW’s sustainability officer, has been selected in the high-level expert group by the European Commission. “The EU recognizes the key role of financial markets in the necessary transition to a sustainable economy and society. We are pleased to be able to contribute to the development of sustainable standards for a future-oriented financial market as a member of the high-level expert group”, explains Dr Bräunig.