Scope assigns AAA/S-1+ Long-Term and Short-Term Ratings to KfW, all with Stable Outlook
Scope Ratings today has assigned Long-Term Ratings of AAA and a Short-Term Rating of S-1+ to Kreditanstalt für Wiederaufbau (KfW), all with a Stable Outlook. According to Scope, the ratings reflect the close and explicit linkages between KfW and the Federal Republic of Germany. KfW is the promotional bank of Germany, supporting the economic and policy objectives of the federal government, particularly focused on issues concerning the environment, globalisation/technical progress and demographic change. Importantly, KfW benefits from an explicit and direct statutory guarantee and an institutional liability (Anstaltslast) from the German state.
Scope does not assign sovereign ratings at this time. However, its assessment of the sovereign credit of Germany is equivalent to a stable AAA credit.
The rating agency noted positively that KfW was complying with significant parts of bank regulatory law, including capital and risk management requirements, despite not being regulated as a credit institution. With no branch network of its own, KfW carries out its activities primarily by on-lending to banks which results in high and concentrated exposure to the financial sector. Further, KfW funds itself almost entirely through the capital markets as it is not permitted to accept deposits. However, due to its quasi-sovereign status KfW is able to continuously access market funding at affordable costs.
KfW has been assigned AAA Long-Term Ratings and therefore, there are no positive rating-change drivers. As a negative rating-change driver, Scope mentions a material decrease in support from the German state but views this as unlikely for the foreseeable future due to KfW’s clearly defined public mission and important economic-development role. Another negative rating-change driver would be deterioration in the fundamentals of Germany which would lead Scope to no longer assess them as being consistent with those of a AAA credit. Again, the rating agency noted that this scenario was unlikely in the foreseeable future.
Both the rating drivers and the rating-change drivers are detailed in Scope’s research on KfW which supports the ratings.
The following ratings were assigned to KfW, all with a Stable Outlook:
- Issuer Credit-Strength Rating (ICSR) of AAA. The ICSR represents a credit opinion on a bank’s ability to meet its contractual financial commitments on a timely basis and in full while remaining a going concern.
- Senior unsecured debt rating of AAA.
- Short-term debt rating of S-1+.
The methodologies used for the rating assessment are ‘Bank Rating Methodology’ published in May 2015 and ‘Analytical Guidelines for Assessment of Sovereign Credit Risk’ published in March 2015. These documents are available on www.scoperatings.com.