KfW is the largest German government development agency and one of the largest sub-sovereign issuers in Europe. Under the direction of the Federal Finance Ministry and within a mandate set by law, KfW plays a critical role for implementing economic policy in Germany.

Most recently, KfW took a leading role in Germany’s pandemic response programme by committing EUR 34bn in advances to corporate and SME borrowers during the first half of 2020. As part of the pandemic response, KfW can receive up to EUR 100bn additional funding directly from the Federal Republic’s Economic Stabilisation Fund. KfW plans to raise EUR 30bn from the fund this year, in addition to its regular funding programme that was scaled back to EUR 65bn compared to 80.6bn in 2019. As of June 2020, KfW had raised EUR 35.9bn across a variety of currencies and maturities. KfW’s excellent market access is further supplemented by an increasingly active green bond programme backed by lending to climate-friendly projects.

KfW maintains a low risk profile in its domestic promotional activity as credit risk is borne by the intermediate banks that lend out the funds to end-borrowers. In some cases, like the pandemic support programmes, KfW receives additional indemnities directly from the government. Its international trade and project finance operations as well as certain domestic activities such as equity investments and student loans expose KfW to valuation risks that are borne by its own balance sheet.

Consequently, we expect KfW to display earnings volatility during periods of economic stress. The Q1 net loss of EUR 592mn this year reflects the extraordinary impact of the Covid-19 induced global economic downturn but is still well within KfW’s risk-bearing capacity. As of March 2020, KfW had a Tier 1 capital ratio of 24% and available financial resources of EUR 30bn. Other counterparty, market, liquidity and operational risks are managed in a prudent manner, reflecting the extensive investment into risk management and compliance processes in recent years.

Supervised by BaFin, KfW is subject to German and EU banking law, apart from the BRRD and certain other provisions. Its highly regulated status provides KfW with a very strong liquidity position. KfW has access to ECB funding, including TLTRO III, which it tapped for EUR 13.4bn in June. KfW’s bonds, which carry a zero percent risk weighting in the EU and other banking jurisdictions, are part of the ECB’s ongoing asset purchases, including the Public Sector Purchase Programme (PSPP) and the new Pandemic Emergency Purchase Programme (PEPP).

The updated report can be downloaded here.