Announcements
Drinks
Scope affirms AAA/Stable issuer rating on KfW
Rating action
Scope Ratings GmbH (Scope) has today affirmed its AAA issuer rating for KfW. The AAA senior unsecured debt and the S-1+ short-term debt ratings have also been affirmed. The Outlook for all ratings remains Stable.
Rating rationale
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 in implementing Germany’s economic policy.
In April 2022, KfW initiated several support measures that will run until end-2022 for companies and municipalities affected by the war in Ukraine. Via its UBR Special Programme KfW supports the financing of working capital and necessary investments for companies suffering from the war through a decline in sales, production interruptions, the closure of production facilities and higher energy costs. As for its Covid-19 Special Programme, this measure is explicitly guaranteed by the federal government. KfW therefore does not assume any credit risk in protecting companies against adverse effects of the war. In addition, KfW has set up a separate programme to support municipalities in accommodating Ukrainian refugees. Furthermore, KfW might participate in the financing of energy policy measures such as the construction of liquefied natural gas terminals or by providing credit facilities for the German energy sector.
KfW has excellent capital market access. In 2022, KfW aims to raise EUR 80-85bn on capital markets, of which at least EUR 10bn are to be issued as green bonds. In general, KfW actively supports the qualitative development of the green bond market, mainly through market initiatives and in direct dialogue with market participants. As part of its sustainability strategy, KfW has launched multiple projects aimed at the implementation of the Paris Agreement in its financing activities, the strengthening of its ESG risk management and the application of the EU taxonomy and the new EU directive on sustainability reporting.
KfW maintains a low risk profile in its domestic promotional activity as credit risk is borne by the intermediate banks that lend the funds to end-borrowers. In some cases such as the support programmes related to the war in Ukraine or the Covid-19 pandemic, KfW receives additional indemnities directly from the government. KfW's credit risks related to Ukraine, Russia and Belarus are limited and well collateralised and therefore manageable for KfW group. Counterparty, market, liquidity and operational risks are managed in a prudent manner, reflecting KfW’s continuous investment into risk management and compliance processes in recent years.
As a promotional bank, KfW does not seek to maximise profits, though management keeps a close eye on efficiency. After a steady increase, the cost/income ratio improved to 40% in 2021. In the wake of the post-pandemic economic recovery, KfW's earnings improved significantly to EUR 2.2bn in 2021 compared to previous years (2020: EUR 525m). This was due in particular to an exceptionally good valuation result, which is characterised by a reversal of loan loss provisions and a positive fair value result of the investment portfolio. In the previous year, cost of risks had been significantly impacted by the economic effects of the pandemic on KfW's lending and investment business.
Key rating drivers
-
KfW’s current and future obligations carry an explicit and unconditional guarantee by the Federal Republic of Germany, thus providing creditors with direct recourse in case the agency cannot meet its obligations on a timely basis.
-
KfW benefits from a maintenance obligation by the Federal Republic under the principle of Anstaltslast. Chartered under public law, KfW cannot be subject to insolvency proceedings and is exempt from the EU’s Bank Recovery and Resolution Directive.
- Given KfW’s strategic importance and clearly defined public mission, Scope believes that the Federal Republic, a 80% owner, would provide extraordinary support to KfW should it be required.
Rating-change drivers
There are no positive rating-change drivers as KfW is rated AAA, the highest rating on Scope’s rating scale.
Factors that could negatively impact the ratings are:
-
A downgrade of Scope’s sovereign rating assessment (currently AAA/Stable).
- Any material change to the credit support by the Federal Republic of Germany, notably the explicit guarantee, public law status, Anstaltslast and exemptions from insolvency law and taxation.
Stress testing & cash flow analysis
No stress testing was performed. No cash flow analysis was performed.
Methodology
The methodology used for these Credit Ratings and/or Outlooks, (Government Related Entities Rating Methodology, 6 May 2022), is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://scoperatings.com/governance-and-policies/regulatory/eu-regulation. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The Outlook indicates the most likely direction of the Credit Ratings if the Credit Ratings were to change within the next 12 to 18 months.
Solicitation, key sources and quality of information
The Rated Entity and/or its Related Third Parties participated in the Credit Rating process.
The following substantially material sources of information were used to prepare the Credit Ratings: public domain, the Rated Entity and Scope Ratings’ internal sources.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting these Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and/or Outlooks and the principal grounds on which the Credit Ratings and/or Outlooks are based. Following that review, the Credit Ratings were not amended before being issued.
Regulatory disclosures
These Credit Ratings and/or Outlooks are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and/or Outlooks are UK-endorsed.
Lead analyst: Christian van Beek, Director
Person responsible for approval of the Credit Ratings: Marco Troiano, Managing Director
The Credit Ratings/Outlooks were first released by Scope Ratings on 4 December 2015. The Credit Ratings/Outlooks were last updated on 27 July 2020.
Potential conflicts
See www.scoperatings.com under Governance & Policies/EU Regulation/Disclosures for a list of potential conflicts of interest related to the issuance of Credit Ratings.
Conditions of use / exclusion of liability
© 2022 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Fund Analysis GmbH, Scope Innovation Lab GmbH and Scope ESG Analysis GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided ‘as is’ without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings GmbH at Lennéstraße 5 D-10785 Berlin.