Scope affirms AAA/Stable issuer rating on KfW
Scope Ratings GmbH (Scope) has today affirmed its AAA issuer rating on 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. Scope has also affirmed the following programme ratings:
KfW EUR 90bn Multi-Currency Commercial Paper Programme rated S-1+/Stable
KfW USD 30bn US Commercial Paper Programme rated S-1+/Stable
KfW Australian and New Zealand Medium-term Note Programme rated AAA/Stable
- KfW Note Programme rated AAA/Stable
KfW’s issuer rating is fully aligned with the sovereign credit rating of the Federal Republic of Germany (AAA/Stable). The Federal Republic of Germany explicitly and unconditionally guarantees KfW’s current and future obligations on an explicit, unconditional, unlimited, statutory, direct and irrevocable basis, thus providing creditors with direct recourse if the bank cannot meet its obligations in a timely manner. In addition, KfW benefits from a maintenance obligation by the Federal Republic under the principle of Anstaltslast. Chartered under public law, the bank cannot be subject to insolvency proceedings.
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. It has recently taken significant measures in response to the Covid-19 pandemic and the Russia-Ukraine war. The bank is also playing an increasingly important role in shaping German energy policy and securing energy supplies. KfW and its subsidiaries significantly contribute to efforts to tackle the climate crisis at the domestic and international levels.
In 2022, KfW has made a significant contribution to the transformation of the economy towards renewable energies and energy independence as well as to the economic stabilisation in Germany. The promotional business volume and new business increased by 56% to EUR 167bn, which included a significant amount of mandated transactions on behalf of the Federal Government of Germany to secure energy supplies for the country, amounting to EUR 58bn in 2022. The extraordinary promotional volume continued in Q1 2023, when KfW recorded a volume of EUR 40bn, slightly below the already significant EUR 41bn in Q1 2022.
As a promotional bank, KfW does not seek to maximise profit. Nevertheless, KfW achieved a satisfactory consolidated profit of EUR 394m in Q1 2023, including, inter alia, a net recovery from loan losses of EUR 5m and positive fair value adjustments of EUR 20m. For 2023, KfW is targeting a decline in net income to around EUR 950m (2022: EUR 1.4bn). Scope considers this target to be realistic, as it assumes that the indirect negative effects of the Russia-Ukraine war may weigh on performance in the coming years. Cost efficiency is also likely to remain pressured by investments in modernisation and digitalisation as well as higher inflation, though management is keeping a close eye on efficiency.
KfW maintains an excellent capital market access. KfW aims to raise EUR 80bn-85bn on capital markets In 2023, at least EUR 10bn of which is 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 several projects to implement the Paris Agreement in its financing activities, strengthen its ESG risk management and apply the EU taxonomy and the new EU directive on sustainability reporting from 2021.
Scope also highlights KfW’s strong capital metrics and its solid asset quality. In Scope’s view, counterparty, market, liquidity and operational risks are managed in a prudent manner, reflecting KfW’s extensive investment into risk management and compliance processes in recent years. Scope expects downside risks in 2023 to remain manageable.
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.
The methodology used for these Credit Ratings and Outlook, (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 Outlooks and the principal grounds on which the Credit Ratings and Outlooks are based. Following that review, the Credit Ratings were not amended before being issued.
These Credit Ratings and Outlooks are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and 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 23 June 2022.
See www.scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest related to the issuance of Credit Ratings.
Conditions of use / exclusion of liability
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