Announcements
Drinks
Christian van Beek
Analyst
Marco Troiano
Team leader
Scope affirms KfW's issuer rating at AAA with Stable Outlook
Rating action
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 Note Programme rated AAA/Stable
-
KfW Australian and New Zealand Medium-term Note Programme rated AAA/Stable
-
KfW EUR 90bn Multi-Currency Commercial Paper Programme rated S-1+/Stable
- KfW USD 30bn US Commercial Paper Programme rated S-1+/Stable
Summary and Outlook
KfW’s issuer rating is equalised with the sovereign credit rating of the Federal Republic of Germany (AAA/Stable). The Federal Republic of Germany guarantees current and future obligations of KfW on an explicit, unconditional, unlimited, statutory, direct and irrevocable basis, thus providing creditors with direct recourse in case the bank cannot meet its obligations on a timely basis. 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. The Stable Outlook reflects Scope’s expectation of stability of the rating for the next 18 months.
The ratings/Outlooks could be downgraded if: i) the Federal Republic of Germany’s ratings/Outlooks were downgraded; and/or ii) material changes occurred 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.
Rating rationale
KfW’s issuer rating is 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 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. 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.
While still very solid, KfW’s promotional business volume declined significantly in 2023, normalising at EUR 77.1bn, down from 111.3bn, as mandated transactions for energy sector transactions decreased to EUR 11.5bn from an extraordinary high volume of EUR 54.2bn in 2022. Commitments under the Federal Government's Efficient Buildings Programme were also significantly lower due to the switch from broad-based promotion to focused promotion with more demanding conditions. At the same time, other promotional activities showed good growth e.g. with KfW Capital's commitments to German start-ups rising by 69% to EUR 2.1bn and export and project finance reached a record high of EUR 24.2bn. Commitments for the promotion of developing countries and emerging economies decreased slightly to EUR 10.9bn (2022: EUR 12.6bn), of which around EUR 9.0bn (2022: EUR 10.9bn) was attributable to KfW Entwicklungsbank and EUR 1.9bn to DEG (2022: EUR 1.6bn).
As a development bank, KfW's primary aim is not profit maximisation. Nonetheless, in 2023, it achieved a satisfactory consolidated profit of EUR 1.559m, up from EUR 1,365m in 2022. This improvement was primarily due to wider margins, and better equity returns resulting from higher interest rates. In general, net interest income remains the cornerstone of KfW's revenue stream, bolstered by favourable funding opportunities.
Looking ahead to 2024, KfW Group targets a new business volume of EUR 89.2bn, reflecting normalised business development alongside additional promotional activities in domestic heating promotion, as well as notable growth in commitments within the export and project finance sectors and moderate growth in DEG commitments. KfW guides for a net income of around EUR 1.0bn in 2024, which Scope considers realistic. However, cost efficiency may face challenges from investments in modernisation, digitalisation, and inflation. Management remains vigilant in maintaining efficiency standards.
KfW maintains an excellent capital market access. KfW aims to raise EUR 90bn-95bn on capital markets, in 2024, EUR 10-13bn 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.
Equalisation factor
We have equalised our ratings of KfW with those of the Federal Republic of Germany under our GRE rating methodology. This is because the government provides an explicit, unconditional, unlimited, statutory, direct and irrevocable guarantee for all obligations arising from the bank's borrowings, bond issues and derivative transactions.
The approach also includes a supplementary analysis of the bank’s business and financial risk profiles, which has not resulted in an adjustment to the final credit ratings.
Rating-change drivers
The Outlook is Stable, which indicates that Scope considers the risks to the current rating level to be balanced.
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 of the Federal Republic of Germany (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 Outlooks, (Government Related Entities Rating Methodology, 13 July 2023), 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 and Outlooks were not amended before being issued.
Regulatory disclosures
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 24 May 2023.
Potential conflicts
See www.scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings.
Conditions of use / exclusion of liability
© 2024 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Fund Analysis 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.
Christian van Beek
Analyst
Marco Troiano
Team leader
