Rating action

Scope Ratings GmbH (Scope) has today affirmed and published Landwirtschaftliche Rentenbank’s (Rentenbank) AAA long-term issuer and senior unsecured debt ratings in local currency, with Stable Outlooks. Scope also assigned AAA long-term issuer and senior unsecured debt ratings in foreign currency, with Stable Outlooks. Scope also assigned S-1+ short-term issuer ratings in local and foreign currency with Stable Outlooks.

Rentenbank’s ratings are equalised with those of the Federal Republic of Germany (AAA/Stable and S-1+/Stable). The Federal Republic of Germany explicitly and unconditionally guarantees current and future obligations of Rentenbank 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, Rentenbank benefits from an institutional liability, or ‘Anstaltslast’, assumed by the Federal Republic of Germany. Chartered under public law, the bank cannot be subject to insolvency proceedings.

Scope further acknowledges: i) a mature and very supportive legal set-up, which makes changes to Rentenbank’s business model or guarantee structure unlikely; ii) the bank’s high strategic importance to the German federal government, where it plays a critical role in implementing Germany’s economic, environmental and agricultural policy as a crucial government-related entity (GRE) with a clearly defined public mission to support agriculture investment and rural development; iii) the bank’s strong capital metrics and solid asset quality, and iv) a strong funding and liquidity profile with excellent access to capital markets.

Download the updated Rating Report here.

Key rating drivers

Equalisation factor: Rentenbank’s AAA rating reflects the strong guarantee framework for its liabilities provided by the German Federal Republic of Germany, which is the key factor for equalising Rentenbank’s ratings with the ratings of the federal government. The explicit, unconditional, unlimited, statutory, direct and irrevocable guarantee can only be amended, revoked or restricted by an act of the German parliament, although Scope believes such a development is unlikely. In line with other German development banks, the bank is exempt from insolvency procedures as it is chartered under public law.

Strategic importance: The rating is further underpinned by the bank’s high strategic importance to the Federal Republic of Germany. As Germany’s development agency with a public policy mandate to provide loans for agriculture, forestry and fisheries, the entire food value chain and private and public investments in rural areas. In line with its mandate, the bank also promotes renewable energy and the bioeconomy.

Rentenbank’s special promotional loans focus on three areas: agriculture and agribusiness, renewable energy, and rural development. In addition, Rentenbank provides general financing to regional authorities and banks in rural areas as well as to banks in Germany and in the rest of the EU. The bank also supports agricultural start-ups in the early stages of financing through subordinated loans combined with grants from the Special Purpose Fund that Rentenbank manages on behalf of the German federal government.

In 2023, the volume of new promotional loans declined by 13.6% YoY to EUR 5.9bn, driven by lower volume in renewable energy (down EUR 0.7bn), the agriculture segment (down EUR 0.4bn) and in the agribusiness and food promotional sector (down EUR 0.5bn). The decline was partly offset by higher demand for global loans from the German regional development banks to finance infrastructure projects in rural areas (up EUR 0.7bn).

In the first half of 2024, new promotional lending continued to decline, by 51.4% compared to the same period in the previous year. This was predominantly driven by high EU reference interest rates and continued economic and political uncertainties. While decreasing reference interest rates will support the attractiveness of Rentenbank’s loan programmes, other adverse factors will likely persist in 2025, with early federal elections scheduled for February.

Rentenbank is continuously adjusting its product range to adapt to customers’ needs. This includes the new special promotional programme ‘Zukunftsfelder im Fokus’ in 2022, where the bank has identified eight target areas for future investment, supporting customers with favourable conditions. Further, Rentenbank invests in venture capital funds to improve financing opportunities for AgTech and FoodTech start-ups.

Very strong capitalisation and asset quality, excellent funding and liquidity.

Rentenbank’s capitalisation is very strong. The German GAAP-based CET1 ratio was 31.3% at end-2023, providing significant regulatory headroom. The capital adequacy ratio is solid, given the low-risk nature of its activities. By end-June 2024, the CET1 ratio increased to 37.2% due to rating upgrades for selected counterparties and a corresponding drop in risk weighted assets (RWAs). RWAs are projected to increase in 2025 with the implementation of CRR III, with a correspondingly moderately lower CET1 ratio. Buffers to regulatory requirements are projected to remain comfortable.

Rentenbank's asset quality is sound, as almost all its direct customers are German public banks and other non-bank public sector entities. Indeed, more than 80% of credit exposure is concentrated in the supportive German operating environment, with the remainder mainly to banks in other EU countries and, to a lesser extent, the rest of the OECD. More than 90% of exposures are secured by collateral in the form of assignments of claims under funded loans and statute guarantees and include secured products such as German Pfandbriefe and covered bonds. Given the investment-grade nature of the bank's portfolio, credit risk is negligible with very few specific provisions made over the years.

Rentenbank retains a strong funding and liquidity profile. Its capital market access is based on a highly diversified investor base that includes a broad range of currencies. Rentenbank’s liabilities carry a zero risk-weight and are admissible as Level 1 liquidity assets in several banking jurisdictions, including the euro area and the US. This status provides the bank with excellent access to liquidity even in highly distressed market conditions.

Credit challenges: Exposure concentrated in Germany and modest, although stable, profitability, both driven public policy mandate.

Rentenbank’s exposure exhibits high concentration on Germany and financial institutions, both of which are a direct consequence of the bank’s business model and public mandate. However, most of the bank’s exposure represents funds on-lent to diversified end-customers. The bank’s prudent underwriting standards lead to very robust asset quality.

Rentenbank’s profitability is modest, but stable, given the bank’s promotional mandate as well as the pressure from IT-related costs. In 2023, net interest income increased to EUR 310m (2022: EUR 269m) on the back of higher interest rates. While the cost/income ratio has somewhat worsened in recent years, it remains well below that of banking peers. Scope expects the bank to continue to be moderately profitable in 2024 and 2025.

Outlook and rating sensitivities

The Stable Outlook reflects Scope’s view that risks to the ratings are balanced over the coming 12 to 18 months.

Downside scenarios for the rating and Outlooks are (individually or collectively):

1. Downgrade of the Federal Republic of Germany (AAA/Stable);
    
2. Changes to Rentenbank’s legal framework or guarantee structure, notably weakening government support.

Qualitative Scorecard QS1 and Equalisation Factor

Scope applies a top-down approach (QS1) in assessing the creditworthiness of Rentenbank, which takes the public sponsor’s rating (Federal Republic of Germany: AAA/Stable) as the starting point. Scope sees ‘strong’ integration between Rentenbank and the Federal Republic of Germany, reflecting the bank’s: i) public legal status as an ‘Anstalt des öffentlichen Rechts’ (public law institution); ii) fulfilment of operating activities exclusively on behalf of the government, with a mission to support agriculture investment and rural development; and iv) its high financial interdependence with Germany due to funding support provided via Germany’s explicit guarantee.

For further details, please see Appendix I of the associated rating report.

Scope has equalised the ratings of Rentenbank with those of the Federal Republic of Germany under its government-related entities 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 assessments under QS1 and the rating equalisation factor result in an indicative rating of AAA.

The results were discussed and confirmed by a rating committee.

Environmental, Social and Governance (ESG) factors

ESG factors material to Rentenbank’s credit quality are captured by Scope’s rating approach through several analytical areas.

Governance and social considerations are material to Rentenbank’s credit rating and were included in Scope’s assessment of: i) Rentenbank’s level of integration with the public sponsor, highlighting the supportive legal framework that requires the bank to comply with its statutes and fulfil its role as a competition-neutral public-law institution; and ii) Rentenbank’s standalone fundamentals in the supplementary analysis, highlighting its conservative risk profile and management. An independent Management Board sets the financial, investment and operating policies in accordance with German banking regulations. The Management Board is overseen by an independent Supervisory Board subject to the German Public Corporate Governance Code.

As a promotional bank, Rentenbank is committed to supporting the transformation of the agricultural and food sector to make it more sustainable. In this regard, Rentenbank supports the EU Green Deal and the German Climate Action Plan by promoting wind and solar energy. Rentenbank is committed to the UN Sustainable Development Goals and the Paris climate goals and aligns its own contributions accordingly.

Based on sustainability guidelines, the bank sets and updates goals and strategic objectives, as well as exclusion criteria for programme loans and own investments, and the central objective of acting as a sustainable and transformational bank for the agricultural sector in Germany. Rentenbank is also committed to its own resource-efficient operations.

Additionally, the bank produces reporting based on the Task Force on Climate-Related Financial Disclosures (TCFD).

Rentenbank's promotional activities focus on the agricultural sector as well as investments in renewable energy. Sustainable investment objectives include a wide range of measures to improve animal welfare, energy efficiency and emissions reduction, as well as the promotion of organic farming and forestry. Total promotional loans for sustainable investments amounted to EUR 1.3bn, or around 22% of new special promotional loans in 2023.

The bank has been issuing green bonds since 2013. The portfolio of eligible green loans amounted to EUR 8.1bn at end-2023, while outstanding green bonds stood at EUR 5.9bn. All projects within the green bond programme are geared towards renewable energy projects in Germany. The bank’s green bond framework is aligned with the ICMA Green Bond Principles. Since May 2023, not only wind and solar projects, but also biogas projects can be financed by Rentenbank through green bonds.

Rating Committee
The main points discussed during the rating committee were: i) integration with the Federal Republic of Germany; ii) rating equalisation with the Federal Republic of Germany; and iii) supplementary analysis.

Methodology
The methodology used for these Credit Ratings and/or Outlooks, (Government Related Entities Rating Methodology, 10 December 2024), 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.
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: Julian Zimmermann, Director
Person responsible for approval of the Credit Ratings: Alvise Lennkh-Yunus, Managing Director
The local currency Issuer Credit Rating/Outlook was first released by Scope Ratings on 27 May 2020. The Credit Rating/Outlook was last updated on 5 March 2024.
The foreign currency Issuer Credit Rating/Outlook was first released by Scope Ratings on 17 January 2025.
The local currency Senior Unsecured Debt Credit Rating/Outlook was first released by Scope Ratings on 13 March 2023. The Credit Rating/Outlook was last updated on 5 March 2024.
The foreign currency Senior Unsecured Debt Credit Rating/Outlook was first released by Scope Ratings on 17 January 2025.
The Short-term Issuer Credit Ratings/Outlooks in local and foreign currency were first released by Scope Ratings on 17 January 2025.

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, as well as a list of Ancillary Services and certain non-Credit Rating Agency services provided to Rated Entities and/or Related Third Parties.

Conditions of use / exclusion of liability
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