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KfW stands for liquidity, flexibility and responsibility in the capital markets
Frankfurt am Main (ots) -
- Funding of EUR 70-75 billion planned for 2016 - "Green Bonds - Made by KfW" - sustainability rating of banks to be taken into account for the award of mandates - European cooperation in the securitisation of SME loans
In the upcoming year, KfW plans to raise long-term funding in an amount of EUR 70-75 billion in international capital markets. The promotional bank expects sustained economic growth and momentum in Germany and Europe in 2016. "We are optimistic and expect the positive trend to be reflected in the promotional business. We will apply all of our proven strengths again in 2016 to raise funds for our promotional mandate at the best possible terms," explains Dr Günther Bräunig, Member of the Executive Board of KfW in charge of capital markets, at the annual press briefing on KfW's capital market activities in Frankfurt.
Based on the issue of around 170 bonds, KfW has raised so far roughly EUR 62 billion in international capital markets this year to fund its promotional business. The highly unusual market developments that characterised 2015 required an extremely flexible issuance strategy. 2015 is the first year that KfW's funding has been concluded with a higher share of USD (around EUR 28 billion equivalent, 45% of total funding) than of EUR (around EUR 23 billion, 38%). In addition, KfW issued securities in twelve currencies with a total value of around EUR 11 billion (17%) - this included a first-time issue in the Kauri bond market in New Zealand.
"The capital markets were affected by U.S. and European central bank policies, investor uncertainty, distorted secondary markets and an increase in regulation. The market environment changed continuously in the course of the year, especially in the core currencies EUR and USD, which required a very high degree of flexibility on our part," Bräunig adds. Since the ECB announced its expanded asset purchase programme in January 2015, yields of German government bonds and also of KfW bonds have dropped to record lows. Investors, therefore, turned increasingly to other markets as the year progressed. The USD became KfW's most important funding currency already in the first quarter and KfW issued four USD global bonds with a total value of USD 15 billion in the first six months of the year alone.
However, KfW was able to issue liquid bonds as well in the EUR-market, which was characterised by record-low yields, by taking up investors' interest just at the right time as demonstrated for instance with its 15-year bond in April. A KfW benchmark bond which for the first time yielded negatively was issued in October.
"The market environment was far from easy in 2015, but we have fared very well and continuously offered investors liquid bonds in times characterised by a lack of liquidity. 2016 will also be challenging. We will make good use of our access to all market segments and professionally adapt to the market environment," says Bräunig. At the end of the day, bonds can only be placed successfully in the market if all of the relevant parameters - price, volume, maturity and issue date - are weighed up very carefully for each individually planned issue.
Climate protection asks for green bond market
KfW issued Green Bonds worth around EUR 3.7 billion in 2015, including liquid Green Bonds denominated in Australian Dollars and British Pounds, as announced. KfW will continue to support the market segment with "Green Bonds - Made by KfW" in 2016. Depending on the market, these can also be denominated in additional currencies and with different maturities. Furthermore, KfW will provide a new stimulus: "We will be the first issuer to include the sustainability rating when selecting banks as lead managers of our Green Bonds. This way, we want to promote aspects of sustainability in business models of market participants," explains Bräunig.
KfW was the first market participant to enter the green bond segment not only as an issuer but also as an investor. The promotional bank has already invested around EUR 280 million in its green bond portfolio launched in April 2015, the focus being on green bonds financing renewable energies, resource efficiency and environmentally friendly transportation concepts. The portfolio is to grow to EUR 1 billion in 3 to 4 years.
KfW plans green bond investments of around EUR 300 million in 2016 and hopes for a growing, diversified offer by issuers. In particular, KfW would welcome a larger engagement of German market participants in the green bond market.
"Green bonds have become an integral part of our dialogue with investors and other market participants," says Bräunig. "We make our specific expertise as issuer and investor available to international working groups and thus contribute further to the qualitative development of this market segment, which can and must assume an important role in climate protection financing."
Revival of the European securitisation market
KfW has been active as an investor in the securitisation market for many years. It invested around EUR 840 million in securitisation transactions in 2015 to promote and diversify SME financing via the capital market; out of this amount around EUR 190 million was invested in European SME securitisation transactions. KfW plans a commitment volume of EUR 1 billion for 2016, half of which is to be spent on SME financing in Germany and Europe respectively.
The "Investment Plan for Europe" ("Juncker Plan") is also intended to strengthen the cooperation of national funding institutions and the EIB Group. EIF and KfW chair a working group on "SME securitisation in Europe". One of the working group's objectives is to define standardised processes and minimum criteria for the participation of promotional institutions in securitisation transactions. In order to complement SME financing by this capital market instrument in Europe, where possible, funds from the European Fund for Strategic Investments (EFSI) should be involved.
Securitisation as a capital market instrument is now widely recognised by politicians, regulatory authorities and central banks as a useful instrument to finance the real economy. Moreover, the realisation is gaining ground that an overly tight regulatory framework would prevent a recovery of this market. "This paradigm shift makes me optimistic that securitisation as the link between credit and capital market will become an importantbuilding block of the Capital Market Union. I hope very much that the regulatory initiative for STS (simple, transparent, standardised) securitisation will come to a successful conclusion and that STS securitisation will largely be handled in a comparable way to similar instruments in the future," Bräunig explains. KfW will do its utmost to support this market segment as it considers it important for SME financing and therefore for growth in Europe.
- Facts and figures on KfW's funding: https://www.kfw.de/KfW-Konzern/Investor-Relations/index.html
- Information on KfW's Green Bond Portfolio: http://ots.de/gM1U7
- Information on the Green Bonds "Harmonized Framework for Impact Reporting": http://ots.de/zdedq.