February 15, 2017 / 4:58 PM / a year ago

Fitch Affirms 6 German Development Banks at 'AAA'; Outlook Stable

(The following statement was released by the rating agency) LONDON, February 15 (Fitch) Fitch Ratings has affirmed six German development banks' Long- and Short-Term Issuer Default Ratings (IDRs) at 'AAA' and 'F1+' respectively. The Outlook on all the Long-Term IDRs is Stable. Their Support Ratings have been affirmed at '1'. The banks are KfW, Landwirtschaftliche Rentenbank (Rentenbank), NRW.BANK, Investitionsbank Berlin (IBB), Investitionsbank Schleswig-Holstein (IB.SH) and Landeskreditbank Baden-Wuerttemberg-Foerderbank (L-Bank). For KfW and Rentenbank, which benefit from an explicit guarantee from the Federal Republic of Germany (FRG; AAA/Stable), Fitch has also affirmed the Support Rating Floor (SRF) at 'AAA'. NRW.BANK, IBB, IB.SH and L-Bank are owned by their respective German federal states and benefit from their respective guarantees. The ratings of the German federal states reflect the stability and sustainability of the solidarity system for German federal states. A full list of rating actions is at the end of this rating action commentary. KEY RATING DRIVERS IDRS, NATIONAL RATINGS AND SENIOR DEBT In assessing support, we view the banks' policy roles as well as the formal support arrangements in place between the banks and their ultimate owners/guaranteeing (federal) states as being of high importance. Fitch does not assign a Viability Rating to these banks as their business models are entirely dependent on the support of their state guarantors. Fitch rates the subordinated debt instruments of NRW.BANK and Rentenbank at the same level as their senior debt, as the agency believes that the support mechanisms for both banks provide similar protection to both senior and subordinated debt instruments. KfW KfW is 80%-owned by the Federal Republic of Germany, with the remainder owned by the German federal states. It was established in 1948 and is the largest development bank in Europe. Its obligations are backed by a direct and unlimited statutory guarantee from FRG. Based on the maintenance obligation (Anstaltslast), FRG is committed to safeguarding the economic basis of KfW and ensuring that its operations can continue in the event of financial difficulty. The bank undertakes a broad range of activities including SME lending via commercial banks, retail, housing, municipal and social infrastructure lending, as well as certain capital markets activities and lending in developing countries. Commercial activities in the area of export and project financing are carried out through KfW's wholly-owned subsidiary KfW IPEX-Bank GmbH, which is legally independent and excluded from the state guarantees. Rentenbank Rentenbank was established by federal law in 1949 and has the mandate to support the development of the agricultural sector and rural areas. The bank benefits from the maintenance obligation (Anstaltslast) from the FRG. In addition, all bank's liabilities are fully covered by the state through a direct and unlimited statutory guarantee that came into effect on 1 January 2014. As stipulated in its law Rentenbank is insolvency-remote and can only be dissolved by law. NRW.BANK NRW.BANK provides funding to economic, social, environmentally friendly, municipal, infrastructure and housing promotion projects in the State of North Rhine-Westphalia (State of NRW; AAA/Stable). The State of NRW wholly owns the bank and provides it with an explicit, irrevocable, unlimited and unconditional statutory first-demand guarantee covering all liabilities. Moreover, the bank benefits from a maintenance obligation (Anstaltslast) and a statutory guarantor's liability (Gewaehrtraegerhaftung). IB.SH IB.SH provides funding to social, infrastructure and environmental projects, as well as to corporates, municipals, affordable housing and energy-efficient real estate lending in the State of Schleswig-Holstein (State of SH; AAA/Stable). It also takes on special tasks on behalf of the State of SH, which provides it with an explicit unconditional statutory guarantee obligation covering all liabilities, maintenance obligation (Anstaltslast) and a statutory guarantor's liability (Gewaehrtraegerhaftung). In July 2016, the local legislation (Landesverwaltungsgesetz) was amended to ensure that IB.SH cannot be subject to insolvency procedures and can only be dissolved by law. L-Bank L-Bank endorses home ownership, supports families and promotes small- and medium-sized companies through the provision of low interest rate loans in its operating region, State of Baden-Wuerttemberg (State of BW). The State of BW wholly owns L-Bank and provides it with an explicit unconditional and irrevocable statutory guarantee obligation covering all liabilities, maintenance obligation (Anstaltslast) and a statutory guarantor's liability (Gewaehrtraegerhaftung). Although the State of BW is not rated by Fitch, its creditworthiness is underpinned by the strength of the German solidarity system, which links BW's creditworthiness to that of the FRG. As a public law institution L-Bank is insolvency-remote by the State of BW legislation. IBB IBB benefits from an explicit unconditional statutory guarantee obligation covering all liabilities and maintenance obligation (Anstaltslast) from the State of Berlin (Berlin; AAA/Stable). IBB focuses on a narrower range of development activities than peers as Berlin is a city-state and therefore IBB is not active in financing municipalities' budgets or renewable energy projects, two areas of growth for other regional development banks in recent years. Fitch believes that the narrower range of promotional activities allows IBB to better focus its resources than other development banks. As a public law institution IBB is insolvency-remote by Berlin legislation. DERIVATIVE COUNTERPARTY RATINGS AND DEPOSIT RATINGS We regard KfW, Rentenbank and NRW.BANK as notable derivative counterparties and have assigned them Derivative Counterparty Ratings (DCRs). We have affirmed the banks' DCRs in line with their IDRs of 'AAA'. We do not believe that above-mentioned state-guaranteed non-banks or institutions protected from insolvency proceedings by law could become subject to bail-in measures. Therefore, we consider it highly unlikely that they could become eligible for DCR uplift even if their Long-Term IDRs are downgraded below 'AAA'. RATING SENSITIVITIES IDRS, NATIONAL RATINGS AND SENIOR DEBT The banks' IDRs, senior debt ratings, and subordinated debt ratings are sensitive to a change in Fitch's assumptions regarding owners' support, specifically a downgrade of FRG, or a change in the terms of the state guarantees. The Stable Outlook on the banks' ratings mirrors that on FRG and reflects Fitch's view that neither of these scenarios is likely in the foreseeable future. Fitch believes that the nature of the state support for German development banks is unlikely to change significantly in the medium term due to the strategic importance of these banks to the German economy and their entrenchment in the domestic financial system. The support structure was approved by the EU in 2002, although under competition law the banks may only engage in non-competitive activity. This also makes significant changes to the banks' business models unlikely in the medium term. Following an amendment to the "Law concerning KfW" in 2013, KfW has been subject to key banking supervision standards under the German Banking Act and is supervised by the German Federal Financial Supervisory Authority in cooperation with the German central bank. However, this has not resulted in a change of KfW's special role as a promotional bank or a change in support for KfW. KfW is a non-capital-requirement-regulation institution and as such the German Recovery and Resolution Act, which has transposed the European Bank Recovery and Resolution Directive (BRRD) into German law, is not applicable to it. Fitch views state support for development banks as unaffected by the German implementation of the BRRD or the Single Resolution Mechanism (SRM). Furthermore, we do not expect the debt brake established for the Bund and the Laender, which will require Laender to run their budgets from 2020 without taking on new debt, to constrain the ability of the states to provide support to their development banks. DCRs KfW's, Rentenbank 's and NRW.BANK's DCRs are primarily sensitive to changes in the respective banks' Long-Term IDRs. The rating actions are as follows: KfW Long-Term IDR: affirmed at 'AAA'; Stable Outlook Short-Term IDR: affirmed at 'F1+' Support Rating: affirmed at '1' Support Rating Floor: affirmed at 'AAA' Derivative Counterparty Rating: affirmed at 'AAA(dcr)' Senior unsecured ratings including programme ratings: affirmed at 'AAA' and 'F1+' Market-linked securities: affirmed at 'AAAemr' Commercial paper: affirmed at 'F1+' Landwirtschaftliche Rentenbank Long-Term IDR: affirmed at 'AAA'; Stable Outlook Short-Term IDR: affirmed at 'F1+' Support Rating: affirmed at '1' Support Rating Floor: affirmed at 'AAA' Senior unsecured ratings including programme ratings: affirmed at 'AAA' and 'F1+' Derivative Counterparty Rating: affirmed at 'AAA(dcr)' Market-linked securities: affirmed at 'AAAemr' Subordinated notes: affirmed at 'AAA' Commercial paper: affirmed at 'F1+' NRW.BANK Long-Term IDR: affirmed at 'AAA'; Stable Outlook Short-Term IDR: affirmed at 'F1+' Support Rating: affirmed at '1' Senior unsecured ratings including programme ratings: affirmed at 'AAA' and 'F1+' Derivative Counterparty Rating: affirmed at 'AAA(dcr)' Commercial paper: affirmed at 'F1+' Short-term certificates of deposit: affirmed at 'F1+' Subordinated notes: affirmed at 'AAA' Investitionsbank Berlin Long-Term IDR: affirmed at 'AAA'; Stable Outlook Short-Term IDR: affirmed at 'F1+' Senior unsecured ratings: affirmed at 'AAA' and 'F1+' Support Rating: affirmed at '1' Investitionsbank Schleswig-Holstein Long-Term IDR: affirmed at 'AAA'; Stable Outlook Short-Term IDR: affirmed at 'F1+' Senior unsecured rating: affirmed at 'AAA' Support Rating: affirmed at '1' L-Bank Long-Term IDR: affirmed at 'AAA'; Stable Outlook Short-Term IDR: affirmed at 'F1+' Support Rating: affirmed at '1' Senior unsecured rating: affirmed at 'AAA' Contact: Primary Analyst Roger Schneider, CIIA Director +49 69 768 076 242 Fitch Deutschland GmbH Neue Mainzer Strasse 46-50 60311 Frankfurt am Main Secondary Analysts Lola Yusupova (Rentenbank, NRW.BANK) Associate Director +49 69 768076 114 Christian Schindler (IBB,IB.SH) Associate Director +44 20 3530 1323 Sebastian Schrimpf, CFA (L-Bank, KfW) Analyst +49 69 76 80 76 136 Committee Chairperson Claudia Nelson Senior Director +44 20 3530 1191 Media Relations: Elaine Bailey, London, Tel: +44 203 530 1153, Email: elaine.bailey@fitchratings.com. 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