History of Rentenbank

This was the basis for the creation of Landwirtschaftliche Rentenbank as a central refinancing institution with its special mission for the promotion of agribusiness and rural development. Landwirtschaftliche Rentenbank's roots go back to the days of the Deutsche Rentenbank, founded in 1923 to combat the hyperinflation problems of the times. In 1925, it became Deutsche Rentenbank-Kreditanstalt (RKA) and the central refinancing institution for the agricultural sector. The range of duties assumed by Landwirtschaftliche Rentenbank which was founded in 1949 were based on those performed by its predecessor RKA. The capital base was raised according to a procedure previously employed by Deutsche Rentenbank. This was performed solely within the framework of a self-help campaign initiated by the agricultural sector without any assistance being provided from federal or state budgets.

In the 1950s and 1960s, Rentenbank's lending activities relied primarily on budget funds or other public sources. Until the mid-1950s, these focused initially on short-term transactions with reserve institutions and the placing of medium-term loans from the European Recovery Programme (ERP). With effect from 1956, lending schemes from federal-financed funds predominated. The early years primarily saw the granting of medium-term investment loans for the purposes of mechanisation and increasing production. A shift in development activities occurred from the mid-1950s towards measures aimed at improving agricultural structures.

The passing of the joint task of the Federal and State Governments (Constitution of the Federal Republic of Germany, Art. 91 a) "Improvement of agricultural structure and coastal protection" and "Improvement of regional economic structure" in 1969 and 1970 which came into effect in 1973 transferred the procedural responsibility for agricultural development from the federal government to that of the state parliaments.

This marked a turning point in Rentenbank's business policy from several points of view. Public funds were no longer available for lowering the cost of its loans. Furthermore, the bank could no longer base the refinancing of its lending on public funds and had to rely solely on capital market resources. The bank had already raised funds on the capital market before 1973 by issuing fixed-interest securities and had been involved in minor lending activities. The 1970s and 1980s saw a significant growth in the bank's activities in these areas.

Whereas, in the first two decades of its existence, Rentenbank's lending activities concentrated primarily on the lending requirements of agricultural producers, 1973 and subsequent years saw an increased involvement in other agriculture-related areas. These included, first and foremost, economic areas immediately linked to agricultural activities such as the manufacturers of agricultural production facilities, trading and service companies as well as the food industry. Furthermore, local authorities and other public bodies in rural areas were perceived as potential recipients of loans. The significance of non-agriculture-related employment was also given due consideration by including job-creation and safeguarding of employment as acceptable lending criteria.

Loan recipients and criteria were not the only factors subject to constant change, the technicalities of granting loans also underwent major changes over the years. These came about mainly as a result of developments in lending activities which also necessitated the bank's adjustment to general business practices in the banking industry. In contrast to its issuing business which was never subject to any regional restrictions, Rentenbank was only able, until 1992, to grant loans within Germany. Since the launch of the Common Market in 1993, the bank has included European refinancing activities in its lending portfolio.

In 1971, before the procedural responsibility for agricultural development was put under federal state control, the bank had already created its structure for promotional activities by granting particularly favourable interest rates for promotional lending. Its special loan programme "Landwirtschaft" (Agriculture) was set up in 1975 to provide specific support to agricultural producers. Until the mid-1980s, however, lending was focused on projects in the framework of the special loan programme "Räumliche Strukturmaßnahmen" (Regional Structural Measures).

The growth in promotional lending accelerated in 1984 as a result of the widening of the special loan programmes to cover almost all agricultural investment possibilities. The introduction of the special loan programme "Junglandwirte" (Young Farmers), giving those eligible access to even cheaper loans than those granted under the "Landwirtschaft" programme, also contributed to a sustained increase in special loans for specific promotional purposes. The special loan programme "Dorferneuerung" (Village Renewal) had already been set up in 1977 and was renamed "Ländliche Entwicklung" (Rural Development) in 2007 due to an enlargement of the lending criteria the years before.

Following a strong increase in the demand for loans in the scope of renewable energies since the beginning of the new millennium, the bank concentrated all its activities in that area in its new special loan programme "Umweltschutz und Nachhaltigkeit" (Environmental Protection and Sustainability) in 2005.

From 1973, Rentenbank had to rely solely on the capital markets for refinancing its medium-term and long-term lending. Admittedly, this refinancing source had already been tapped in the 1950s and 1960s, but it played a subordinate role compared to the budget funds which dominated the bank's activities during the first two decades of its existence. The volume of capital market funds increased fivefold in the period between 1973 and 1980. The circulation limit for covered bonds had to be lifted both in 1976 and again in May 1981 when it reached its current limit of fifteen-times the level of liable capital.

The possibility of issuing unsecured bonds, granted to all credit institutions from 1991, increased the bank's issuing scope beyond that strictly limited by the circulation limit for covered securities. The 1990s saw a significant increase in the share of unsecured issues. Accordingly, the share enjoyed by Agricultural Bonds (Landwirtschaftsbriefe) and covered medium-term notes decreased substantially. This was also a consequence of the strengthened internationalisation of funding due to the fact that it was possible to place unsecured issues primarily in the international financial markets rather than in the domestic market.

The possibility of funding in the international financial markets has been exploited to the full since 1994. Interestingly enough, internationalisation of the issuing business had already been practised by the company's predecessor Deutsche Rentenbank-Kreditanstalt (RKA). The actual breakthrough in international terms was the launch of the Euro Medium Term Note Programme (EMTN). The prerequisite for the setting up of this project was the bank's agreement to a rating assessment by the internationally acknowledged rating agencies.

In January 1994, the bank was awarded a "triple A" by Standard & Poor's. In 1995 and 1996, the bank was classified in the top rating bracket by Moody's Investors Service and Fitch Ratings, respectively. The criteria which led to this rating were the low risk of the bank's lending portfolio, its stable profitability and the bank's special legal status. As a public law institution founded by the Federal Republic of Germany, Rentenbank benefits from "Anstaltslast" (a government maintenance obligation).

The EMTN programme, launched in 1994, still plays an important role within the bank's international activities. It rapidly developed into one of the Euro-Market's most successful schemes. This master programme allows the bank to draw tranches in various currencies for different amounts and terms using standard documentation.

To further expand its international investor base, the bank had launched an Australian dollar MTN programme in 2000, the issue of which have been accepted by the Reserve Bank of Australia as eligible securities for repurchase transactions with the RBA since spring 2004.

Additionally, a Euro Commercial Paper Programme (ECP) for the issuance of short-term securities with maturities of up to one year was established in 2000. This master programme enables the bank to issue short-term bearer notes with maturities below one year which can be issued on a discounted, compounded or indexed basis. The ECP Programme has developed into one of the most successful programmes in Europe.

Since autumn 2001, Rentenbank has been able to issue global bonds as additional refinancing instruments. These are securities which are registered with the U.S. Securities and Exchange Commission (SEC). Rentenbank registers under Section 7, Schedule B of the 1933 Securities Act, a regulation which is only available to sovereign or quasi-sovereign issuers. This results in a simplified registration process which reflects Rentenbank's status as a promotional bank of the federal government. The issue of global bonds extends the bank's refinancing base to one of the most important financial markets worldwide and also strengthens its position in the "agency" segment of the international capital market.