KFW says market funding tensions have eased

FRANKFURT Thu Dec 6, 2012 9:27am EST

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FRANKFURT Dec 6 (Reuters) - Refinancing problems among European lenders have declined markedly, said German state development bank KFW, a major fundraiser and lender in Europe's biggest economy.

"The market environment can be described as strained but, by and large, calm primarily thanks to the measures taken by the central banks," Guenther Braeunig, management board member in charge of capital markets, said on Thursday.

The European Central Bank and its peers flooded financial markets with extra cash to help prop up tottering banks, which had been afraid to lend to one another during financial crisis.

Fears were still running high a year ago as the European debt crisis intensified and U.S. money market funds withdrew dollar liquidity from Europe, prompting Braeunig to say at that time the situation was comparable with Lehman's 2008 collapse.

In the intervening year, banks have made progress building up equity capital buffers against downturns and in cleaning up their balance sheets.

"Bank liquidity has improved markedly," Braeunig said, adding that many banks have been able to place unsecured bonds.

"Investors have become more willing to take on risk," he told a news conference.

Despite these positive signs, it was still too early to give the all clear, with the euro debt crisis rumbling on. "It will again be a challenging year for the euro area in 2013," he said.

Government-backed KFW has taken advantage of Germany's AAA credit rating and the favourable funding conditions that brings, raising about 78.4 billion euros in 2012 through 200 different transactions in 15 currencies as of Nov. 30. "We are able to issue in all markets every day," Braeunig said.

The lender expects to raise 70-75 billion euros next year to fund its development business, with the slight decline compared with 2012 due to higher loan repayments and continuing low interest rates. (Reporting by Kathrin Jones; Writing by Jonathan Gould; Editing by Dan Lalor)

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