Kreditanstalt fur Wiederaufbau (KfW), the German public agency rated Aaa/AAA by Moody's Investors Service and Standard & Poor's, respectively, said last week that it plans to continue its Euro benchmark program on top of the EURO15 billion it had already forecasted to launch next year; and as part of the plan the agency intends to increase its use of both the Promise and Provide securitization programs, for a combined total of EURO12 billion.

In recognition of the need for standardization of synthetic securitization products, KfW created the PROMISE program. Through it KfW entices German banks to securitize their Mittelstand loans (loans made to small- and medium-sized companies) by offering banks a standard structure, which offers risk-transfer with maximum regulatory relief.

A spokeswoman for KfW explained: "The Promise transaction, where KfW acts as an intermediary, offers capital relief to the originating bank by passing on the credit risk of the loans to the swap and capital market." She added: "One important objective of this kind of promotion of the German Mittelstand is the market-oriented approach of this kind of structure." To date the driver in the small- and medium-loan asset class has been transactions with a promotional loan sponsor such as KfW.

Since the PROMISE program was set up in 2000 there have been five deals through which EURO6.15 billion of risk has been transferred. The Provide program, installed in 2001, is a similar program for mortgage loans and to date it has issued a total of EURO2.5 billion in two deals.

"A platform like PROMISE also represents an important step in the maturity of the European structured finance market," said the KfW spokeswoman. "In order to cut costs the individual transactions are processed according to a uniform and standardized scheme." This standardization of the structure employed in the transactions reduced a portion of the credit work that must be preformed by lawyers, rating agencies and investors. "In order to open the platform also to small and medium sized banks, KfW at the moment enhances the PROMISE program and is developing a multi-seller-transaction, where portfolios of SME loans from different banks are bound together to be securitised," said the spokeswoman.

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