Growing funding needs led Bank Nederlandse Gemeenten to shift its focus from the retail to the institutional market. Edward Russell-Walling reports on this and the bank’s strategic benchmark programme.

In just five years, Bank Nederlandse Gemeenten (BNG) has reinvented itself as an issuer. Its funding programme has doubled in size and its investor base, once almost exclusively retail, is now mostly institutional. These phenomena are closely connected.

BNG was set up around the start of the First World War by Dutch municipalities to handle their funding in the capital markets. It is still a public sector creature, 50% owned by the Dutch government and 50% by local authorities, provinces and a water board. Its clients come from the public sector – municipalities, housing and healthcare institutions, public utilities and the like, for whom it provides loans, banking, consultancy and investment services. It is a AAA borrower and second-largest in the Netherlands after the state.

Successful issue

If proof were needed that it has become a sought-after credit with institutional and central bank investors, the success of BNG’s €1.5bn 3% Eurobond issue, due 2010, in February should suffice. But BNG has not been a household name in institutional circles for long. “At the end of the 1990s, our refinancing programme was about €7bn a year, mostly through retail targeted transactions,” says Nathalie de Weert, BNG senior manager capital markets. “They were typically issues of $250m-$500m, of medium-term maturity and placed into Benelux or Switzerland for private investors.”

Moving into new territory

In 2001, however, funding levels began to rise, peaking at €15bn last year. “As the programme grew, retail placement was not enough,” says Ms de Weert, one of a team of four that runs the capital markets programme and does its own investor relations. As issue sizes grew to €1bn-€1.5bn, it was imperative to shift placement to the institutional market, and to ensure that market knew the BNG name. “Our familiarisation efforts have accelerated as our funding needs have grown,” she adds.

This year’s funding is likely to be €11bn-€12bn. About 60%-65% of that will be made up of strategic benchmark issues in euro and US dollars, in minimum sizes of €1bn and $1bn. February’s five-year issue forms part of this programme, which each year includes three, five and 10-year maturities in euros, and three and five-year tenors in dollars.

As far as the benchmark programme is concerned, the bank stresses four key aspects, says Ms de Weert’s colleague, senior manager Willem Littel. “The first is liquidity,” he says. “To maintain liquidity in our issues, we need a strong relationship with dealers so that they will make prices. When an investor buys, he must know that the bank that sold the paper will at any time make a decent bid in a decent size when he wants to get out.”

The second factor is placement. “Performance is very important to the benchmark, crucial for investors and, as a result, allows us to improve the cost of funds,” he says. “And performance is enabled by placement. We have to make sure that there is not too much paper out in the market.”

Factor three is keeping in touch with investor needs so that the bank can structure its issues accordingly, and fourth is distribution. “Distribution must be as broad as possible, not concentrated in one part of the market,” Mr Littel says.

Flexibility is key

There is, Ms de Weert says, no calendar for the programme. “We don’t plan ahead when we’re going to launch each transaction,” she says. “Flexibility is a very important word for BNG.”

Another 25%-30% of funding needs are met through the bank’s regular presence in sterling, Australian dollar and yen markets, often responding to investor enquiries. “We are Form-2 registered in Japan and have done a lot of investor relations there,” Mr Littel says. “We have very good name recognition and follow-up so we do quite a lot of business in yen.”

The remaining 5%-10% is in privately placed medium term notes, targeted at Asia, Japan and the larger European accounts. “That can vary depending on demand, but it is all lightly structured – not equity-linked or credit-swapped,” Mr Littel adds.

BNG’s funding activities have been transformed over the past few years, but further evolution will depend on market circumstances. “It’s important for us to maintain the benchmark programme,” says Mr Littel. “As long as we are fulfilling demand in the market, we’re happy with what we have achieved.”


All fields are mandatory

The Banker is a service from the Financial Times. The Financial Times Ltd takes your privacy seriously.

Choose how you want us to contact you.

Invites and Offers from The Banker

Receive exclusive personalised event invitations, carefully curated offers and promotions from The Banker

For more information about how we use your data, please refer to our privacy and cookie policies.

Terms and conditions

Top 1000 2023

Request a demonstration to The Banker Database

Join our community

The Banker on Twitter