Global rating agency, Fitch Ratings, has affirmed the African Development Bank’s (AfDB) Long-Term Issuer Default Rating (IDR) at ‘AAA’ with a stable outlook and its Short-Term IDR at ‘F1+’.
The agency said the ‘AAA’ rating primarily reflects extraordinary support from AfDB’s shareholders, which provides three-notch uplift over the Bank’s intrinsic rating.
“AfDB enjoys strong support from its 80 member states, which include 26 non-African countries with high average ratings. Callable capital subscribed by member states rated ‘AAA’, the largest of which are the US, Germany and Canada, accounts for 21% of the total.
“This fully covered the Bank’s net debt at end-2016, underpinning the ‘AAA’ assessment of shareholders’ capacity to support,” the agency said in a statement.
Commenting on the rating, AfDB acting Vice-President for finance, Hassatou Diop N’Sele, said: “We welcome the confirmation of the AfDB’s AAA rating by Fitch, with a stable outlook. The Bank is dedicated to doing the most to make a marked positive difference in the lives of hundreds of millions of Africans, while at the same time preserving its financial integrity.”
Supporters of stable outlook
The report underlined the strong propensity of member states to support the Bank in case of need as illustrated by previous capital increases and the Bank’s important role in the region’s financing. Read more…
In the assessment, Fitch Ratings maintains that fast growth in AfDB’s lending in the last two years has translated into a rapid increase in its indebtedness, noting that the Bank’s management has indicated that if there is no clear evidence of a capital increase within the next two years, it will have to curb lending growth to preserve the Bank’s solvency metrics.
The report added that if no capital increase is approved by 2019, debt will not be fully covered by callable capital from ‘AAA’ rated countries, adding that this would place substantial pressure on Fitch’s assessment of extraordinary support and, therefore on AfDB’s IDR.
Fitch Ratings asserts that the relatively high risk profile of borrowers is mitigated by the preferred creditor status that the Bank enjoys on its sovereign exposures.
Fitch Ratings assessed AfDB’s liquidity at ‘AAA’, which reflects excellent coverage of short-term debt by liquid assets. However, it noted that the share of the portfolio invested in securities or bank placements rated ‘AA-‘ or above (83% in 2016) is declining, while their quality is still assessed at excellent.
“The -1 notch adjustment to AfDB’s solvency stemming from our assessment of its business environment reflects the high risk operating environment in which the bank operates,” the report said.
Featured image source: AfDB