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Announcement:

Moody's: African Development Bank creditworthiness supported by its financial strength, prudential management and shareholder support

30 Sep 2013

London, 30 September 2013 -- In a credit report on the African Development Bank (AfDB), Moody's Investors Service says that the bank's Aaa/Prime-1 ratings with a stable outlook reflect the AfDB's (1) intrinsic financial strength; (2) prudent financial management and policies; and (3) very strong shareholder support. These strengths offset the AfDB's loan portfolio fairly low average credit quality, a result of the bank's challenging regional operating environment.

The rating agency's report is an update to the markets and does not constitute a rating action.

The bank's ample liquidity buffers mitigate asset-quality concerns stemming from the operating environment, as does its robust capitalisation. Its own resources (paid-in capital and reserves) are sizeable in relation to its risky assets (defined by Moody's as the bank's exposure to non-investment grade countries). These own resources are supported by callable capital, a substantial part of which is owed by highly rated, non-regional countries. These factors have meant that payment arrears by the have not yet threatened the bank's ability to repay its own obligations. Furthermore, arrears clearance mechanisms, such as the Heavily Indebted Poor Countries (HIPC) debt-relief programme have helped to substantially reduce the level of outstanding arrears.

The bank's own resources will steadily increase until 2020, at a pace of SDR305 million (equal to about $470 million) corresponding to yearly paid-in instalments due from its shareholders and at least a further SDR150 million (around $230 million) self-generated corresponding to a portion of net income allocated to reserves. It is therefore our conservative assumption that the bank's own resources will increase by close to SDR0.5 billion every year until 2020.

However, according to the AfDB's own rating scale, the weighted-average quality of its development-related assets is lower than those of most of its Aaa-rated peer multilateral development banks (MDBs). The AfDB's percentage of nonperforming loans (NPLs) -- 2.8% at the end of 2012 -- is still high for an MDB, and is mainly related to arrears from countries no longer eligible to borrow from the AfDB, including Somalia, Sudan and Zimbabwe.

Since 2008, the AfDB has been deploying its balance sheet more extensively, substantially increasing its lending to both sovereign and private-sector counterparties. This results partly from the strategy to more actively support private-sector projects across Africa. However, the recent expansion was also a result of the AfDB's response to the global economic and financial crisis, developing new instruments to provide emergency liquidity and countercyclical measures.

Although the bank's emergency liquidity and countercyclical policies have increased the riskiness of the bank's loan portfolio, the changes do not threaten its ability to service its own debt. This also holds true during the current political volatility in North Africa, where the bank's portfolio is heavily concentrated at around 45%. However, the AfDB's sound risk-management framework together with the bank's robust capitalization and ample liquidity buffers help to offset the existing risks that the AfDB carries on its balance sheet and creates substantial headroom in risk-bearing capacity to further expand its lending.

AfDB's own resources are reinforced by its shareholder support, particularly in highly rated, non-regional governments. Shareholder support takes the form of callable capital, but can also materialise in the form of general capital increases. Since its creation in 1964, the AfDB has experienced six general capital increases, which illustrates the degree of shareholder commitment. The most recent General Capital Increase (GCI-VI), approved in May 2010 by shareholders, included a record-high 200% capital increase that tripled the AfDB's authorizsed capital base to around $100 billion. Not only is the amount substantial, but shareholders are committed to sending new resources to the bank by agreeing to effectively pay 6% of the amount (the rest being callable). This reflects a stronger willingness from its shareholders to support the AfDB than experienced by many other MDBs.

The capital increases allow the AfDB to fully implement its expansion strategy, even under the most severe scenarios, without overstretching its risk-bearing capacity beyond a level consistent with a Aaa rating.

Moody's annual credit report on the African Development Bank is now available on www.moodys.com.

Subscribers can access the report at: https://www.moodys.com/research/African-Development-Bank-Analysis--PBC_158743

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: London +44-20-7772-5456, New York +1-212-553-0376, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.

Aurelien Mali
Vice President - Senior Analyst
Sovereign Risk Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Bart Jan Sebastian Oosterveld
MD - Sovereign Risk
Sovereign Risk Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service Ltd.
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JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's: African Development Bank creditworthiness supported by its financial strength, prudential management and shareholder support
No Related Data.
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