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I AGREE
29 Aug 2014
London, 29 August 2014 -- Moody's Investors Service has today affirmed the long-term issuer
rating of the African Development Bank (AfDB) and its senior unsecured
debt ratings at Aaa/(P)Aaa. The rating agency has concurrently
affirmed the AfDB's Prime-1 short-term ratings and its Aa1
subordinated debt rating. The outlook on all ratings is stable.
RATINGS RATIONALE
RATIONALE FOR AFFIRMING THE Aaa RATING
The Aaa long-term issuer rating of the AfDB is consistent with
the bank's (1) strong capitalisation; (2) very strong liquidity;
and (3) very strong shareholder support. These strengths,
which are largely derived from the bank's conservative risk-management
policies and practices, offset Moody's credit-negative
considerations, including the fairly low average credit quality
of AfDB's loan portfolio, owing to the bank's challenging operating
environment across Africa.
The AfDB's capital adequacy is high. Total useable equity --
defined as paid-up capital plus total reserves --
increased slightly from SDR7.461 billion in 2012 to SDR7.645
billion in 2013, which constitutes a comfortable cushion for its
lending activities. AfDB's asset coverage ratio --
defined as useable equity as a percent of total loans and equity operations
-- stands at 48.4% in 2013, just below
the Aaa median of 51.7%. Likewise, AfDB performs
well on Moody's measures of leverage. AfDB's debt as
a percent of useable equity registered 222% in 2013, just
over the Aaa median of 209.7%.
The AfDB's liquidity position, which is very strong, also
underpins its Aaa rating. The AfDB operates under a self-imposed
liquidity policy to ensure that it can meet all projected cash-flow
needs for a rolling one-year period without recourse to external
capital markets. The AfDB's liquid portfolios of cash and
treasury investments totaled SDR7 billion as of the end of 2013,
comfortably above the prudential minimum required under its policy.
The ratio of short-term debt and currently maturing long-term
debt to liquid assets -- 37.8% at the end
of 2013 -- is in line with Aaa median peers at 40.8%.
Liquidity is an important rating factor for multilateral development banks
(MDBs) because they usually do not have access to the back-stop
liquidity facilities provided by central banks.
Moody's assessment of the AfDB's very high intrinsic financial strength
is complemented by very strong shareholder support. Indeed,
in addition to its own financial resources, the AfDB (if needed)
could draw support (callable capital, in particular) from its shareholder
governments (79 countries as of June 2014). This large group includes
many highly rated, non-regional countries, including
the G7. Aaa-rated member countries accounted for 22%
its capital structure, while Aa-rated members accounted for
13% as of the end of December 2013. Callable capital from
those two groups amounted to USD32.7 billion in 2013, almost
1.6x the size of the operational assets of the bank or its debt.
In 2010, AfDB shareholders demonstrated their commitment and support
to the bank (as a channel that fosters development in Africa) by agreeing
to a record 200% General Capital Increase (GCI). It has
tripled the AfDB's capital base to slightly above $100 billion
follwoing capital subscriptions. This has been the sixth GCI (GCI-VI)
since 1964. As of end-June 2014, SDR928 million has
been paid-in as part of this increase, with the remaining
SDR1.7 billion to be paid-in by 2023.
The role of the AfDB as one of the main forces for development in Africa
and the significance of its actions across the continent translates into
a very strong willingness from shareholders (both regional and non-regional)
to support it. Given the AfDB's prominence in the region
and shareholder diversity, Moody's considers the propensity and
priority of shareholder support to be very strong.
The main credit challenge facing AfDB is asset quality. This results
from the weak economic and financial operating environment and political
instability in some member countries. Of the 53 African countries
in which the AfDB can operate and of the 16 governments currently eligible
for sovereign loans, only four Botswana (A2 stable), Mauritius
(Baa1 stable), Namibia (Baa3 stable) and South Africa (Baa1 negative)
have achieved investment-grade status. The AfDB's
ratio of nonperforming loans (NPLs) -- 2.9% at the
end of 2013 -- is still relatively high for an Aaa-rated MDB,
and is mainly related to very long-standing arrears from countries
no longer eligible to borrow from the bank, namely Somalia,
Sudan, and Zimbabwe.
Also, the volatile political situation in North Africa, where
the bank's portfolio is heavily concentrated with around 46%
of the disbursed portfolio, is a potential source of new NPLs.
As the bank's strategy adapts to client needs, private sector
lending will grow as a share of overall development assets. Accordingly,
we expect non-sovereign NPLs to gradually increase from their current
low level. However, the AfDB's robust capitalisation,
ample liquidity buffers, and sound risk management framework help
offset existing balance sheet risks and help create substantial headroom
in risk-bearing capacity to expand lending.
RATIONALE FOR THE STABLE OUTLOOK
The stable outlook reflects Moody's expectation that the AfDB's conservative
risk management policies and practices will continue to limit potential
severe deterioration in its financial metrics.
WHAT COULD CHANGE THE RATING - DOWN
The Aaa rating would face downward pressure if growing exposure to the
private sector on the continent or the evolution of the situation in North
Africa led to a substantial increase in NPLs that would be incompatible
with the bank's risk-bearing capacity allowed by its capital base.
Given AfDB's very strong capitalisation following the tripling of its
capital base, we see this risk as remote.
The principal methodology used in this rating was Multilateral Development
Banks and Other Supranational Entities published in December 2013.
Please see the Credit Policy page on www.moodys.com for
a copy of this methodology.
The Local Market Analyst for this rating is Aurelien Mali +971 (4)
237-9537.
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For ratings issued on a program, series or category/class of debt,
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Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Kilbinder Dosanjh
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
Alastair Wilson
MD - Sovereign Risk
Sovereign Risk Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
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JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's affirms African Development Bank's ratings; outlook stable
No Related Data.
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