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Rating Action:

Moody's affirms the European Investment Bank (EIB)'s Aaa rating; stable outlook

10 Mar 2017

London, 10 March 2017 -- Moody's Investors Service, ("Moody's") has today affirmed the long-term issuer rating at Aaa and all the senior unsecured bond and programme ratings of the European Investment Bank (EIB) at Aaa and (P)Aaa. The outlook is stable.

The EIB's short-term ratings have also been affirmed, at Prime-1 (P-1) and (P)Prime-1 ((P)P-1), respectively.

The key factors for today's rating action are:

1. The EIB's solid capital position and very robust asset quality, as evidenced by a low share of non-performing loans;

2. The EIB's good liquidity metrics, which are bolstered by the issuer's unique access to central bank liquidity and a very strong and long-established capital market presence; and

3. Clear evidence of strong shareholder support with repeated capital increases and extensions of the EIB's mandate. The credit quality of the EIB's shareholders is high with a median shareholder rating of Aa2.

The above credit strengths compensate for EIB's high (but declining) leverage and weaker liquidity ratios compared to Aaa-rated peers.

In Moody's view, the withdrawal of the UK (Aa1 negative) from the EU (Aaa stable) -- and its potential exit as one of the four largest EIB shareholders -- is unlikely to fundamentally change the EIB's strong credit metrics.

A full list of affected ratings is provided towards the end of this press release.

RATINGS RATIONALE

FIRST FACTOR -- SOLID CAPITAL POSITION AND ROBUST ASSET QUALITY MITIGATE ELEVATED LEVERAGE

The EIB has solid capital levels with its capital adequacy ratio standing at 24.8% as of June 2016. Over the years, the EIB has consistently added to its capital through retained earnings, having reported net profits every year since its inception. In 2015, net profits amounted to EUR2.8 billion, with (unaudited) profits for the first half of 2016 at EUR1.7 billion; Moody's expects the EIB to continue to add further to its capital reserves in the coming years.

Moody's also considers the EIB to have strong risk management practices and a prudent project selection, as reflected in good asset quality and a very low share of non-performing loans (NPLs). NPLs are below 0.1% of the EIB's total disbursed loans, a very low ratio even compared to Aaa-rated peers. In addition, around 77% of the EIB's loan portfolio benefit from either some form of third-party credit enhancement or preferred creditor status, implying that the headline NPL number might understate the credit quality of the loan book.

These strengths mitigate the EIB's very high leverage, with the ratio of debt over usable equity at 736% as at end-June 2016 (based on unaudited financials). This compares to an average leverage ratio for Aaa-rated supranational entities of around 325% (3-year average), excluding EIB. The EIB's leverage has been on a declining trend in recent years, in contrast to most peers where leverage has tended to increase. Hence, the EIB's relative weakness in this respect is slowly being reduced.

SECOND FACTOR - GOOD LIQUIDITY BOLSTERED BY ACCESS TO ECB LIQUIDITY AND LONG-ESTABLISHED CAPITAL MARKET PRESENCE

A second factor underpinning the EIB's Aaa rating is its good liquidity position, with significant liquid assets at its disposal and clear and conservative liquidity management policies in place. While the EIB's treasury assets only cover 87% of all net outflows projected for the coming twelve months Moody's takes comfort from the EIB's access to the ECB's liquidity facilities. In fact, the EIB is the only multilateral institution that has such access, which is usually reserved for commercial banks in a country. A large share of the EIB's treasury assets is available for ECB repo transactions, thus ensuring EIB's access to liquidity in the highly unlikely event that it lost access to capital markets.

The EIB has been a large and well recognized issuer in the global capital markets for many years. Its annual borrowing stands at around EUR60-65 billion, with a very good diversification across investor types and regions. It regularly issues in a variety of currencies, and EIB bonds are included in the ECB's QE programme. The ECB has purchased an estimated EUR48 billion (above 10% of total bonds outstanding) in EIB bonds as of September 2016.

THIRD FACTOR -- STRONG SUPPORT FROM HIGHLY-RATED SHAREHOLDERS

The EIB is the EU member states' key financial institution and has been so for a long time. There is ample evidence of strong shareholder support. This has come in the form of successive capital increases -- the last was in 2013 with full and timely payment from all member states -- as well as repeated extensions of the EIB's role, most recently as the key institution to implement the EU's investment plan (EFSI or so-called "Juncker" plan).

The ability of EIB's shareholders to support is very strong, as reflected in the high median shareholder rating of Aa2, which is higher than most peers. Also, the EIB can rely on a large amount of callable capital amounting to EUR221.6 billion as of end-2016, a buffer that represents around 38% of EIB's total assets and almost half of the EIB's disbursed loans.

Although it remains unclear how the UK's withdrawal from the EU will ultimately impact the institutional setting and operations of the EIB, Moody's believes that the EIB's overall credit profile is unlikely to be materially affected. The UK is one of the four largest EIB shareholders with a share of 16.1% of the EIB's subscribed capital; the same as Germany (Aaa stable), France and Italy. But the EIB's weighted average shareholder rating, which is Moody's key indicator for shareholders' ability to support the entity in case of need, will remain unaffected at Aa2 even without the UK's participation. The UK cannot unilaterally withdraw its capital subscription from the EIB and will need to deliver on any potential capital calls as long as it is a member of the EU/EIB. There is mutual interest in the relationship: the UK is the fifth largest beneficiary of EIB lending, with the lending focused on high-profile infrastructure projects. The average maturity of the EIB's loans is also long, with around 60% of the loans maturing only beyond 2026, which means that the UK and the EIB will remain closely linked for many years to come. Moreover, given the EIB's prudent risk management as well as track record of low non-performing loans, Brexit is not expected to lead to a significant deterioration of the EIB's UK assets.

WHAT COULD MOVE THE RATING DOWN

A sustained increase in leverage could be negative for the EIB's rating, in particular if paired with evidence of a deterioration in its asset quality. A significant rise in the risk of euro area fragmentation, particularly a sharp rise in the risk of Italy (Baa2 negative) or France (Aa2 stable) exiting the euro area, would be negative for all euro area member countries and would exert pressure on EIB's asset quality as well as on the assumed shareholder support for the EIB.

The principal methodology used in these ratings was Multilateral Development Banks and Other Supranational Entities published in December 2013. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

LIST OF AFFECTED RATINGS

Affirmations:

..Issuer: European Investment Bank

....LT Issuer Rating, Affirmed at Aaa

....Senior Unsecured Regular Bond/Debenture, Affirmed at Aaa

....Senior Unsecured Medium-Term Note Program, Affirmed at (P)Aaa

....Senior Unsecured Shelf, Affirmed at (P)Aaa

....Commercial Paper, Affirmed at P-1

....Other Short Term, Affirmed at (P)P-1

Outlook Actions:

..Issuer: European Investment Bank

Outlook, Remains Stable

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Kathrin Muehlbronner
Senior Vice President
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

Yves Lemay
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
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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