Mexico, June 11, 2021 -- Moody's de México S.A. de C.V. (Moody's)
has assigned an Aaa.mx national scale rating to the Central American
Bank for Economic Integration (CABEI) proposed senior unsecured floating
local notes with a three year tenor, due 21 June 2024, CABEI
1-21. Moody's has also assigned a Aa3 global scale rating
to the notes due 2024, CABEI 1-21.
The total issuance amount of CABEI's local notes will be for up to MXN
LIST OF AFFECTED RATINGS
Central American Bk for Economic Integration
BONDS due 21 June 2024 CABEI 1-21
Global Scale Rating Senior Unsecured Notes, Assigned Aa3
Mexico Long Term National Scale Senior Unsecured: Aaa.mx
Moody's credit view of CABEI balances the development bank's high levels
of available capital and ample liquidity with the relatively low borrower
quality implied by its role as the largest multilateral lender in Central
America. CABEI's credit profile also incorporates its highly diversified
funding base, with issuances in over 24 currencies and markets.
Despite a relatively low median shareholder rating of Ba2, the Republic
of Korea's (Aa2 stable) formal inclusion into CABEI's capital base has
bolstered the bank's member support strength.
The three main analytic factors comprised in Moody's methodology are Capital
Adequacy, Liquidity and Funding, and Strength of Member Support.
Capital adequacy is assessed at "a1" in terms of the availability of capital
to cover assets and the degree to which the institution is leveraged,
partly compensating the risks derived from relatively low borrower quality,
a weak operating environment and high portfolio concentration in the Central
American region. Borrower quality poses potential credit challenges
to CABEI as half of its loans are made to non-investment grade
countries in the B-category. Central American borrowers
share vulnerabilities, representing a challenging operating environment.
Despite these risks, CABEI's capital adequacy remains high,
with development-related assets over usable equity at 225%
Liquidity and funding is set at "aa2" to reflect CABEI's highly diversified
funding base and ample liquid assets for shock absorption capacity.
Relative to other regional MDBs, CABEI has a highly diversified
funding base and has maintained access to international capital markets
on an ongoing basis, even in times of global financial turmoil.
CABEI also maintains a comfortable liquidity position in terms of treasury
management, with total liquid assets representing 33.9%
of total assets as of year-end 2019. The Bank is required
to maintain six months of liquidity to cover total financial obligations,
which includes loan disbursements, debt service obligations and
operating expenses. CABEI's liquidity management guidelines require
80% of liquid assets to have at least an "A" rating. Approximately
95% of CABEI's investment portfolio has a credit rating of "A"
or better. In terms of the debt service coverage ratio, calculated
as the ratio of liquid assets as a percentage of short-term debt
plus current maturing long-term debt, CABEI's ratio for 2019
stood at 353.8%, above the average for the preceding
Finally, Moody's assess strength of member support to be "Medium".
CABEI has a low weighted average shareholder rating of Ba2, a measure
of the shareholder's ability to provide extraordinary support.
As the Bank's major borrowers and shareholders are correlated and confront
similar external vulnerabilities, the biggest risk to CABEI's rating
involves deterioration in the credit quality in the Central American region.
CABEI's rating also incorporates "Very High" non-contractual support
from members and the Bank's preferred creditor status, as well as
callable capital (CC) pledged by members rated Baa3 or higher.
The Republic of Korea holds a 9% share in the multilateral development
bank, the second-largest share held by a non-regional
member after Government of Taiwan, China's (Aa3 positive) 10%
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Positive rating pressure would require the addition of several more highly
rated non-regional members with shareholder stakes significant
enough to strengthen member support. Negative rating pressure could
result from a significant deterioration in the credit quality of Central
American borrowing sovereigns. Borrower quality poses a potential
credit challenge to CABEI as loans to Panama, Colombia, and
Mexico, the bank's sole investment-grade borrowers as of
year-end 2019, accounted for only 9% of total loans.
We expect the bank's weighted average borrower rating to remain below
The principal methodology used in these ratings was Multilateral Development
Banks and Other Supranational Entities Methodology published in October
2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1232238.
Alternatively, please see the Rating Methodologies page on moodys.com.mx
for a copy of this methodology.
The period of time covered in the financial information used to determine
Central American Bk for Economic Integration's rating is between 31 December
2016 and 31 December 2019 (source: audited financial statements).
Moody's National Scale Credit Ratings (NSRs) are intended as relative
measures of creditworthiness among debt issues and issuers within a country,
enabling market participants to better differentiate relative risks.
NSRs differ from Moody's global scale credit ratings in that they are
not globally comparable with the full universe of Moody's rated entities,
but only with NSRs for other rated debt issues and issuers within the
same country. NSRs are designated by a ".nn"
country modifier signifying the relevant country, as in ".za"
for South Africa. For further information on Moody's approach to
national scale credit ratings, please refer to Moody's Credit rating
Methodology published in May 2016 entitled "Mapping National Scale Ratings
from Global Scale Ratings". While NSRs have no inherent absolute
meaning in terms of default risk or expected loss, a historical
probability of default consistent with a given NSR can be inferred from
the GSR to which it maps back at that particular point in time.
For information on the historical default rates associated with different
global scale rating categories over different investment horizons,
please see https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1280297.
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
Information sources used to prepare the rating are the following:
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The date of the last Credit Rating Action was 31 May 2021.
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VP - Senior Credit Officer
Sovereign Risk Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
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Sovereign Risk Group
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