YEREVAN, January 13, /ARKA/. Fitch Ratings has affirmed the Eurasian Development Bank’s (EDB) Long-term Issuer Default Rating (IDR) at ‘BBB’. The Outlook is Positive. It has also affirmed its Short-term IDR at ‘F2.’
EDB quoted Fitch as saying that its ratings are underpinned by its strong capitalisation and excellent asset quality. EDB was endowed with a substantial capital base by shareholders at its creation in 2006, and its capitalisation is stronger than that of other sub-regional multilateral development banks (MDBs). Despite the rapid expansion of its operations since 2007, equity to assets were a high 59.0% at end-June 2011. Unlike other MDBs, EDB’s shareholders have not subscribed callable capital and capitalisation relies entirely on the bank’s equity.
The bank’s operations are concentrated on the private sector of member countries. No loan has been made to any sovereign. Despite the challenging environment, the bank has suffered only marginal credit losses. At end-June 2011, it had only one impaired loan (representing 0.09% of assets and largely covered by reserves), which was settled in September 2011. The portfolio is less concentrated than for most MDBs, with the five largest exposures accounting for 36.9% of equity at end-June 2011.
Since the creation of the EDB, the portfolio of loans and equity participations has grown quickly, reaching USD1.3bn end-June 2011. Lending growth was particularly strong in 2008 and 2009 as commercial banks’ financing was scarce and EDB played its role of counter-cyclical lender. This slowed in 2011 due to increased competition from banks. Given its large capital base, EDB has substantial lending headroom and Fitch anticipates lending will grow at a steady but slower pace in coming years.
The EDB’s treasury portfolio represented 50.5% of total assets at end-June 2011 and provides sound liquidity coverage. The EDB has reduced its holdings of eurozone debt securities in 2011. As of end-October 2011, treasury assets were 66.3% invested in local securities and bank deposits, with Russian Federation (RF; ‘BBB’/Positive) Eurobonds representing 40.9% of total. The remaining is invested in US treasury bills and ‘AAA’ supranational bonds. Nevertheless, the quality of treasury assets is closely correlated to the credit quality of regional financial institutions and sovereigns.
EDB enjoys strong support from its two key shareholders, the RF and the Republic of Kazakhstan (RK; ‘BBB’/Positive’), which own 66% and 33% of capital, respectively. The rest is owned by Armenia (‘BB-‘/Stable), Belarus, Tajikistan and, since August 2011, the Kyrgyz Republic. Although no callable capital has been subscribed, in Fitch’s opinion, support would be provided by EDB’s main shareholders if needed. EDB plays an important role in the economic integration of the Eurasian Economic Community, which includes the RF, the RK, Belarus, the Kyrgyz Republic, Uzbekistan and Tajikistan. The EDB’s investment priority is to finance large infrastructure and industrial projects through loans and equity participations. RF and RK have been the main recipients of the EDB’s financing, accounting for 85.7% of the portfolio at end-June 2011. As a supranational entity, EDB benefits from immunities and privileges, in particular it is protected against restrictions on FX transfers.
An upgrade of the Long-term IDR could be triggered by EDB’s demonstrated capacity to maintain excellent asset quality, and in particular a low level of impaired loans, and strong capitalisation while expanding operations.
EDB is a MDB headquartered in Almaty (Kazakhstan), created by RF and RK to facilitate the development of market economies and foster economic integration in EurAsEC, which includes the RF, the RK, Belarus, the Kyrgyz Republic and Tajikistan. -0-
