Global rating agency, Standard and Poors, has affirmed its AfDB’s ‘AAA/A-1+’ ratings with outlook stable.
This is similar to Fitch’s recent affirmation of the Bank’s Triple ‘A’ rating with stable outlook as well.
In the statement, S&P summarized its ratings released on 31 July 2017, saying it expects the African Development Bank (AfDB) to further increase its lending over the next two years, while maintaining its current stand-alone credit quality, with a very strong business profile and very strong financial profile.
In addition, the rating agency incorporated into its ratings on AfDB potential extraordinary shareholder support, owing to callable capital from ‘AAA’ rated sovereigns.
“The ratings on AfDB reflect our assessment of the bank’s business profile as very strong and its financial profile as very strong. Our assessment of its stand-alone credit profile (SACP) remains at ‘aa+,’ and we incorporate a one-notch uplift for extraordinary shareholder support from AfDB’s SACP, leading to our ‘AAA’ long-term rating on the bank ,” the S&P report said.
The AfDB Group includes soft-loan windows – the African Development Fund (ADF), and the Nigeria Trust Fund (NTF).
The bank’s membership includes 54 African countries and 26 non-regional countries, and it lends predominantly to sovereigns, comprising about 76% of total credit exposures, while private-sector lending represents 21% of total credit exposures as of December 31, 2016.
S&P reiterated the Bank’s history of fulfilling its mandate by providing financing, particularly for infrastructure development, through economic cycles.
It notes that the robust demand for its lending, which led to a nearly 30% increase in its loan portfolio during the 2009 global financial crisis, has reinforced its role.
AfDB currently uses the ADF and the NTF windows to provide assistance to member countries whose governments are currently not eligible to borrow from the bank.
Among African governments, 17 are eligible to borrow only from AfDB, while 34 members may borrow only from the ADF and the NTF, and three countries are eligible to borrow under all three windows.
“We believe that expanding the number of eligible borrowing sovereigns in 2014 reinforces the Bank’s public policy role and mandate on the continent, although we expect only a gradual build-up of investments in these new eligible countries,” S&P said.
At the end of 2016, the bank’s outstanding exposures increased significantly by 22.5% totaling UA (official reporting currency of the AfDB) 32.7 billion (US$43.9 billion), largely led by a 27% increase in sovereign exposure.
The report noted that the AfDB is in the process of further strengthening aspects of its governance and risk management in light of its weaker track record in managing asset quality, particularly for its non-sovereign guaranteed portfolio.
“This is a priority for the Bank’s President, Akinwumi Adesina, of Nigeria, who assumed office on Sept. 1, 2015.”
The report said that the bank maintains a strong liquid asset cushion, accounting for 40.2% of adjusted total assets, 57.9% of gross debt, as of Dec. 31, 2016.
Liquid assets it said, comprise high quality bonds, largely in the ‘AAA’ (45%) and ‘AA’ (38%) rating range, cash, and a small portfolio of asset backed securities.
S&P liquidity ratios for AfDB indicate that the Bank would be able to fulfil its mandate for at least one year, even under extremely stressed market conditions, without access to the capital markets.
It furthers estimates that that the bank would not need to reduce the scheduled disbursements of its loan commitments, even if half of the total commitments were to be drawn in one year.
“On this measure, we estimate year-end 2016 liquidity ratios were 1.9x at the one-year horizon without any loan disbursements and 1.2x with half-scheduled loan disbursements,” the report concluded.
