The African Development Bank has scored the highest ever rating of Triple A, as a result of the success of a historic capital increment and improved shareholder confidence on the Bank’s lending activities.
The Fitch Ratings Agency, an American-British company, said the AAA rating, which is the highest level for any lending institution, affirmed the Bank’s financial stability and demonstrated the Bank held stable assets based on its lending portfolio.
“Fitch assesses AfDB’s overall exposure to risks as Low, balance Moderate and credit risk with Excellent risk management policies, Low concentration and Very Low equity and market risks,” the ratings Agency said in its assessment.
The Bank was rated highly based on an assessment of its lending practices and the ability of the institutions to which the funds have been lent to repay without high levels of default.
The current rating is based on the focus that the Bank’s assets will be fully covered by the amount of bonds and other capital market products which are due for repayment and would be repaid before the maturity date.
The Fitch rating is supported by the Bank’s Standalone Credit Profile, reflecting the lower of ratings of an AA- for solvency and AAA for liquidity. Fitch adjudged the Bank triple A status based on the forecast that the Bank’s debt will be serviced on time and the fact that the Bank’s shareholders have continued to express a strong vote of confidence in the Bank’s capability to manage its assets.
The Fitch projects the Bank would continue to expand its loaning portfolio by a massive 8% over the next year, supported by the fresh capital injection from the shareholders and the slowdown in the amount of non-performing loans.
While the prospect of certain countries with the highest percentage of debts having had their sovereign ratings downgraded appearing to dim the financial prospects of the improved debt-servicing levels, the Bank’s solvency level appeared strong, backed by a stronger capital base, according to Fitch.
“Fitch views the African Development Bank’s risk-management policies as conservative and assesses them as excellent in line with the AAA-rated peers. The concentration risk is low, with the Bank’s five largest exposures accounting for the 32% of the total Banking portfolio at end of 2020,” Fitch said in its report.
The average rating of loans and guarantees deteriorated to B+ as end of 2020 from BB- at the end of 2020. This was driven by the downgrade of several large borrowers, including Morocco, which accounts for 14% of the risk exposure.
Morocco’s sovereign ratings dropped to BB+/Stable, while Tunisia, at B-Negative, accounts for 10% of the risk, while South Africa, rated BB-Negative, accounted for 6%. About 30% of the loans were extended to countries and organisations based in countries where the outlook remained negative.
The countries where the risk remained negative include Kenya, with B+, Namibia, BB, Uganda, B+ and Ghana, B.
Fitch Ratings said a single notch downgrade of those exposures would not affect the bank’s portfolio. “Fitch assesses the African Development Bank’s business environment as Medium Risk balancing Low, business profile risk with high Risk balance.
The Bank’s lending portfolio is to a larger extent based at the Medium Risk profile countries while the high operating environment risk is consistent with the low ratings, low income per capita and high political risk in countries of operation.