The Japan Credit Rating Agency (JCR) has affirmed the African Development Bank’s (AfDB) long-term rating at AAA with a stable outlook.
According to a statement from the AfDB on Friday, the agency commended the bank for its strong member-country support, as evidenced by the seven general capital increases it has carried out to date.
The report reflected on the institution’s financial structure, risk management and funding. It also noted that JCR monitored whether multilateral development banks were financially viable enough to sustain their business in terms of financial structure, profitability and risk management.
The report noted that the bank’s “treasury investment is aimed to ensure ample liquidity and efficient management of assets the bank manages in a conservative manner, limiting its investment to counterparties that have high credit standings.”
Furthermore, JCR said the bank had been raising funds from international capital markets on favourable terms.
“The bank met almost all of its conservative internal regulations with respect to lending, equity participation, risk capital utilisation, borrowing and liquidity at the end of 2020. The bank’s risk capital utilisation ratio has been close to the upper limit, defined by its internal regulations due mainly to the increased risks related to its loan and investment exposures,” the agency noted.
However, JCR holds that the bank would continue to comply with the regulations “as it has taken remedy measures including the special temporary callable capital increase in March 2021, the optimisation of its asset portfolio, and as progress is being made in the payment of the capital increase.”
The JCR noted that the impact of the COVID-19 pandemic could weaken the quality of the bank’s assets mainly with its non-sovereign loans.
The agency, however, added that “any increased credit cost can be mostly absorbed by earnings and that its impact on the bank’s financial base will be limited.”
It also discounted the possibility of the current ratings coming under downward pressure if the majority of the member countries failed to pay for the latest capital increase.