The African Development Bank’s (AfDB) long-term rating has been affirmed at AAA with a stable outlook by the Japan Credit Rating Agency (JCR).
The AfDB praised the bank for its robust member-country support, as indicated by the bank’s seven general capital increases to date, according to a statement released.
The financial structure, risk management, and funding of the institution were all examined in the report. JCR also examined whether multilateral development banks were financially sustainable enough to continue operating in terms of financial structure, profitability, and risk management, according to the report.
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,” it stated.
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The impact of the COVID-19 epidemic, according to the JCR, could undermine the bank’s assets, particularly 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 ruled out the potential of a downgrade in the present ratings if the majority of member countries failed to pay for the most recent capital increase.