Home Vydané ratingové hodnotenia Aktuálne platné ERA rates Eurasian Development Bank BBB+, outlook Stable
ERA rates Eurasian Development Bank BBB+, outlook Stable
Piatok, 09 November 2018

The credit rating of Eurasian Development Bank (hereinafter, EDB) is due to the support of member states in the group along with the moderately high systemic importance of funded projects, moderate business profile, high capital adequacy, weak risk profile, and adequate funding and liquidity position.

 

Key creditworthiness factors

Shareholder and structure support (BBB+). EDB is a part of integration infrastructure in Eurasia. Member states in EDB include the Russian Federation (65.97% of capital), the Republic of Kazakhstan (32.99%), the Republic of Belarus (0.99%), the Republic of Tajikistan (0.03%), the Republic of Armenia (0.01%), and the Kyrgyz Republic (0.01%). The credit quality of EDB’s key shareholder, Russia, is supported by a very low leverage (the country is a net creditor in the world financial market), strict budget rules, and resistance to the sanctions regime in 2014-2018. Risks to Russia’s credit quality are the dependence of its economy on the dynamics of commodity prices and the uncertainty regarding the sanctions regime. The credit quality of EDB’s second key shareholder, Kazakhstan, is characterized by stable growth dynamics in the basic sectors of the economy, significant volumes of international reserves, and moderate public debt. The risks are the dependence on the external environment for the main export goods and the slow process of the country's industrial diversification.

Management quality, strategy quality, and operational transparency assessed as satisfactory. EDB is an international financial organization established to promote the formation and development of the market economy of the member states, their economic growth, and the expansion of trade and economic relations between their governments.

EDB’s strategy for 2018-2022 includes the broadening of its investment activities as well as the provision of new settlement and clearing services, which will further strengthen its position as an institution for the development of the Eurasian region.

EDB’s quality of management is comparable with its peers.

Capital adequacy position is strong. EDB has a significant supply of capital, which provides a comfortable absorption buffer against loses. As of July 1, 2018, the adequacy of EDB’s paid-in capital, calculated according to ERA’s methodology, amounted to 34%. The adequacy of shareholder capital in compliance with Basel standards amounted to 60%. In addition, ERA notes that EDB has a substantial supply of unpaid capital (USD 5.5 bln) which covers all assets and off-balance sheet liabilities x1.5 over.

Return on equity has a neutral impact on EDB’s financial profile. In 2016 and 2017, the ROE indicator was 10.4% and 2.5% respectively.

EDB’s risk profile evaluated as weak. The risk profile is characterized primarily by the high concentration on the ten largest credit risks (112.8% of paid-in capital) together with a moderately high country diversification (48.1% of the financial assets are in Russia). At the same time, ERA notes the high quality of the loan portfolio. As of July 1, 2018, the share of overdue debt (NPL90+) was 1.4%.

The securities portfolio, which holds about 30% of EDB’s total assets (as of July 1, 2018), is made up mainly of highly reliable debt securities as well as bonds of EDB’s majority shareholders. The ratio of market risk calculated in accordance with Basel requirements to paid-in capital was about 3%. The risk management quality assessment is weak, mainly due to inadequate disclosure of risk management policies and strategies compared to EDB’s peers.

Adequate liquidity and funding. EDB is characterized by its strong liquidity position. EDB maintains a substantial share of highly liquid assets on its balance, the lowest share of which over the last 36 months was 25.4%, which in total with the diversified funding in terms of urgency provides a comfortable cushion of liquidity in the short and medium terms.

EDB's liabilities are moderately diversified according to funding sources (Herfindahl–Hirschman Index amounting to 38.9%). However, ERA notes EDB’s increased dependency on raised loans from banks. As of July 1, 2018, EDB’s share of interbank loans in total liabilities was 27.8%.

 

Key assumptions

  • Stable structure of shareholders and their credit quality;
  • Maintaining the Bank’s strategy and business model within the 12 to 18-month horizon;
  • Maintaining paid-in capital adequacy above 25% within the 12 to 18-month horizon;
  • High diversification of funding base and high short-term liquidity.

 

Potential outlook or rating change factors

The outlook has been assigned based on expectations that the rating outlooks of the key shareholders remain unchanged.

The Stable outlook assumes that the rating will most likely stay unchanged within the 12-month horizon.

A positive rating action may be prompted by:

  • Increase in shareholders’ credit quality.

A negative rating action may be prompted by:

  • Decrease in key shareholders’ credit quality;
  • Decrease in systemic importance for the key shareholders;
  • Deterioration of liquidity and funding factors;
  • Deterioration of capital adequacy position

 

Rating components

SCA: a-.

Support / adjustments: on par with shareholders.

Appendix 1.   List of material data sources

EDB´s IFRS for 2015, 2016, 2017 and semiannual 2017 and 2018

EDB´s Top 10 projects in balanced portfolio for the end of 2017 and first half of 2018

EDB´s presentation dated September 2018

ERA Questionnaire

 

Regulatory disclosure

The solicited credit rating and outlook were issued in accordance with ERA methodology for multilateral financial institutions in the version from September 19, 2018 (available at www.euroratings.co.uk, section Methodology). In the same section, there is a rating scale including an explanation of the importance of each rating category and a default definition. Information on the rate of historical failure is available at www.cerep.esma.europa.eu and the explanatory statement of the meaning of those default rates is available at www.euroratings.co.uk (Regulatory Framework/Disclosure). This rating is issued as a solicited rating, i.e., was initiated by the rated entity. The rated entity participated in the rating process, supported ERA by all necessary documentation and information obtained in accordance with ERA´s Questionnaire. ERA did have access to the rated entity’s internal documents. ERA, in the context of routine care, verified all sources entering the rating process. ERA considers the scope and quality of the information entering the analytical process to be sufficient to assign a credit rating. The disclosure of the solicited rating and outlook was preceded by the approval of the Rating Committee. No actual or potential conflicts of interest have arisen. Since July 30, 2012, ERA has been a registered credit rating agency according to Regulation (EC) No 1060/2009 of the European Parliament and of the Council of September 16, 2009, on credit rating agencies. The rated entity was notified on November 7, 2018, about the rating and after the notification there were no changes or amendments in the rating. This is the first release of the rating for distribution.

Download pdf:
EDB_rating document.pdf
 

Approved by the Rating Committee:

Natalia Porokhova, Head of credit rating analysts

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