Fitch Ratings has affirmed the African Development Bank's (AfDB) Long-Term Issuer Default Rating (IDR) at 'AAA' with a Stable Outlook.
Key Rating Drivers
AfDB's 'AAA' rating is driven by the extraordinary support it receives from its shareholders, which Fitch assesses at 'aaa'. The rating is also supported by AfDB's intrinsic assessment, which Fitch has revised up to 'aa' from 'aa-' previously. The revision is driven by an improvement in Fitch's assessment of the bank's business environment, which no longer leads to a one-notch negative adjustment to the intrinsic assessment. The intrinsic assessment of 'aa' reflects the lower of the bank's 'aa' solvency and 'aaa' liquidity.
AfDB's 'aaa' support from its shareholders is based on Fitch's forecasts that the bank's net debt will be fully covered by callable capital from 'AAA' rated member countries by 2021. This results in a 'aaa' capacity to support. The 'strong' propensity of shareholders to support translates into no notching down. The projection assumes a 100% increase in subscribed capital from 2020 and lending growth averaging 7% yoy in 2019-2021, a significant deceleration relative to 2017 (17% yoy) and consistent with the fall in loan disbursements recorded in 2018 (-5.6% yoy). The projection also assumes XDR800 million (USD1.1 billion) temporary callable capital from Canada (AAA/Stable) before 2020.
Fitch expects the process for a new capital increase (General Capital Increase VII, GCI-VII) to be completed by end-2019 including final agreement on its amount. For the purpose of our projections, we assume that all existing shareholders would participate in the capital increase. Any change in the current structure of shareholding, and in particular the non-participation of any 'AAA' shareholder, could affect the rating of the newly subscribed callable capital and the coverage of net debt by 'AAA' callable capital.
