AfDB expected to expand lending by 8% after AAA rating

The African Development Bank (AfDB) is expected to increase its loaning portfolio by at least 8% over the next year supported by the fresh capital injection from the shareholders and the slowdown in the amount of non-performing loans.

The pan-African lender 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 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.

In October 2019, during 7th General Capital Increase held in Abidjan, Cote d’Ivoire, shareholders representing 80 countries approved a historic capital increase amounting to $115 billion pushing AfDB’s capital to $208 billion.

The AAA rating will now see the bank commitment to fund projects which will see 105 million people to have access to new or improved electricity connections, 244 million people to benefit from improvements in agriculture, 15 million people to benefit from investee projects, 252 million people to benefit from improved access to transport, and 128 million people to benefit from improved access to water and sanitation.

The rating was 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 as well as focus that its 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, AfDB said.

According to Fitch, the bank’s solvency level appear strong, backed by a stronger capital base despite certain countries with the highest percentage of debts having had their sovereign ratings downgraded.

“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,” said Fitch in its report.

About 30% of the loans were extended to countries and organizations 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.

  

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