Fitch affirms African Development Bank at 'AAA', outlook stable

Fitch Ratings has affirmed African Development Bank (AfDB)'s Long-Term Issuer Default Rating (IDR) at 'AAA' with a Stable Outlook.

The agency attributed the upgrade to a number of factors including the extraordinary support the bank receives from its non-regional shareholders, which was assessed at 'aaa'.

The ratings release posted by Fitch on July 10, 2023, said, “The shareholders' 'strong' propensity to support the bank translates into a zero-notch adjustment to our assessment of the capacity to support (aaa). The rating is also supported by the bank's Standalone Credit Profile (SCP), reflecting the lower of its assessments of 'aa' for solvency and 'aaa' for liquidity.”

Also, in May 2023, Fitch placed the US's 'AAA' Long-Term IDR on Rating Watch Negative (RWN).

The US is AfDB's second-largest shareholder, accounting for 6.3% of total capital and 38% of 'AAA' rated callable capital at end-2022.

The rating action puts pressure on the coverage of net debt by 'AAA' rated callable capital, the key metric to assess support under Fitch's criteria.

The coverage of net debt by 'AAA' rated callable capital improved to 217% at end-2022 from 189% at end-2021, reflecting new capital subscriptions under the bank's seventh general capital increase (GCI).

Fitch assumed that AfDB will receive additional support from its remaining 'AAA' rated shareholders as it did in 2021 when the Outlook on the US rating was Negative and other shareholders subscribed to temporary callable capital.

Meanwhile, other factors that led to the upgrade pointed to AfDB’s high credit risks which have been mitigated and significant non-Sovereign non-performing loans (NPL).

Also, Fitch believes the bank's risk management policies are conservative and assesses them as 'excellent', in line with its peers.

“AfDB's 'aaa' liquidity assessment reflects the bank's 'excellent' liquidity buffers, the high quality of liquid assets, and its access to capital markets. At the end-2022, liquid assets were 2.5x short-term debt,” Fitch added.

SSD/MA