Fitch affirms Manila-based ADB’s ‘AAA’ credit rating

Credit rating agency Fitch Ratings affirmed Asian Development Bank’s  long-term issuer default rating  (IDR) at 'AAA' with a stable outlook and short-term IDR at 'F1+'.

 

The Manila-based ADB’s rating was primarily underpinned by its strong capitalization, the credit rating agency noted in an emailed report.

 

“The equity-to-asset ratio, although in the lower range of its peers, was a comfortable 14.4 percent at end-2011, and the usable to required capital ratio was 20.3x,” Fitch noted.

 

The multilateral lender’s debt-to-equity ratio was a moderate 356.8 percent as of end-2011, constrained by a strict self-imposed borrowing limit, it added.

 

“Additionally, ADB is a highly liquid financial institution, with treasury assets accounting for 19.8 percent of assets at end-2011, which covers borrowings maturing over the coming two years. Although all multilateral development banks are highly liquid, this ranks high even among peers,” the report read.

 

Despite its exposure to emerging Asian countries, Fitch noted ADB’s loan book performance is excellent.

 

“Sovereign loans account for 89.2 percent of total operations, where ADB is protected by its preferred creditor status; the bank had no sovereign impairments at end-2011. Impaired loans are concentrated in private sector loans, and are adequately covered by provisions,” the credit rating agency said.

 

Fitch cited ADB’s overall quality of loan portfolio has been improving, with an estimated average rating of 'BBB-' as of end-2011.

 

Still, it noted that the lender’s concentration risk is high with its five largest borrowers accounting for 251 percent of ADB's equity as of end-2011, which is higher than its peers.

 

Fitch Ratings added that ADB’s risk management has been conservative, citing ADB’s well-managed interest rate, foreign currency risk, and credit risk on treasury assets and derivatives.

 

“The bank has divested most of its treasury exposure to the eurozone, only keeping exposures in countries still rated 'AAA' by Fitch at end-July 2012,” it said.

 

“Even if the bank intends to take on more risk in coming years, with a significant increase in private sector operations, Fitch believes that risk management will remain compatible with a 'AAA' rating,” the report read. — Rouchelle R. Dinglasan/VS, GMA News