Credit analysis on Asian Development Bank - Moody’s | Outlook data
(Insider Stories) - Risk-weighted measures of The Asian Development Bank’s capital adequacy have improved in the past year, largely due to the upgrade of Indonesia’s sovereign rating, and while loan loss reserves were increased last year due to credit stresses mainly associated with Pakistan the ADB is likely to maintain preferred creditor status in the case of any borrowing member default, while the bank also demonstrates prudent fiscal policies and has strong support from shareholders, Moody’s Investors Service says in a credit analysis.
A summary of the report is below, and the full text is attached.
Credit Analysis - Asian Development Bank
Asian Development Bank’s (ADB’s) long-term rating is Aaa, and its short-term rating is also at the highest level of Prime-1 (P-1) on Moody’s scale. The outlook is stable.
The main considerations for the rating are (1) prudent financial policies, as evidenced by the bank’s track record of staying within its lending and borrowing limits; (2) demonstrated strong support from shareholders, reinforced by the conclusion in 2012 of the bank’s fifth general capital increase exercise; and (3) its established “preferred creditor status,” which ensures that sovereign debt owed to ADB is excluded from any restructuring of any other sovereign obligations, as well as the imposition of capital account controls.
These three fundamental factors ensure strong capital adequacy and substantial protection against a worst-case– though highly unlikely– scenario of several of the bank’s large borrowers entering non-accrual status at the same time. Nonetheless, were such a dire scenario to play out, the bank’s bondholders would still be protected by the large amounts of callable capital available to ADB, especially in the wake of the fifth general capital increase, which resulted in a more than two-fold increase in callable capital.
The bank’s overarching long-term goal – its “Strategy 2020” – is of a largely poverty-free Asia, and comprises three main critical objectives: inclusive economic growth, environmentally sustainable growth, and regional integration. This framework will anchor ADB’s organizational focus through an important leadership transition as a new president begins his term in 2013.
Net income has declined over the past year largely due to unrealized losses from fair value adjustments of swaps related to the bank’s borrowings, although operating income continues to be in surplus. The resulting decrease in profitability as represented by the return on earning assets does not pose a risk to usable equity given the recent increases in paid-in capital.
Risk-weighted measures of capital adequacy have improved markedly in the past year, largely due to the upgrade of Indonesia’s sovereign rating. At the same time, the credit stresses mainly associated with Pakistan prompted the bank to increase loan loss reserves in 2012. Nevertheless, ADB “preferred creditor status” is likely to be maintained in the case of any borrowing member debt default.
