MANILA, Philippines - The Asian Development Bank (ADB) was given an AAA rating by global credit watcher Fitch Ratings, the highest among the multilateral development banks (MDBs).
The rating agency likewise affirmed ADB’s long-term issuer default rating (IDR) with a stable outlook and short-term IDR at ‘F1+’.
Fitch said ADB is a highly liquid financial institution, with treasury assets accounting for 19.8 percent of its assets at end-2011, which covers borrowings maturing over the next two years.
“Despite its exposure to emerging Asian countries, the performance of the loan book is excellent,” Fitch said.
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 overall quality of the loan portfolio is improving, with an estimated average rating of ‘BBB-’ at end-2011, Fitch noted.
“However, concentration risk is high, with the five largest borrowers accounting for 251 percent of ADB’s equity at end-2011, a higher level than peers,” it said.
Fitch cited that ADB’s risk management is conservative.
Interest rate, foreign currency risk and credit risk on treasury assets and derivatives are likewise limited and well managed.
The bank has divested most of its treasury exposure to the euro zone, only keeping exposures in countries still rated ‘AAA’ by Fitch at end-July 2012.
“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,” it said.
ADB has strong support from its shareholders. It is owned by 67 countries, of which Japan and the US are the largest shareholders each with 15.7 percent at end-2011.
Fitch said since its ratings are driven by intrinsic factors, a decline in capital or loan portfolio would be detrimental to ADB’s rating.
“A decline in the quality of the loan portfolio, resulting from rising non-performing loans (NPLs) on private sector operations or a serious breach of the preferred creditor status on sovereign loans, would affect the ratings. Fitch will also monitor the concentration level of the loan portfolio,” Fitch added.