Moody’s rates ADB loan quality stable

“Moody’s expects the ADB’s average borrower credit quality to remain stable.”

Moody’s Investors Service on Monday said the Asian Development Bank’s credit profile at Aaa is a reflection of the bank’s strong capital adequacy, ample liquidity buffers and unfettered market access.

It said these credit strengths have been sustained through periods of global and regional economic stress, reflecting in part the bank’s prudent financial management, including an effective risk-management framework.

In addition, its preferred creditor status and strong shareholder support enhanced its already strong financial performance.

Moody’s likewise said that last year’s merger of the lending operations of the Asian Development Fund with the balance sheet of the ADB’s ordinary capital resources strengthened the bank’s capital base. This, in turn provides greater capacity to significantly expand the bank’s development because of the consequent improvements in its asset coverage ratio and lower leverage compared with most of its Aaa-rated peers.

Moody’s expects the ADB’s average borrower credit quality to remain stable, because the higher risk associated with Moody’s 2017 sovereign rating downgrade of China (A1 stable) — the ADB’s largest borrower — has been largely offset by an upgrade of India (Baa2 stable) — the second largest borrower — later in the year.

And, the improved credit profiles of other large borrowers, including Indonesia (Baa2 stable) which was upgraded in 2018, will impart greater stability to the ADB’s lending portfolio.

Moody’s conclusions are contained in its just-released credit analysis titled “Asian Development Bank” and which examines the bank in three categories: capital adequacy, which Moody’s assesses as “very high;” liquidity “very high,” and strength of member support “very high.”

The report constitutes an annual update to investors and should not be read as a rating action.

Moody’s also said the ADB’s credit challenges stem from its: (1) concentrated loan portfolio that exposes the ADB to the effects of a severe and prolonged deterioration in borrower credit quality, although the merger moderates this concentration; and (2) weaker profit margins in recent years, because of low global interest rates, although such rates are rising.