GLOBAL credit rating agency Moody’s Investors Service has affirmed the long-term issuer rating of Manila-based lender Asian Development Bank (ADB) and its debt ratings at Aaa/(P)Aaa.
ADB’s Prime-1 short-term rating has also been concurrently affirmed, with the outlook on all ratings stable, Moody’s said in a statement issued on Monday.
“Moody’s assesses the ADB’s capital adequacy and liquidity, and the quality of its members’ support to be very strong and consistent with an Aaa rating,” it stated.
The ratings agency said the lender has sustained its robust financial performance and credit metrics through recent periods of global and regional economic challenges.
Moody’s also recognized that since ADB unveiled its long-term strategic framework in 2008, the bank has successfully completed a general capital increase and a three-year transformation exercise that have contributed to a rapid expansion in the resources available to ramp up its development activities.
As a result, gross loans outstanding grew by nearly 50 percent from 2008 to 2013, funded
in part by an increase of over 70 percent in borrowings over the same period, it noted.
“While the increase in lending has led to some diminution of the ADB’s capital adequacy, the ratio of usable equity to its development-related assets remains in line with Aaa-rated peers,” the ratings agency added.
Moody’s also mentioned that the bank has maintained its strong asset quality, noting that the ADB did not have any loans in non-accrual status in 2013, reflecting its sturdy risk management framework.
It said the lender’s demonstrated preferred creditor status further mitigates credit risks in its loan portfolio.
“Even with the increase in leverage, ADB’s total borrowing still falls comfortably within its own conservative limits, and liquidity remains ample,” the ratings agency said.
The firm said that the debt service coverage ratio, which measures the bank’s near-term debt service obligations against its stock of liquid assets, continues to imply that the ADB could finance its debts for two years in the absence of any additional funding.
“Our assessment of the ADB also benefits from the healthy operating environment in the Asia-Pacific region, as reflected in the upward movement in sovereign ratings in recent years for a number of the ADB’s largest borrowers, including China, Indonesia and the Philippines,” it stated.
As a result, the ratings agency said that credit risk associated with the ADB’s loan portfolio has fallen, with 77.7 percent of disbursed loans outstanding owed by investment-grade borrowers as of 2013, up from 48.6 percent in 2011.
Moody’s said that its assessment of the ADB’s very high intrinsic financial strength is complemented by extremely robust shareholder support.
“The bank has benefited from several rounds of general capital increases, with the most recent exercise concluding in 2012. The ADB’s low debt to callable capital ratio is on par with Aaa-rated peers and informs our view on the availability of contractual support,” it said.
“Moody’s also considers the ADB’s access to extraordinary support to be very strong, given the relatively high weighted median rating of its shareholders at Aa3,” it said.
In addition, Moody’s regards the propensity to and priority of support as strong, given the bank’s prominence in the region, while the ADB’s role in facilitating economic development is an important part of shareholders’ overarching foreign policy goals.