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Fitch Affirms Corporacion Andina de Fomento's IDR at 'AA-'; Outlook Stable
February 15, 2017 / 8:22 PM / 6 months ago

Fitch Affirms Corporacion Andina de Fomento's IDR at 'AA-'; Outlook Stable

(The following statement was released by the rating agency) NEW YORK, February 15 (Fitch) Fitch Ratings has affirmed Corporacion Andina de Fomento's (CAF) Long-Term Issuer Default Rating (IDR) at 'AA-' with a Stable Outlook. A full list of CAF's ratings follows at the end of this press release. The affirmation of CAF's IDRs and senior unsecured debt ratings reflects Fitch's expectations that CAF will maintain its strong financial profile over the forecast horizon. KEY RATING DRIVERS The affirmation and Stable Outlook reflect the following key rating factors: CAF's intrinsic credit quality drives its 'AA-' IDR. Despite CAF's strong solvency assessment of 'aa' and liquidity assessment of 'aaa', per Fitch's criteria, a high-risk business environment results in a downward adjustment of one notch from the solvency assessment, for an overall intrinsic rating of 'AA-'. Fitch has assessed CAF's capitalization levels as 'excellent'. Sustained capital contributions and steady internal capital generation support CAF's ample capitalisation ratios. Its prudential framework requires a minimum total capital/weighted risks ratio (Basel II since 2007) of 30%. In practice, the reported ratio has been well above this minimum. In addition to the current capital replenishment program that ends in 2017, on Nov. 27, 2015, the Board of Directors approved a new general capital increase program for a total amount of USD 4.5 billion, which will be payable between 2017 and 2023. Under a scenario of 10% asset growth per year, CAF's capital ratios will remain relatively stable over the medium term. In Fitch's view, CAF's overall credit risk is 'medium'. Fitch estimates the weighted average rating of CAF's loan portfolio at 'BB-' as of end-September 2016. The strength of CAF's preferred credit status, which has been maintained through various financial crises in the region since CAF's inception in 1970, and zero to minimal nonperforming private sector loans since 2006 partially mitigates the weaker credit quality of CAF's borrowers. Nevertheless, CAF's portfolio remains vulnerable to downgrades of its larger borrowers, Venezuela ('CCC'), Ecuador ('B'/Outlook Negative), Colombia ('BBB'/Outlook Negative) and Brazil ('BB'/Outlook Negative). Concentration risk is assessed as 'medium'. The five largest exposures as a proportion of CAF's total exposures reached 55.8% at end-September 2016. With the incorporation of new full members and the higher proportion of approvals to these members in recent years, the gradual decline in concentration should continue over the medium term. CAF's risk management framework is assessed as 'strong' given the bank's operations are consistently well within its self-imposed capital adequacy, lending, borrowing and liquidity policy limits. CAF has limited exposure to market risk due to its extensive use of derivatives to hedge its interest rate and foreign currency risks. Liquidity is assessed as 'aaa'. CAF's liquidity cushion is in line with high rated multilateral development banks (MDBs) as liquid assets covered 237% of short-term liabilities. Fitch expects CAF's liquidity to remain at similar levels over the medium term. The bank's sound liquidity profile is also supported by its excellent access to capital markets. Consistent with Fitch's Supranationals criteria, support from shareholders is not taken into consideration in the overall rating, as the average rating of CAF's shareholders is 'BB' and highly-rated callable capital was not sufficient to cover net debt. RATING SENSITIVITIES The Stable Outlook reflects Fitch's assessment that CAF's credit profile will remain commensurate with its 'AA-' rating. There is limited upside to CAF's long-term IDR given the negative Outlook on the sovereign ratings of three of the MDB's top borrowers (Brazil, Colombia and Ecuador) and the potential for further downgrades of Venezuela. The factors that could, individually or collectively, lead to a downgrade of CAF's ratings are: A substantial decline in capitalisation, due to losses or to a rapid growth in lending relative to equity, would place pressure on the ratings. A combined downgrade of borrowing countries' sovereign ratings could result in downward pressure on creditworthiness. KEY ASSUMPTIONS The ratings and Outlook are sensitive to a number of assumptions as follows: Member countries, even if experiencing severe difficulties (such as Argentina, rated 'B', or Venezuela, rated 'CCC'), will continue to honor CAF's preferred creditor status and exempt its private sector borrowers from any measures that may impact the transfer and/or convertibility of their debt service payments, should any member country decide to default selectively to their creditors. CAF will maintain its conservative risk management, which should sustain a steady financial performance and a risk profile compatible with its current ratings. Fitch has affirmed CAF's ratings as follows: --Long-term IDR at 'AA-'; Outlook Stable; --Short-term IDR at 'F1+'; --Senior unsecured debt at 'AA-'; --Commercial paper at 'F1+'; --Long-term National Rating in Venezuela at 'AAA(ven)'*; Outlook Stable; --Short-term National Rating in Venezuela at 'F1+(ven)'; --Long-term National Debt Rating in Mexico at 'AAA(mex)'. *The 'AAA(ven)' rating is equivalent to an 'A1' rating when using the mandatory rating scale required by the local Securities Exchange Commission. Contact: Primary Analyst Theresa Paiz Fredel Senior Director +1-212-908-0534 Fitch Ratings, Inc. 33 Whitehall St. New York, NY 10004 Secondary Analyst Larisa Arteaga Director +1-809-908-0396 Committee Chairperson Eric Paget-Blanc Senior Director +33 1 4429 9133 Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: elizabeth.fogerty@fitchratings.com. Additional information is available on www.fitchratings.com Sources of information: The sources of information used to assess these ratings were CAF's audited financial statements, annual report, and other information provided by the entity. Applicable Criteria National Scale Ratings Criteria (pub. 30 Oct 2013) here Supranationals Rating Criteria (pub. 27 Jul 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1019053 Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. 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