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Fitch Affirms European Investment Bank at 'AAA'; Outlook Stable
September 12, 2017 / 3:47 PM / 2 months ago

Fitch Affirms European Investment Bank at 'AAA'; Outlook Stable

(The following statement was released by the rating agency) LONDON, September 12 (Fitch) Fitch Ratings has affirmed European Investment Bank's (EIB) Long-Term Issuer Default Rating (IDR) at 'AAA' with Stable Outlook and Short-Term IDR at 'F1+'. A full list of rating actions is at the end of this rating action commentary. KEY RATING DRIVERS EIB's 'AAA' IDRs are fully driven by the bank's intrinsic features, in particular high levels of solvency (assessed at 'aa-') and liquidity (assessed at 'aa'). The low-risk business environment for EIB translates into the maximum possible adjustment of three notches over its solvency assessment, resulting in an intrinsic rating of 'aaa'. Fitch does not consider support as a rating driver, as EIB's net debt is not fully covered by callable capital pledged by shareholders. Although not a rating driver, the UK's (AA/Negative) decision to exit the European Union (EU) translates into a weakening of EIB's key shareholders' average rating, as defined in Fitch's Supranationals Rating Criteria. Fitch deems EIB's business profile as low-risk. The bank is the largest multilateral development bank (MDB) globally, with a total banking portfolio of EUR470 billion in 2016. In addition, the bank's low-risk strategy is supported by some of the strongest governance standards among Fitch-rated MDBs, although EIB principally finances typically higher-risk private sector-related projects. EIB operates in a low-risk business environment, since its countries of operations are predominantly within the EU, a region characterised by low political risk and high credit quality. In line with its clear counter-cyclical mandate, EIB enjoys very strong operational support from member states, as highlighted by the capital injections it received in 2012, to support increased lending. With an equity/assets ratio of 11.6% in 2016, EIB's capitalisation ratio is one of the weakest among peers. However, we expect the bank's net lending growth to continue decelerating in the coming years compared with the 2012-2015 period. In addition to a positive internal capital generation, we expect EIB's leverage metrics to improve by 2020. Despite the absence of a capital increase, Fitch expects EIB's capitalisation ratio to slightly strengthen in the coming years, and to reach 12% by 2020. The decision of the UK to exit the EU will not, in Fitch's view, affect the bank's solvency metrics in the medium-term. Although the UK is one of the four largest shareholders of the bank, with 16.1% of its paid-in capital, it is also a large beneficiary of EIB loans (8% of total loans). We therefore believe that EIB and the UK will maintain strong mutual interests in supporting the bank's operations. Subsequently, Fitch expects the UK's share in EIB's capital to remain fully integrated with the bank's equity base, until the country formally leaves the EU, potentially in 2019. The very-low risk profile of EIB also reflects its excellent risk management policies, as well as its low exposure to market and equity risks. EIB's average rating of loans of 'BBB+' in 2016 is high compared with peers and impaired loans were very low in 2016 at 0.3% of total loans. Fitch assesses EIB's liquidity at 'aa'. At 87% in 2016, the coverage of short-term debt by liquid assets is weak relative to 'AAA'-rated peers, for which full coverage is a common feature. However, EIB benefits from preferential access to the European Central Bank's refinancing window - a quasi-unique characteristic among MDBs - which considerably strengthens its liquidity profile. EIB benefits from excellent access to capital markets; the bank issued EUR66.4 billion debt in 2016 and expects to raise EUR60 billion in 2017. Although EIB enjoys strong support from its shareholders, its ratings do not benefit from an uplift above its intrinsic rating as its net debt is not fully covered by the EUR221.6 billion of callable capital subscribed by its shareholders. The agency no longer considers the UK as a key shareholder, as it does not maintain a vested interest in providing extraordinary support to the bank. When including Spain (BBB+/Positive), EIB's next largest shareholder, instead of the UK, to the group of shareholders accounting for at least 50% of the bank's capital and maintaining a vested interest in providing it with extraordinary support, the average rating of key shareholders drops to 'A+' (2015: AA). RATING SENSITIVITIES The factors that could, individually or collectively, result in negative rating action are: -Marked deterioration in solvency metrics, stemming from declining capitalisation over the coming years, or from a noticeable weakening in asset quality; -Deterioration of the operating environment of the bank, potentially caused by marked weakening of European economies or weakening of political support for EU institutions. KEY ASSUMPTIONS The ratings and Outlooks are sensitive to the assumption that the UK's withdrawal from EIB will not cause any major disruption in the bank's operations. The full list of rating actions is as follows: Long-Term IDR affirmed at 'AAA'; Stable Outlook Short-Term IDR affirmed at 'F1+' Senior unsecured debt affirmed at 'AAA'/'F1+' Market-linked securities affirmed at 'AAAemr' Commercial paper affirmed at 'F1+' Contact: Primary Analyst Vincent Martin Director +44 203 530 1828 Fitch Ratings Limited 30 North Colonnade Canary Wharf London E14 5GN Secondary Analyst Nicholas Perry Analyst +44 203 530 1795 Committee Chairperson Eric Paget-Blanc Senior Director +33 1 44 299 133 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. The sources of information used to assess these ratings were EIB's financial statements, and other information provided by the bank. Additional information is available on www.fitchratings.com. Applicable Criteria Supranationals Rating Criteria (pub. 18 May 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation 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. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. 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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