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Fitch Revises European Investment Bank's Outlook to Stable; Affirms at 'AAA'
September 18, 2014 / 3:28 PM / 3 years ago

Fitch Revises European Investment Bank's Outlook to Stable; Affirms at 'AAA'

(The following statement was released by the rating agency) PARIS/LONDON, September 18 (Fitch) Fitch Ratings has revised the Outlook on European Investment Bank's (EIB) Long-term Issuer Default Rating (IDR) to Stable from Negative and affirmed the IDR at 'AAA'. Fitch has also affirmed the Short-term IDR at 'F1+' and senior unsecured debt at 'AAA'/'F1+'. KEY RATING DRIVERS The revision of the Outlook on EIB's IDR reflects the following key rating drivers and their relative weights: High The quality of the loan book has stabilised. After a steady deterioration during the eurozone crisis, the average rating of outstanding loans was 'BBB+' at end-July 2014 (2009: A+) and 77.9% of borrowers were investment grade, at the higher end of the range for 'AAA' rated peers. The bank regularly uses credit enhancement in its loan agreements such as collateral or third party guarantees, and benefits from preferred creditor status on sovereign exposures. The level of NPLs (0.2% at end-2013) has remained extremely low as a result of cautious risk management practices. In addition, a number of sovereign upgrades (Spain: BBB+/Stable, Greece: B/Stable) and Outlook revision to Stable (Italy: BBB+/Stable) in some of EIB's largest countries of operations since our last review suggest the continued stabilisation of asset quality. Medium The equity-to-asset ratio and EIB's Basel III-like capital adequacy ratio have recovered following the cash capital increase disbursed in 2013, and were 11.3% and 25.9%, respectively, at end-June 2014. The agency expects capitalisation and leverage to slightly improve by 2016 thanks to slowing net lending and steady non-distributed profits. EIB's 'AAA' IDR also reflects the following key rating drivers: The bank's risk management framework and corporate governance are effective. Although not a regulated entity, EIB strictly abides by its self-imposed prudential framework on liquidity, capitalisation and credit risk. Exchange and interest rate risks are kept at a minimum. Governance structure is in line with other 'AAA' rated multilateral development banks (MDBs). Balance sheet liquidity has been strengthened in recent years, although it remains lower than most other 'AAA' rated MDBs. At end-June 2014, treasury assets more than covered short-term liabilities and were overwhelmingly invested in short-term instruments. In addition, EIB benefits from access to ECB's refinancing window, a unique feature among MDBs, and has steadily enlarged its pool of repoable instruments, further insulating the bank from liquidity risk. Only 33.8% of treasury assets were invested in counterparts rated 'AA-' or above at end-June 2014, a lower share than most peers, but a significant share of them were invested in secured transactions protected by highly-rated collateral. A rating weakness is the significant geographic and single obligor concentration of the loan book. At end- 2013, more than 90% of EIB's EUR428bn loan portfolio was dedicated to the 28 EU member states whose economic performances are correlated. EIB's largest single obligor exposures are to sovereigns, particularly Spain (41.6% of the bank's equity at end-2013), Poland (A-/Stable; 25%) and Greece (23.7%). However, these concentration levels are not unusual among highly-rated European MDBs and Fitch would expect EU sovereigns to grant EIB preferred creditor status in case of default. Although intrinsic strengths are the main driver of EIB's rating, shareholder support remains very strong and supportive of a high rating. The average rating of key shareholders remained stable at 'AA' at June 2014 and recent rating actions on EU sovereigns point to stabilisation in member states' credit quality. Propensity to support has been strong throughout the crisis, as illustrated by the EUR64.2bn callable capital increase approved in 2009 and the rapidly disbursed EUR10bn cash capital increase approved in 2012; Fitch believes as a prominent EU institution, EIB will continue to benefit from strong political commitment from member states. RATING SENSITIVITIES The Outlook is Stable. Consequently, Fitch's sensitivity analysis does not currently anticipate developments with a high likelihood of leading to a rating change. However, future developments that could, individually or collectively, result in a negative rating action include: - A material deterioration in asset quality, evidenced by sovereign rating downgrades and rising impairments; - A rise in lending above current projections, resulting in deteriorating leverage and capitalisation KEY ASSUMPTIONS Fitch assumes the gradual progress in deepening fiscal and financial integration at the eurozone level will continue; key macroeconomic imbalances within the currency union will be slowly unwound; and eurozone governments will tighten fiscal policy over the medium term; Fitch assumes that EIB's preferred creditor status will be respected in any sovereign default scenario. Fitch assumes that no member state will choose to exit the EU and that highly rated member states will remain committed to responding to any capital call. Contact: Primary Analyst Amelie Roux Director +33 144 299 282 Fitch France S.A.S 60 rue de Monceau 75008 Paris Secondary Analyst Eric Paget-Blanc Senior Director +33 144 299 133 Committee Chairperson Tony Stringer Managing Director +44 20 3530 1219 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: Additional information is available on Applicable criteria, 'Supranational Rating Criteria' dated 22 may 2014 are available at Applicable Criteria and Related Research: Supranationals Rating Criteria here Additional Disclosure Solicitation Status 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 WEBSITE '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.

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