Training on Forecasting, April 7–8

ACRA affirms A- to Eurasian Development Bank, outlook Stable, under the international scale, AAA(RU), outlook Stable, under the national scale for the Russian Federation, and affirms AAA(RU) to bond issues

The credit rating assigned to Eurasian Development Bank (hereinafter, EDB) is driven by both high support from shareholding sovereigns and EDB’s own strong standalone creditworthiness assessment (SCA) of a-, which stems from strong capital adequacy, satisfactory risk profile, and adequate liquidity and funding positions.

EDB is an International Financial Institution (IFI) established to promote the economic growth, expansion of trade, and economic relations between some of the member states of the Commonwealth of Independent States (CIS) later known as Eurasian Economic Union (hereinafter, the EAEU). The member states of EDB are the Russian Federation (65.97%), the Republic of Kazakhstan (32.99%), the Republic of Belarus (0.99%), the Republic of Tajikistan (0.03%), the Republic of Armenia (0.01%), and the Kyrgyz Republic (0.01%).

Key rating assessment factors

The quality of management, strategy, and transparency of activities is satisfactory. EDB's organizational structure and corporate governance are in line with the scope of its mandate. EDB’s strategy for 2018-2022 aims to actively expand investment activities, particularly in the energy sector. In addition, EDB intends to develop settlement operations (letters of credit and clearing services) between EAEU member states, as well as issue customs guarantees and guarantees for the fulfillment of state orders. This would strengthen EDB’s position as a leading multilateral development institution for the Eurasian region.

EDB’s capital adequacy position is strong. EDB has a significant amount of capital, which provides a comfortable absorption buffer against potential losses. As of end-December 2019, the capital adequacy ratio stood at 35.8% according to ACRA. This is supported by adequate operating efficiency and a return on equity ratio (ROE) of 3.5%, as calculated by ACRA. Furthermore, EDB has a substantial supply of callable capital (USD 5.5 bln), which exceeds all assets and off-balance sheet liabilities.

ACRA assesses EDB’s risk profile as satisfactory. The risk profile is driven by a satisfactory risk management quality assessment. In addition, the risk profile exhibits relatively high country diversification. The Russian Federation accounts for 38.2% of financial assets while other countries account for 27.4%, including countries outside the EAEU, with Kazakhstan and minority shareholders accounting for the remaining asset exposure.

The securities portfolio, which accounts for about 40.8% of total assets as of end-December, 2019, is formed primarily by highly reliable debt securities, including bonds from majority member states. ACRA notes in its assessment of EDB’s risk profile that the loan book currency composition is mostly in RUB and KZT. This is in line with EDB’s mandate, which stems from its majority shareholders. In addition, EDB’s loan portfolio is almost completely covered by guarantees and collaterals, most of it stemming from sovereign and corporate guarantees at 63%.

EDB’s liquidity and funding position is adequate. EDB is characterized by its strong liquidity position as it maintains a substantial share of highly-liquid assets on its balance sheet. The liquid assets stood at 5.7 times the amount of short-term liabilities. This, along with diversified funding sources, provides a comfortable cushion of liquidity in the short- and medium-terms.

EDB’s liabilities are moderately diversified in terms of funding sources (Herfindahl-Hirschman index at 34%). ACRA notes that EDB is reducing its dependence on bank loans in favor of debt securities; as of end-December 2019, bank loans amount to about 14% of total liabilities, while debt securities amount to just under 43%. In this assessment, ACRA notes the high percentage of RUB (42.4%) and KTZ (22.5%) denominated bonds issued by EDB, of which 18.3% mature within the next 12 months.

ACRA assesses support from shareholding sovereigns at A-. This assessment is based on the highest achievable level of support from key member states, i.e., A- from the Russian Federation and BBB+ from the Republic of Kazakhstan.

The level of support from the Russian Federation is determined by the combination of EDB’s high systemic importance for the Russian economy and the credit rating of the Russian Federation at A-, outlook Stable.

The level of support from the Republic of Kazakhstan is determined by the combination of EDB’s high systemic importance for the Kazakh economy and the credit rating of the Republic of Kazakhstan at BBB+, outlook Negative.

The score for assessment of support from shareholding sovereign does not cap the Standalone Credit Assessment score.

EDB’s credit rating is AAA(RU), outlook Stable, under the national scale for the Russian Federation as per the Methodology for Mapping Credit Ratings Assigned on ACRA’s International Scale to Credit Ratings Assigned on ACRA’s National Scale for the Russian Federation.

Key assumptions

  • Maintaining member-state structure and creditworthiness, as well as EDB’s systemic importance;
  • Maintaining the current strategy and business model within the 12 to 18-month horizon;
  • Maintaining paid-in capital levels within the 12 to 18-month horizon;
  • Maintaining a high level of funding diversification and short-term liquidity. 

Potential outlook or rating change factors under the international scale

The Stable outlook assumes that the rating will most likely stay unchanged within the 12 to 18-month horizon.

A positive rating action may be prompted by:

  • Increase in the creditworthiness of key member states while maintaining systemic importance for said member states.
  • A negative rating action may be prompted by:
  • Decrease in the creditworthiness of key member states;
  • Decrease in systemic importance for key member states;
  • Deterioration in capital adequacy;
  • Deterioration in liquidity and funding position. 

Potential outlook or rating change factors under the national scale for the Russian Federation

The Stable outlook assumes that the rating will most likely stay unchanged within the 12 to 18-month horizon.

A negative rating action may be prompted by:

  • Decrease in EDB’s credit rating under the international scale. 

Rating components under the international scale

SCA: a-.

Adjustments: none.

Support: on par with the average weighted creditworthiness of member states and EDB’s systemic importance for said states. 

Issue ratings

Eurasian Development Bank Exchange-traded bond Series 001Р-02 (RU000A0ZZRR6), maturity: May 7, 2021, issue volume: RUB 5 bln — АAA(RU).

Eurasian Development Bank Exchange-traded bond Series 001Р-03 (RU000A1004X4), maturity: March 9, 2021, issue volume: RUB 5 bln — АAA(RU).

Eurasian Development Bank Exchange-traded bond Series 001Р-04 (RU000A100JC1), maturity: January 10, 2023, issue volume: RUB 5 bln — АAA(RU).

Eurasian Development Bank Exchange-traded bond Series 001Р-05 (RU000A101574), maturity: June 9, 2023, issue volume: RUB 8 bln — АAA(RU).

Rationale. The credit ratings of bond issues series 001Р-02 (RU000A0ZZRR6), 001Р-03 (RU000A1004X4), 001Р-04 (RU000A100JC1), and 001Р-05 (RU000A101574) are in line with the credit rating of the Issuer.

The bonds listed above are senior unsecured debt instruments of EDB. Due to the absence of either structural or contractual subordination of the issues, ACRA ranks the bonds as equal to other existing and future unsecured and unsubordinated debt obligations of EDB.

Regulatory disclosure

The credit rating was assigned to Eurasian Development Bank under the international scale based on the Methodology for Assigning Credit Ratings on the International Scale to International Financial Institutions and Other Supranational Development Institutions. The credit ratings were assigned to Eurasian Development Bank and bonds issued by Eurasian Development Bank (RU000A0ZZRR6, RU000A1004X4, RU000A100JC1, RU000A101574) under the national scale for the Russian Federation based on Methodology for Mapping Credit Ratings Assigned on ACRA’s International Scale to Credit Ratings Assigned on ACRA’s National Scale for the Russian Federation and the Key Concepts Used by Analytical Credit Rating Agency within the Scope of Its Rating Activities. In the course of assigning credit ratings to the bond issues above, the Methodology for Assigning Credit Ratings to Individual Issues of Financial Instruments under the National Scale of the Russian Federation was also used.

Credit ratings under the international scale and the national scale for the Russian Federation for Eurasian Development Bank were published by ACRA for the first time on September 30, 2019. The credit ratings assigned under the national scale for the Russian Federation to bond issues series 001Р-02 (RU000A0ZZRR6), series 001Р-03 (RU000A1004X4), series 001Р-04 (RU000A100JC1), and series 001Р-05 (RU000A101574) were published by ACRA for the first time on November 8, 2018, March 11, 2019, July 16, 2019, and December 12, 2019, respectively. The credit rating and credit rating outlook for Eurasian Development Bank, and the credit ratings of the bond issues listed above are expected to be revised within 182 days following the publication date of this press release as per the Calendar of planned sovereign credit rating revisions and publications.

The credit ratings are based on the data provided by Eurasian Development Bank, information from publicly available sources, and ACRA’s own databases. The rating analysis was conducted using IFRS reporting of Eurasian Development Bank. The credit ratings are solicited, and Eurasian Development Bank participated in their assignment.

No material discrepancies between the provided information and the data officially disclosed by Eurasian Development Bank in its financial statements have been discovered.

ACRA provided additional services to Eurasian Development Bank. No conflicts of interest were discovered in the course of the credit rating assignment.

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