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Wednesday 31 March 2021

S&P Affirms EDB’s Ratings with a Negative Outlook

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  2 forum posts

MOSCOW (S&P Global Ratings) – S&P has affirmed the Eurasian Development Bank’s (EDB) long-term and short-term issuer credit ratings at BBB/A-2. The outlook on the ratings remains negative.

Although EDB’s loan portfolio growth has slowed significantly, analysts note continued pressure on its capitalisation, driven by the impact of future major projects and portfolio concentration.

In the past years, EDB’s loan growth has been spiking and some of the projects implemented by the bank in the past have been of significant size, while higher portfolio concentration has led to a lower capital adequacy ratio. S&P analysts understand that the lower pace of EDB’s lending in 2020 was related to the difficult macroeconomic situation during the pandemic, but they believe that the bank’s management deliberately restrained this growth to reduce pressure on capital.

At the same time, S&P believe that pressures associated with the volatility in growth rates observed in previous years persist and could lead to a reduction in the capital adequacy ratio if lending growth resumes amid economic recovery from the pandemic.

S&P specified that the risk-adjusted capital adequacy ratio calculated by the agency was reduced for the bank from 27.8% as at 30 June 2018 to 18.2% at the end of 2019, with the capital adequacy ratio at the end of 2020, adjusted to international credit institutions, at 18.5%.

Among other things, the rating agency’s announcement notes that the proportion of credit extended to one of the largest borrowers in 2020 is almost 14% of the bank’s balance sheet. Borrowers from Russia, Kazakhstan and Belarus together account for about 97% of loans as of March 2021. Analysts believe that continued high loan portfolio growth may weaken the bank’s capitalisation, especially if the geographical concentration of the portfolio and its concentration on individual borrowers persists.

  Forum posts

  • The EDB lacks the clout of large development banks such as the ADB or EBRD.

  • The EDB is an instrument of Russian domination, like other development banks (ADB for Japan, EBRD for the EU, AIIB for China...). The weak point of the Russians (one of their weak points) is finance. The ruble is a weak currency. Russia is still "under-capitalistic ". Large companies are still controlled by the government.

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