Fitch Ratings has reaffirmed the Asian Infrastructure Investment Bank's (AIIB) Long-Term Issuer Default Rating (IDR) at 'AAA' with a stable outlook. This rating is based on AIIB's Standalone Credit Profile (SCP), which Fitch's long-term projections support. The 'aaa' SCP results from AIIB's strong solvency and liquidity assessments, adjusted due to a 'medium risk' business environment. AIIB's strong solvency is backed by its excellent capitalization and low-risk profile. Shareholder support does not further enhance the bank's SCP.
AIIB's excellent capitalization is expected to keep its key capital ratios above critical thresholds. The bank's equity-to-assets (E/A) and usable capital-to-risk-weighted assets (FRA) ratios will remain above 25% and 35%, respectively, over the forecast period. Although these metrics have been high, they have slightly decreased as the bank expands. In 2023, increased loan growth raised leverage, lowering the E/A ratio to 40% from 45% and the FRA ratio to 99% from 114%.
The weighted average rating of loans and guarantees (WARLG) has improved to 'BB+' from 'BB', driven by increased exposure to highly-rated entities and upgrades of major borrowers like Turkey and Pakistan. Non-performing loans are low, at just 0.4% of total loans. AIIB's strong preferred creditor status (PCS) has supported its loan performance, especially from financially stressed countries like Sri Lanka. This strong PCS enhances the WARLG rating to 'BBB'. The loan portfolio's credit quality would withstand a one-notch downgrade of entities with ratings on Negative Outlook (6.5% of total loans).
AIIB's liquidity is very strong, supported by ample liquidity, high credit quality of treasury assets, and a strong presence in global capital markets. Fitch expects the bank's liquidity buffers to remain well above the 150% threshold over the forecast period. The share of treasury assets rated 'AA-' and above rose to 71% at the end of 2023 from 63% in 2022. This is expected to stay below 70% over the medium term, consistent with a strong assessment. AIIB's excellent access to capital markets further boosts liquidity.
Fitch considers AIIB's business environment to be of medium risk. The bank's balance sheet has overgrown in response to the COVID-19 crisis, but its strategy and business profile benefit from high capital and liquidity buffers. However, rising geopolitical tensions that strain shareholder relations could be a risk. This was shown last year when Canada suspended its involvement pending an investigation into China's role in the bank's governance. No significant developments have occurred since then.
Fitch assesses AIIB's shareholder support as strong, with a capacity and propensity to support rated 'a+'. The support capacity reflects expectations that net debt will be covered by callable capital rated 'A+' and above over the medium term. The shareholders' strong propensity to support results in no adjustment to the support capacity assessment. The high ratio of paid-in to subscribed capital (20%) underscores the strong commitment of shareholders.
The Asian Infrastructure Investment Bank (AIIB) has 109 approved members worldwide. Among the Central Asian countries, the Bank's members include Uzbekistan, Tajikistan, Kyrgyzstan, and Kazakhstan.
Follow Daryo's official Instagram and Twitter pages to keep current on world news.
Comments (0)