NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed Corporacion Andina de Fomento's (CAF) long-term Issuer Default Rating (IDR) at 'AA-'. The Rating Outlook is Stable. A full list of CAF's ratings follows at the end of this press release.
KEY RATING DRIVERS
The affirmation and Stable Outlook reflect the following key rating factors:
--CAF's solid financial profile and the privileges and immunities conferred on it by its member countries drive its ratings. However, the member countries' creditworthiness relative to higher rated multilateral development banks (MDB) as well as still relevant loan concentrations, weigh on the entity's IDRs.
--Sustained capital increases and adequate profitability also underpin CAF's leverage ratios. CAF's debt/equity ratio of 250% as of Sept. 30, 2013, compared favorably to sub-regional MDBs. CAF's usable capital/required capital ratio also was adequate at 2.4 times (x).
--Asset-quality metrics have been strong, with no non-performing loans (NPLs) in the private-sector portfolio almost every year since 2006. Loans to Argentina continue performing despite the sovereign's 'CC' rating. Additionally, since CAF's inception there have been no impaired loans in the public-sector loan portfolio.
--Due to CAF's regional orientation, loan concentration remains significant, although the five largest exposures as a proportion of equity have decreased as new country members joined, a trend Fitch expects to continue. Venezuela (long-term IDR of 'B+'), Ecuador (long-term IDR of 'B-') and Argentina (long-term IDR of 'CC') continued to be CAF's largest borrowers. Market risks are mitigated with hedges to all interest and foreign-exchange exposures.
--Historically, CAF's liquidity has been solid and the corporation has complied with its strict internal guidelines. Liquid assets (of which greater than 90% have been consistently rated above 'A-/F1' over time) accounted for 30% of total assets and covered 124% of short-term borrowings at end-September 2013.
--Despite its shareholders' lower sovereign ratings, support to expand lending has been strong as illustrated by the approval of additional capital increases totaling USD2.4 billion in 2011 and 2012. Annual paid-in capital contributions will average USD740 million to 2017. This could preserve or enhance CAF's robust capital ratios over the medium term depending on growth prospects. CAF's equity/assets ratio increased to 28.3% at end-September 2013 from 27.9% at year-end 2012. At 62%, CAF's paid-in capital/subscribed capital ratio is among the highest of Fitch-rated MDBs and will increase to 75% by 2017 under the current schedule of committed paid-in capital increases.
The Stable Outlook reflects Fitch's expectation of continued conservative risk management and strong capitalization, which should sustain CAF's stable financial performance and a risk profile.
However, the ratings triggers that could individually or collectively affect CAF's ratings are the following:
--Though not likely in the near term, CAF's ratings could benefit from a sustained reduction of loan concentrations, as well as material improvements in its borrowers' creditworthiness or in capitalization ratios.
--A stress situation in a member country that significantly affects asset quality or results in the invalidation of CAF's preferred creditor status or transfer and convertibility restrictions for private sector borrowers would be negative for creditworthiness.
--Additionally, a prolonged decline in capitalization related to asset losses, rapid operations growth or increased earnings volatility as well as a structural weakening of liquidity in the context of reduced capital market access could also be negative for CAF's ratings.
KEY ASSUMPTIONS AND SENSITIVITIES
The ratings and Outlook are sensitive to a number of assumptions as follows:
--Member countries, even if experiencing severe difficulties (such as Argentina, rated 'CC'), will continue to honor CAF's preferred creditor status and exempt its private sector borrowers from any measures that may impact the transfer and/or convertibility of their debt service payments, should any member country decide to default selectively to their creditors.
--Shareholder support will remain strong, with the expectation that paid-in capital contributions will continue to be received on time from CAF's member countries.
Fitch affirms CAF's ratings as follows:
--Long-term Issuer Default Rating (IDR) at 'AA-'; Outlook Stable;
--Short-term IDR at 'F1+';
--Senior unsecured debt at 'AA-';
--Commercial paper at 'F1+';
--Long-term National Rating in Venezuela at 'AAA(ven)'; Outlook Stable (The 'AAA(ven)' rating is equivalent to an 'A1' rating when using the mandatory rating scale required by the local Securities Exchange Commission.);
--Short-term National Rating in Venezuela at 'F1+(ven)';
--Long-term National Debt Rating in Mexico at 'AAA(mex)';
--Long-term National Debt Rating in Panama at 'AAA(pan)'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Rating Multilateral Development Banks' (May 23, 2012).
Applicable Criteria and Related Research:
Rating Multilateral Development Banks