July 27, 2020: Moody's Investors Service says in a new report that Asian Development Bank's (ADB, Aaa stable) prudent financial management, including its effective risk-management framework, will support the bank's asset performance amid increased risk of a deterioration in borrower quality as a result of the coronavirus pandemic.
“Additionally, ADB's financial strengths will enable it to finance countercyclical spending for borrowing countries in response to the pandemic and prudently increase its lending activities,” says Michael Higgins, a Moody's Analyst.
ADB's credit profile reflects the bank's ample capital adequacy and robust asset performance, supported by its preferred creditor status. It has very strong access to funding markets and sufficiently large liquidity buffers that assure the prompt repayment of its growing financial obligations from the ongoing expansion of its development activities. ADB also benefits from a large buffer of callable capital and a very strong willingness and ability of its global members to provide extraordinary support.
ADB's stable development asset credit quality reflects the balance of credit trends among several of its largest borrowers, including China (A1 stable), Indonesia (Baa2 stable), India (Baa3 negative) and Pakistan (B3 review for downgrade). Nevertheless, ADB's weighted-average borrower rating remains unchanged over the last few years, as larger, more stable exposures have offset riskier exposures to smaller, lower-rated countries.
Moody's also expects Asia Pacific countries to experience a faster economic recovery following the coronavirus outbreak than other regions represented by other large, regional multilateral development banks, such as Latin America and Sub-Saharan Africa, which generally have more concentrated drivers of economic growth.
ADB's credit challenges stem from (1) a concentrated loan portfolio, especially among its top 10 borrowers, which exposes the bank to the effects of a severe and prolonged deterioration in borrower credit quality; and (2) its increased exposure to riskier borrowers following its recently enlarged mandate, encompassing concessional lending.