Fitch Ratings has maintained the African Development Bank (AfDB)'s Long-Term Issuer Default Rating (IDR) at the highest level of 'AAA', with a Stable Outlook.The rating agency attributes AfDB's 'AAA' rating to the exceptional support it receives from its non-regional shareholders, which Fitch assesses as 'aaa'.

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“The shareholders’ ‘strong’ propensity to support the bank translates into a zero-notch adjustment to our assessment of the capacity to support (aaa). The rating is also supported by the bank’s Standalone Credit Profile (SCP), reflecting the lower of its assessments of ‘aa’ for solvency and ‘aaa’ for liquidity”, it explained.

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Fitch Ratings has placed the United States' 'AAA' Long-Term Issuer Default Rating (IDR) on Rating Watch Negative (RWN). The United States is the second-largest shareholder of the African Development Bank (AfDB), accounting for 6.3% of total capital and 38% of the callable capital rated 'AAA' as of the end of 2022.

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This rating action creates pressure on the coverage of net debt by 'AAA' rated callable capital, which is a crucial metric for assessing support according to Fitch's criteria. However, the coverage of net debt by 'AAA' rated callable capital improved from 189% at the end of 2021 to 217% at the end of 2022, reflecting new capital subscriptions resulting from the bank's seventh general capital increase (GCI).

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Fitch anticipates that the net debt of the bank will continue to be fully covered by callable capital from 'AAA' rated member states throughout the forecast period, even in the event of a downgrade of the United States' rating.

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This expectation assumes that AfDB will receive additional support from its remaining 'AAA' rated shareholders, as it did in 2021 when the Outlook on the US rating was Negative and other shareholders subscribed to temporary callable capital.Strengthening capitalisationIn 2022, AfDB’s capitalisation metrics markedly improved owing to capital payments under the seventh GCI plan.

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This contributed to the improved equity to assets (E/A) ratio of 26% at end-2022, up from 24% at end-2021.Fitch’s usable capital-to-risk-weighted assets (FRA) ratio also improved to 52% at end-2022 from 49% at end-2021.High Credit Risks Mitigated: The weighted average rating of loans and guarantees before any adjustments for preferred credit status (PCS) was estimated at ‘B+’ at end-2022, unchanged from the previous year.

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AfDB implemented a risk transfer mechanism (“Room2Run”) to cover UA1.5 billion of sovereign loans in 2022.The transaction is with Lloyd’s of London for UA300 million (on a first loss basis) and UK’s Foreign Commonwealth & Development Office for UA1.2 billion (second loss).

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