Fitch Ratings says the Caribbean Development Bank’s (CDB) decision to send its president on administrative leave has not impacted the high “AA+” rating of the bank, labelling the action as a show of “good governance”.
The Barbados-based CDB had its ‘AA+’ rating reaffirmed by Fitch Ratings and it was also assigned a stable outlook by the New York headquartered international rating agency.
In its just issued report on the CDB, Fitch said its judgement of the bank’s performance was underpinned by liquidity and solvency assessments of ‘aaa’ and ‘aa+’ respectively.
The agency stressed that the action taken by the CDB’s board directors to send president Dr Hyginus Gene Leon on administrative leave, was unlikely to have an impact on the bank’s rating.
“Dr. Hyginus Leon, president of CDB appointed in 2021, has been placed on ‘administrative leave’ from 15 January to 14 April 2024 pending the outcome of an on-going independent, internal administrative process. In Fitch’s view, the ongoing administrative process is consistent with the bank’s high governance standards and the agency does not anticipate there to be any rating impact,” the Fitch stated.
Regarding the latest rating, Fitch described the CDB as having “excellent capitalisation” and “resilient loan performance”.
The agency outlined that CDB’s solvency assessment was supported by its excellent capitalisation, adding that as at the end of September 2023, the bank’s equity/adjusted assets and guarantees ratio was 45 per cent.
This it noted was “comfortably above the 25 per cent threshold for an excellent assessment”. The agency also pointed to CDB’s capital/risk-weighted assets ratio, which was 65 per cent, also well above the 35 per cent threshold for an excellent assessment.
According to Fitch: “The performance of CDB’s loan portfolio continues to exceed our previous expectations during the pandemic, with no new non-performing loans (NPLs) incurred since it started.
“The bank’s overall NPL ratio is ‘very low’ (defined as less than 1 per cent), with no sovereign arrears and only one non-sovereign NPL, accounting for 0.1 per cent of loans at end-September 2023.”
Speaking to the impact of Barbados as the bank’s domicile, Fitch said it projects CDB’s “weighted average rating of loans (ARL) to improve from ‘B-‘ at end-September 2023 to ‘B’ over the medium-term forecast through to 2026”.
The agency noted that the principal driver for this improvement from ‘B-‘ to ‘B’ was the revision of the outlook on Barbados to positive last October, “as the agency assumes a one-notch upgrade of the rating of any entity on Positive Outlook through its forecast period”.
At the same time, Fitch said there were some risks that could lead to a negative rating for the CDB. These include sovereign arrears leading to higher NPLs.
It added: “Increased concentration risk, driven by a rise in the share of existing exposures and/or increased exposure to sovereigns in financial distress, would be negative for the rating.”
(IMC1)
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