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Moody’s Investors Service has affirmed the East African Development Bank’s (EADB) Baa3 long-term issuer rating and maintained a stable outlook.
The rating affirmation is based on EADB’s strong capital position, counterbalanced by low development asset credit quality and a legacy of high non-performing assets (NPAs).
The stable outlook considers both upside and downside risks. Despite challenges in the operating environment and a concentrated portfolio, potential capital erosion is mitigated by the bank’s low leverage ratio and cautious approach to new lending.
Moody’s expects the bank to continue developing its risk management framework while maintaining robust capital adequacy and prudent liquidity levels.
Strong Capital Position Mitigates Low Asset Quality
EADB’s leverage ratio was 102% in 2022, down from 126% in 2017. This decline is attributed to limited growth in development assets, ongoing capital subscriptions by shareholders, and modest contributions from retained earnings.
The bank’s strong capital position acts as a key mitigant for its low development asset credit quality.
Liquidity Supported by Prudent Liquid Asset Levels
EADB’s liquidity is supported by prudent liquid asset levels and long-dated borrowings. However, funding remains drawn from a small investor base, which Moody’s assesses as relatively weak compared to peers with larger and more diversified investor bases.
Shareholders’ Limited Ability to Provide Support
Moody’s considers the ability of EADB’s shareholders to support the bank to be limited due to their low “B2” weighted average shareholder rating.
EADB has a large cushion of callable capital, but past delays in payment of capital contributions suggest limited capacity and willingness to support.
Rationale for the Stable Outlook
The stable outlook reflects a balance of risks. Although loan portfolio growth is expected to accelerate under a new medium-term strategic plan, leverage will remain relatively low as the bank continues to proceed prudently toward new loan disbursements.
Moody’s assumes that the bank will maintain robust capital adequacy and prudent liquidity levels while continuing to develop its risk management framework.
