Indians might have been dismayed at Asian Development Bank's compulsion for not increasing lending to India, the very same prudent financial policies have resulted the multi-lateral agency to retain its highest rating from Moody's Investors Services.
In its credit analysis released today, Moody's today retained the highest 'Aaa' rating on the bank. Also, it maintained short-term rating at the highest level -- P-1.
Besides, the rating agency retained outlook on these ratings at 'stable'.
Moody's attributed these ratings to prudent financial policies of the bank as evidenced by the bank’s track record of staying within its lending and borrowing limits. Besides, the bank gets demonstrated strong support from shareholders, reinforced by the conclusion in 2012 of the bank’s fifth general capital increase exercise.
ADB's established “preferred creditor status,” which ensures that sovereign debt owed to ADB is excluded from any restructuring of any other sovereign obligations, as well as the imposition of capital account controls was also cited by Moody's for retaining the hghest rating.
These factors ensure strong capital adequacy and substantial protection against a worst-case– though highly unlikely– scenario of several of the bank’s large borrowers entering non-accrual status at the same time, Moody's said.
Nonetheless, were such a dire scenario to play out, the bank’s bondholders would still be protected by the large amounts of callable capital available to ADB, especially in the wake of the fifth general capital increase, which resulted in a more than two-fold increase in callable capital.
However, the rating agency said net income of the bank has declined over the past year largely due to unrealized losses from fair value adjustments of swaps related to the bank’s borrowings, although operating income continues to be in surplus.
The resulting decrease in profitability as represented by the return on earning assets does not pose a risk to usable equity given the recent increases in paid-in capital, Moody's said.
Yesterday, ADB president Takehiko Nakao had said the bank would like to continue to lend at high levels to India, but there are challenges to maintain these levels of lending. As ADB's income from investments of surplus resources is mostly lent to European countries, the return on investment is lower than expected, owing to low interest rates.
