Scope Ratings reviews its ratings either yearly, or every six months in the case of sovereigns, sub-sovereigns and supranational organisations. Scope performs monitoring reviews to determine whether outstanding ratings remains proportionate. Monitoring reviews are conducted either by performing a portfolio review in terms of the applicable methodology/ies, latest developments, and the rated entity’s financial and operational aspects relative to similarly rated peers; or through targeted reviews on an individual credit. Scope publicly announces the completion of each monitoring review on its website.

Scope completed the monitoring review for the European Bank for Reconstruction and Development (AAA/Stable; S-1+/Stable) on 16 June 2021. This monitoring note does not constitute a rating action nor indicates the likelihood of a credit rating action in the short term. The latest information on the credit ratings in this monitoring note along with the associated rating history can be found on www.scoperatings.com.

Key rating factors

The European Bank for Reconstruction and Development’s (EBRD) AAA/Stable rating reflects the supranational’s highly rated key shareholders – the Bank benefits from a unique global distribution of shareholders with the G-7 countries accounting for more than 50% of the institution’s share capital – its high capital endowment, very strong liquidity position and excellent capital markets access. These strengths provide a comfortable basis for the EBRD to fulfil its mandate in fostering the transition of mainly Central and Eastern European countries towards open market-oriented countries. Credit challenges mainly relate to the bank’s relatively weak asset quality, which is driven in part by its substantial exposures to 'high risk' countries including Turkey (B/Negative), which constitute about 16% of outstanding loans. Still, in Scope’s opinion, the adverse developments from the COVID-19 pandemic, which have increased the NPL ratio to above 5%, are likely to be transitory and are in any case well provisioned for at about 50%. Finally, while the EBRD’s meaningful equity investments result in a relatively high earning volatility, the bank’s underlying ability to generate and retain profits, increasing its capital position, was again confirmed in 2020.

The Stable Outlook reflects Scope’s assessment of the EBRD’s significant financial buffers to withstand external and balance-sheet-driven shocks. The rating could be downgraded if: i) highly rated key shareholders are downgraded; ii) liquidity buffers were significantly reduced; and/or iii) the EBRD recorded sustained losses via missed repayments from borrowers, resulting in a lower capital base and its preferred creditor status being effectively repealed.

The methodology applicable for the reviewed ratings and/or rating Outlooks (Rating Methodology: Supranational Entities, 11 November 2020) is available on https://www.scoperatings.com/#!methodology/list.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst Alvise Lennkh, Executive Director

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