Scope has completed a monitoring review for the Council of Europe Development Bank
Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the case of sovereigns, sub-sovereigns and supranational organisations.
Scope performs monitoring reviews to determine whether material changes and/or changes in macroeconomic or financial market conditions could have an impact on the credit ratings. Scope considers all available and relevant information when undertaking the monitoring review.
Monitoring reviews are conducted by performing a peer comparison, benchmarking against the rating-change drivers, and/or reviewing the credit ratings’ performance over time, as deemed appropriate by the Lead Analyst or Analytical Team Head, in addition to an assessment of all aspects of the relevant methodology/ies, including key rating assumptions and model(s). Scope publicly announces the completion of each monitoring review on its website.
Scope completed the monitoring review for the Council of Europe Development Bank (long-term foreign-currency issuer and senior unsecured debt ratings: AAA/Stable; short-term foreign-currency ratings: S-1+/Stable) on 22 November 2022.
This monitoring note does not constitute a credit rating action, nor does it indicate the likelihood that Scope will conduct a credit rating action in the short term. Information about the latest credit rating action connected with this monitoring note along with the associated rating history can be found on www.scoperatings.com
Key rating factors
The Council of Europe Development Bank’s (CEB) AAA rating reflects the supranational’s ‘excellent’ intrinsic strength and ‘very high’ shareholder support. The CEB’s institutional profile benefits from an increasing strategic role for its shareholder governments and excellent governance. Its social mandate has been strengthened in the context of the 2015 refugee crisis, Covid-19 pandemic, and Russia’s war in Ukraine, underscoring the bank’s unique role among other European supranational institutions.
The CEB’s financial profile benefits from excellent asset quality with no non-performing loans (NPLs) and high average borrower quality due to its focus on the public sector, predominantly in Europe. It also benefits from preferred creditor status (PCS) for its sovereign exposures and growing geographical diversification towards Central and Eastern Europe. The CEB’s liquidity profile is exceptionally strong. The bank’s funding profile benefits from strong market access, especially for social inclusion bond issuance. Despite a modest decrease in net profitability over the first half of 2022 because of worsening macroeconomic conditions and higher provisioning for credit risk, the bank continues to strengthen its capital base. The CEB’s unaudited financial results as of end-June 2022 confirm a solid financial performance with a net profit of EUR 48.2m, zero NPLs, and higher lending operations focused on aid to refugees and displaced persons from Ukraine as well as environmentally friendly investment with high social impact. In July 2022, the CEB governing bodies agreed on Ukraine’s accession as the 43rd member state, which will become eligible for direct funding. The upcoming Strategic Plan 2023-2027 will clarify future activities of the bank, including in Ukraine, and potential implications on financial resources. The key rating challenge is the CEB’s high leverage.
Finally, the CEB benefits from highly rated leading shareholders. Governments of Europe’s largest economies – Germany (AAA/Stable), France (AA/Stable), Italy (BBB+/Stable), Spain (A-/Stable), the Netherlands (AAA/Stable), Belgium (AA-/Stable) and Greece (BB+/Stable) – together with Turkey (B-/Negative) make up the CEB’s principal shareholders, with a weighted-average credit rating of A. This determines Scope’s assessment of strong shareholder support for the bank. However, at 13%, coverage of outstanding mandated assets by high-quality callable capital is moderate compared with similar institutions and has continuously declined over the past decade.
The Stable Outlook reflects Scope’s assessment of the CEB’s financial buffers against external and balance sheet-driven shocks. The rating could be downgraded if: i) the CEB records sustained losses leading to a marked deterioration of the capital base; ii) its liquidity buffers are significantly reduced; and/or iii) main shareholders are downgraded.
For the updated Annex accompanying this review, click here.
The methodology applicable for the reviewed rating(s) and/or rating Outlook(s) (Supranational Rating Methedology, 11 August 2022) is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst: Thomas Gillet, Associate Director
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