Rating action

Scope Ratings GmbH (Scope) has today affirmed the Council of Europe Development Bank’s (CEB) AAA long-term issuer and senior unsecured foreign-currency ratings and S-1+ short-term issuer rating in foreign-currency. All Outlooks are Stable.

The AAA/Stable rating of the CEB reflects its i) strong capital base strengthened by the recent completion of the 2022 capital increase and comfortable retained earnings, ii) excellent asset quality reflecting a low business risk profile, high average borrower quality, and the bank’s strong preferred creditor status, iii) very high liquidity buffers reflecting comprehensive risk indicators and accumulation of liquid assets, iv) growing strategic importance given the high demand for social investments throughout Europe, and v) highly rated shareholders.

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Rating rationale

The first driver of the CEB’s AAA rating is its very strong institutional profile.

The CEB benefits from the increasingly strategic role it plays for its 43 shareholder governments as well as from its excellent governance. The completion of the 2022 capital increase supports the bank’s ability to deliver on its Strategic Framework for 2023-27 given the growing demand for social investments throughout Europe.

The bank’s social mandate – unique among European supranational institutions – has served shareholders well in helping finance their responses to the Covid pandemic and Ukraine crisis. The Strategic Framework 2023-2027 emphasises social development and inclusion, refugees and migrants, as well as the reconstruction and rehabilitation of Ukraine’s social sectors¹. The CEB approved the formal adhesion of Ukraine in 2023 and more than EUR 300m in 2024 to support the country’s housing and health infrastructures. The CEB is expected to continue playing a critical role in Ukraine in line with the Council of Europe’s Revised Action Plan for 2023-27.

The CEB also plays an important role in European policymaking as reflected in its cooperation with the European Union(AAA/Stable). As an implementing partner of the InvestEU Programme over 2021-27, the bank manages a loan portfolio of EUR 400m, which is set to grow to EUR 500m and is partially covered by the European Commission’s InvestEU guarantee. The CEB has also a growing importance on the international stage by assuming for the first time the Chair of the Heads of MDBs Group in 2025. Since 2020, its activities are aligned with the United Nations’ 2030 Sustainable Development Goals².

The second factor underpinning the CEB’s AAA rating is its excellent financial profile.

In December 2024, the bank completed the capital increase approved in 2022 (EUR 4.2bn, of which EUR 1.2bn paid-in)³, easing the challenge of the bank operating close to full capacity per its risk appetite framework following the Covid and Ukraine crises. As a result, the actual capitalisation ratio increased significantly to 23.2% as of end-2024, up from 18.4% in 2023, while the headroom between the actual capitalisation and the capitalisation level assuming maximum leverage increased to 6.8pp as of end-2024, up from 1.2pp per end-2023. Relative to the CEB’s internal targets, the self-reported gearing ratio relative to capital declined from 2.54 in 2023 to 1.81 in 2024. This lower leverage ratio points to a better alignment of the bank’s subscribed capital with its Strategic Framework 2023-27.

The CEB’s capitalisation is further strengthened by its record of stable profitability, with the net result increasing by 14% in 2024 to EUR 124.3m, a record high since 2015, among which EUR 112.3m were allocated to general reserves. Adjusted net income stood at EUR 133.4m in 2024, driven by the increase in net interest income, resulting in a three-year weighted average return on equity of 3.0%.

The CEB’s financial profile is further supported by its excellent asset quality.

This reflects the bank’s low-risk business profile, underpinned by its focus on highly rated public sector borrowers, a moderate share of private sector exposure, very limited and well-mitigated climate risks, no equity exposures, and a relatively diversified portfolio across geographies, sectors and counterparties. The portfolio is more concentrated across sectors when compared with similar lenders, which reflects the bank’s exclusively social mandate. The top 10 country exposures amount to 68% of total outstanding loans.

The bank’s public sector exposure amounts to more than 82% of the loan book after credit enhancements, reflecting the bank’s mandate to lend mostly to sovereigns (52%) and public sector entities (30%). Investment-grade exposures, as reported by the bank, stood at 87% of total loans outstanding after credit enhancements. As a result, Scope’s assessment of the bank’s borrower quality is high, estimated at ‘a-‘ before credit enhancements (guarantees and collateral). The relatively stable operating environment reflects the fact that the cumulative exposure to Spain (A/Stable), Poland (A/Stable), France (AA-/Stable), Italy (BBB+/Stable), and Germany (AAA/Stable) accounts for 44% of total outstanding loans.

The exposures to non-investment grade sovereigns, among which Türkiye (BB-/Stable), Serbia (BB+/Positive) and Georgia (BB/Negative), are mitigated by the bank’s excellent risk management practices, strong preferred creditor status (PCS), and close coordination with other development partners. Credit risks related to Türkiye are mitigated by a steady declining share in total loans since 2019 (9.3%) to 6.3% in 2024. This exposure – which includes state owned banks – relates to the Turkish sovereign due to credit enhancement mechanisms and thus benefits from the bank’s strong PCS. Moreover, direct lending to Ukraine is exclusively channelled to the sovereign and the exposure remains modest at EUR 115.8m as of end-2024, or 0.5% of total loans.

Moreover, the CEB has also low exposure to climate related risks. For physical risks, out of the 20-country exposure, 52% of exposures are in countries assessed as having ‘low’ risks, 25% with ‘very low’ risks, and 15% in countries with ‘moderate’ risks. This translates into a low share of non-financial corporate exposures having ‘high’ physical risks of around 7%, which mostly relates to non-EU countries. For transition risks, the sectoral distribution of the portfolio indicates that the exposure to non-financial corporate having ‘high and unmitigated’ transition risks is negligible. The bank excludes high-risk sectors from its lending activities.

The CEB’s low climate risks are further mitigated by strong management and reporting practices⁴. The bank has strengthened its due diligence and internal risk assessment framework to align all its operations with the Paris Agreement since January 2024. The resilience of projects and counterparties against climate related risks are systematically assessed for sovereigns, and the bank is developing a similar approach for local and regional governments.

The CEB’s excellent financial profile is supported by its strong liquidity profile and excellent market access.

The bank’s liquid assets are estimated at EUR 13.0bn as of end-2024, while liabilities due within one year are estimated at EUR 9.2bn, including gross disbursements of EUR 3.0-3.5bn in 2025. This results in a three-year weighted average liquid asset ratio of 130% over 2022-24, implying that the bank can continue to meet all its outstanding liabilities and commitments due within a year without accessing debt capital markets. This ratio is favourable, even compared with similar development banks. The CEB also maintains liquidity ratios significantly above its internal limits.

Finally, the CEB’s financial profile is supported by its strong market access given its frequent and benchmark issuer status and diversified funding strategy, in terms of currencies and instruments, which enable the bank to fund its operations under favourable conditions. Funding activities combine the issuance of large liquid benchmarks in US dollars and euros, alongside Social Inclusion Bond (SIB) for which the bank has been a leading issuer, with more than EUR 10bn issued since 2017⁵. This includes EUR 2.8bn in 2024, or more than 40% of its annual programme of EUR 6.2bn. The funding volume has increased in recent years but remains moderate relative to peers. The CEB has a borrowing authorisation of up to EUR 7.5bn for 2025.

The third driver of the CEB’s AAA rating is its very high level of shareholder support.

In line with its governance, the CEB’s key shareholders comprise the largest European economies – Germany (AAA/Stable), France (AA-/Stable), Italy (BBB+/Stable), Spain (A/Stable), the Netherlands (AAA/Stable), Belgium (AA-/Negative) and Greece (BBB/Stable) – and Türkiye (BB-/Stable). Their weighted average rating of A+ drives Scope’s very high assessment of shareholder support. This assessment is further driven by the strong legal basis for significant and timely shareholder support, if ever needed, a consistent track record of capital increases and the absence of any capital call to date or a withdrawal of subscribed capital, demonstrating the long-term commitment from its members.

Despite these credit strengths, the CEB faces the following credit challenge:

Despite the capital increase and the resulting decline in the leverage ratio, the CEB’s leverage remains high while its lending headroom remains lower compared to peers. Assuming continued lending growth of around 5-6% over the coming years – in line with the average over the past decade – the CEB’s additional lending headroom relative to its statutory limit should decline to around 3-4pp by 2027. This assessment is supported by the stock of approved projects to be financed (EUR 9.2bn as of end-2024) and the growing demand for social investment projects.

At the same time, Scope acknowledges that the bank’s prudential framework ensures its strong capital adequacy. The bank’s reported capital adequacy ratio, which measures its prudential equity (paid-in capital, reserves and net profit) versus risk-weighted assets, stood at 29.3% at end-2024. This is significantly above the internal floor of 10.5% and above the CEB’s comfort zone of over 25%, which is intended to ensure a sufficient buffer. In addition, the bank set the prudential framework floor for the leverage ratio (i.e. prudential equity as a share of the value of all exposures, including off-balance sheet items) at 7%, for a leverage at 10.4% as of end-2024.

Rating-change drivers

The Stable Outlook represents Scope’s view that risks to the ratings over the next 12 to 18 months are balanced.

Downside scenarios for the ratings and Outlooks are (individually or collectively):

1. recorded sustained losses, leading to a marked deterioration in the capital base;
    
2. significant reduction in liquidity buffers.

Factoring of environment, social and governance (ESG)

Scope considers ESG sustainability issues during the rating process as reflected in its supranational methodology. ESG factors are explicitly captured in Scope’s assessment of the institutional profile, which Scope assesses as ‘very strong’ for the CEB.

Supranational scorecard

Scope’s supranational scorecard, which is based on clearly defined quantitative parameters, provides an indicative AAA rating for the CEB. Additional considerations allow Scope to incorporate idiosyncratic characteristics that cannot be assessed in a consistent and comprehensive manner across all supranationals, but which may still affect an issuer’s creditworthiness. For the CEB, no additional considerations have been identified.

A rating committee has discussed and confirmed these results.

For further details, please see the Rating Report.

Rating Committee
The main points discussed by the rating committee were: i) institutional profile; ii) financial profile, including asset quality, liquidity and funding; iii) member state support; iv) additional considerations; and v) consideration of peers.

Rating driver references
1. CEB, Report of the Governor 2024
2. CEB, Sustainability Report 2024
3. CEB, Financial Report 2024
4. CEB, TCFD Report 2023
5. CEB, Social Inclusion Bond Report 2024

Methodology
The methodology used for these Credit Ratings and/or Outlooks, (Supranational Rating Methodology, 23 May 2025), is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://scoperatings.com/governance-and-policies/regulatory/eu-regulation. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The Outlook indicates the most likely direction of the Credit Ratings if the Credit Ratings were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The Credit Ratings were not requested by the Rated Entity or its Related Third Parties. The Credit Rating process was conducted:
With Rated Entity or Related Third Party participation       NO
With access to internal documents                                    NO
With access to management                                             NO
The following substantially material sources of information were used to prepare the Credit Ratings: public domain.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting these Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and/or Outlooks and the principal grounds on which the Credit Ratings and/or Outlooks are based. Following that review, the Credit Ratings and/or Outlooks were not amended before being issued.

Regulatory disclosures
These Credit Ratings and/or Outlooks are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and/or Outlooks are UK-endorsed.
Lead analyst: Thomas Gillet, Director
Person responsible for approval of the Credit Ratings: Alvise Lennkh-Yunus, Managing Director
The Credit Ratings/Outlooks were first released by Scope Ratings on 2 October 2020. The Credit Ratings/Outlooks were last updated on 12 April 2024.

Potential conflicts
See www.scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings, as well as a list of Ancillary Services and certain non-Credit Rating Agency services provided to Rated Entities and/or Related Third Parties.

Conditions of use / exclusion of liability
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