Capital Intelligence (CI), the international credit rating agency, has upgraded the long-term Foreign Currency Rating (FCR) of Export Development Bank of Iran (EDBI) to ‘B+’ from ‘B’, with the outlook reverting to ‘Stable’ from ‘Positive’.
At the same time, the short-term FCR has been affirmed at ‘B’. The rating action follows the recent (October 30) upgrade of Iran’s Sovereign long-term FCR to ‘B+’ on ‘Stable’ Outlook (from ‘B’ on ‘Positive’ Outlook). The long-term FCR of EDBI had been placed on ‘Positive’ outlook in July 2015, in line with the Sovereign FCR, following the nuclear agreement between Iran and the P5+1 group of six world powers on July14.
EDBI’s long and short-term FCRs remain constrained by Iran’s Sovereign FCRs. Despite its role as a policy bank, EDBI’s support rating is affirmed at ‘4’ which at the current level of sovereign ratings still only implies a moderate level of support by the Iranian government.
At the same time, CI has reaffirmed EDBI’s Financial Strength Rating (FSR) of ‘BB-’ on ‘Stable’ Outlook, reflecting the Bank’s strong capital adequacy, its privileged access to low cost funding due to its official policy role, its well managed cost base, and improved asset quality metrics.
Contingent impairments and un-provided non-performing financing remain important caveats regarding capital. The limitation as to asset quality is that the underlying credit risk on buyer credits (which are now not being insured as a general rule) may well lead to weaker asset quality (and therefore a higher risk profile for the bank).
Despite the recent agreement between Iran and the six world powers (five permanent members of the UN Security Council plus Germany), CI expects that the operating environment will remain very difficult until significant easing of sanctions has taken place, and will therefore continue to constrain the FSR for some time. Although conventional liquidity ratios are sound, the amount of usable liquid assets remains low. Concurrently, the high level of contingent commitments also constrains the FSR as they could tighten both liquidity, as well as capital ratios, if drawn before new funding from official sources is made available. High borrower concentration remains a feature of the Bank’s financing portfolio and also constrains the FSR.
Headquartered in Tehran, the EDBI had total assets of 154 trillion rials ($5.8 billion) and equity of 42 trillion rials ($1.6 billion) as at end of September 2014.
