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 ‘BB-’ from ‘B+’ with the outlook maintained ‘Stable’. The short-term FCR has been affirmed at ‘B’. The rating action follows the recent upgrade of the Islamic Republic of Iran’s sovereign Long-Term FCR to ‘BB-’ from ‘B+’, according to CPI Financial.net
The bank’s Financial Strength Rating (FSR) was maintained at ‘BB-‘, also with a ‘Stable’ Outlook. Despite its role as a policy bank, EDBI’s Support Rating is affirmed at ‘4’ which at the current level implies only a moderate degree of support for EDBI by the Iranian government.
The upgrade of the Long-Term FCR reflects the recent announcement made by the US government and the European Union on January 17, 2016, to lift all nuclear-related economic and financial sanctions against Iran (although non-nuclear sanctions imposed by the US remain in place), under the agreement reached between Iran and the six world powers on July 14, 2015 concerning Iran’s nuclear activities.
The bank’s FSR of ‘BB-’ reflects its strong capital adequacy, its privileged access to low cost funding due to its official policy role, a well managed cost base and the improved financing-loss reserve cover for non-performing financings (NPFs) in the previous fiscal year. Although NPFs declined in the same period, they remain at a comparatively high level measured against gross financing. Contingent impairments and un-provided NPFs are expected to remain important caveats regarding capital.
Although conventional liquidity ratios are sound, the high level of contingent commitments weigh on the FSR as these could tighten both liquidity, as well as capital ratios if drawn before new funding from official sources is made. CI expects that operating conditions will remain difficult until the partial lifting of sanctions on Iran has begun to have a tangible effect on the economy, and this will therefore continue to constrain the bank’s FSR for some time.
