EIB maintains sound financial practices, says Moody’s

The European Investment Bank's (EIB) Aaa/P-1/stable ratings reflect its intrinsic financial strength, as evidenced by its sound governance, its strong capital adequacy, the high quality of its assets and investments, its ample liquidity and its prudent risk management policies, Moody's Investors Service said in its new sovereign credit analysis on EIB. Its ratings are further enhanced by the support from its highly-rated shareholders and its preferred creditor status.
"Although EIB is policy-driven rather than profit-maximising, the bank consistently generates profits and has never recorded an operating loss," said Alexander Kockerbeck, a Vice President-Senior Credit Officer in Moody's Sovereign Risk Group. "Indeed, despite the global financial turmoil that occurred in H2 2008, 2008 profits remained stable as compared to 2007, growing by 1% to reach EUR 1.65 bln." This consistent profitability has enabled the EIB to build up a high level of reserves — over EUR 26.3 bln as of 31 December 2008.
Moody's recongises that EIB maintains sound financial practices consistent with those of other Aaa-rated MDBs: it retains careful project selection and monitoring, as well as conservative policies regarding asset/liability management, credit risk management, and liquidity and borrowing controls. It has also strengthened its credit risk monitoring in recent years and is cautious to minimise exposure to interest rate and currency fluctuation and maturity mismatches.
Moody's also notes that EIB's strong capital adequacy is a reflection of solid support by high-rated members and only modest concerns about asset quality. In fact, non-performing loans accounted for less than one-tenth of one percent of total loans at the end of 2008, and the bank's loan book carries a weighted average rating of "A", roughly mapped to Moody's global ratings scale. Additionally, the vast majority of loans are in investment-grade-rated countries; only around EUR 15 bln or 5.1% of the bank's disbursed loans outstanding apply to projects in below-investment-grade countries.
"Furthermore, EIB's significance as a provider of long-term investment capital to member sovereigns as well as private sector banks and companies domiciled within the EU has increased significantly due to the global economic crisis and the severe credit contraction that precededit," said Kockerbeck.
EIB was made an eligible counterparty in the Eurosystem's monetary policy operations as of 8 July 2009, enabling the bank to take part in the system's main refinancing operations. As a result, EIB now has access to central bank liquidity through the European Central Bank's marginal lending facility. Under this arrangement, the risk that the bank will ever face a liquidity constraint is extremely remote.