Inter-American Development Bank — Moody’s affirms the Inter-American Development Bank’s Aaa rating; maintains stable outlook

Rating Action: Moody’s affirms the Inter-American Development Bank’s Aaa rating; maintains stable outlookGlobal Credit Research – 26 Mar 2021New York, March 26, 2021 — Moody’s Investors Service, (“Moody’s”) has today affirmed the Inter-American Development Bank’s (IADB) Aaa long-term and P-1 short-term issuer ratings, and maintained the stable outlook.Moody’s also affirmed IADB’s Aaa senior unsecured ratings, as well as the senior unsecured MTN (P)Aaa and other short-term (P)P-1 ratings.The affirmation of the ratings at Aaa reflects the IADB’s ability to maintain strong capital adequacy and liquidity metrics through the coronavirus pandemic and the crucial role that its policies play in allowing the IADB to build buffers to ensure it has the capacity to support the Latin America and Caribbean region with higher lending to sovereigns in times of stress.The stable outlook reflects Moody’s expectation that the IADB will maintain its robust intrinsic financial strength as well as the strong support from its shareholders over the coming years.RATINGS RATIONALERATIONALE FOR AFFIRMATION OF Aaa RATINGA robust intrinsic financial strength, reflected in strong capital adequacy and liquidity metrics, remains a key support of the IADB’s Aaa rating. Moreover, the enhancements that have been implemented over the past several years to the IADB’s capital adequacy, liquidity and risk policies have allowed the bank to build buffers to back the Latin America and Caribbean region through countercyclical lending. In Moody’s view, the pandemic presented an important test for these policies and IADB’s metrics continue to demonstrate its very high financial strength.The IADB’s response to the pandemic involved primarily a redeployment of the existing envelope of planned lending for 2020 and a more rapid execution of undisbursed balances. Gross disbursements last year reached $14.8 billion — with a direct response of $7.9 billion — the bank’s largest disbursements package since the global financial crisis. Net disbursements in 2020 reached $7.9 billion, more than double the 2019 amount and higher than in 2009 ($6.9 billion).The IADB’s support measures led to a higher leverage ratio (which assesses the coverage provided by its equity relative to its development-related assets (DRA)) of 314% in 2020 from 284% in 2019 — just above the 2012-20 average of 305%. Although the IADB’s capital policies would allow the debt-to-equity ratio to rise up to 400% (with a maximum target of 380% for financial planning purposes), Moody’s expects this ratio to remain broadly stable over the coming years. The IADB has managed to maintain a close relationship between its loan portfolio growth and the increase in its equity related to its retained earnings, and the ratings agency expects this practice to remain in place. This will continue to position IADB’s leverage with the median for Aaa-rated peers and at a lower level than those seen for large peers such as the International Bank for Reconstruction and Development (IBRD or World Bank, Aaa stable) or the European Investment Bank (EIB, Aaa stable), for which leverage exceeds 500%.Asset performance is also strong for the IADB, despite challenges stemming from its exposure to the government of Venezuela (C stable). The IADB placed Venezuela in nonaccrual status in May 2018 as the sovereign had missed payments on its loans for over 180 days. As of year-end 2020, $533 million had been overdue over 90 days out of a total exposure of $2,011 million. Moody’s considers Venezuela’s nonaccrual status to be a very unique occurrence that does not detract from the preferred creditor status that all other borrowing sovereign members assign to the IADB. Even though large borrowers such as Argentina (Ca stable) and Ecuador (Caa3 stable) faced significant financial challenges last year, these governments remain current with the IADB. Considering Venezuela’s non-performing assets (NPA) and the non-performing loans from private sector exposures, the NPA ratio was 0.6% of total DRAs. This is in line with the Aaa median.Moody’s also considers IADB’s liquidity to be very strong. The IADB’s liquidity portfolio provides high coverage of its net outflows, and even in a stress case in which the bank would be unable to access financial markets these liquid assets would cover about 18 months of net cashflows. That said, the IADB’s market access is very strong as denoted by its favorable borrowing costs and the diversity of its investor base.RATIONALE FOR STABLE OUTLOOKThe outlook on the rating is stable, reflecting Moody’s expectation that the IADB will maintain its robust financial metrics over the coming years by continuing to adhere to its capital and liquidity risk policies. Additionally, Moody’s considers that the bank’s shareholders will continue to support the IADB’s role as a promoter of economic and social development in Latin America and the Caribbean, and that its borrowing members will continue to grant the IADB with preferred creditor status.ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONSEnvironmental considerations are not material for IADB’s rating. However, Moody’s notes that as part of its mission, the IADB has committed to increase its lending for projects that look to address or mitigate climate change risks in Latin America, with the bank’s governors having approved a target of 30% of the bank’s projects to include a climate change component.Social considerations are not material for IADB’s rating. While Moody’s regards the coronavirus outbreak as a social risk under its ESG framework given the substantial implications for public health and safety worldwide, Moody’s do not expect these considerations to materially affect IADB’s capital adequacy or liquidity.Governance is very strong and a key driver of IADB’s Aaa rating. Moody’s recognizes the IADB’s quality of management to reflect its superior institutional strength and best-in-class practices.FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGSDownward pressure on the rating could emerge if (1) asset quality were to deteriorate should a large number of the IADB’s sovereign-guaranteed loans go into nonaccrual status, or (2) in the case of severe financial stress, member countries were perceived to be unable or unwilling to provide aid to the bank in the form of contractual or other extraordinary form of support to preserve its financial health. Moody’s considers these to be low-probability outcomes.The principal methodology used in these ratings was Multilateral Development Banks and Other Supranational Entities Methodology published in October 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1232238. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.The weighting of all rating factors is described in the methodology used in this credit rating action, if applicable.REGULATORY DISCLOSURESFor further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Renzo Merino Vice President – Senior Analyst Sovereign Risk Group Moody’s Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Alejandro Olivo Managing Director Sovereign Risk Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody’s Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 © 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.CREDIT RATINGS ISSUED BY MOODY’S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. 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