Fitch Ratings has revised the outlook on Banque d’investissement et de developpement de la CEDEAO’s (EBID) Long-Term Issuer Default Rating (IDR) to stable from negative and affirmed the IDR at ‘B’.

The revision of the outlook primarily reflects the reduction in its solvency risk assessment due to an improvement in non-performing loans (NPLs).

The ratings agency also said the clearance of a significant portion of capital arrears by shareholders also supports its assessment of EBID’s solvency.

“EBID’s ‘B’ rating balances its ‘Strong’ capitalisation against its ‘High’ credit risk. The bank’s Standalone Credit Profile of ‘b’ results from ‘bb’ solvency and liquidity assessments, and a negative three-notch adjustment to reflect the bank’s ‘High Risk’ business environment”, it added.

 In 2021, EBID’s shareholders’ equity was supported by the payment of sizeable capital arrears (U.A.44 million) which enhanced the bank’s capitalisation despite the marked 25% increase in the loan book.

The equity/assets ratio declined to 40% at end-2021 from 42% at end-2020 and Fitch’s risk-weighted capital (FRA) ratio was 36% as of end-2021, from 39% as of end 2020.

Fitch said it expects the ratios to decline in line with the growth in the loan book to a level commensurate with a ‘Strong’ assessment.

Decline in NPLs

The bank-reported NPLs fell to 5.8% in 2021, from 7.1% in 2020 driven by the increase in the loan book and the absence of new NPLs.

Fitch’s own NPL ratio fell to 9.8% at end-2021 from 15.6% at end-2020. Fitch’s ratio accounts for the exposures that were granted payment suspension during the Covid-19 crisis and had not resumed payments at end-2021 (4% of loans).

Fitch expects the NPL ratio to decline further, driven by the growth in the loan book, but to remain ‘High’ (above 6%).

High Credit Risk

The average rating of the loan book was ‘B-‘ at end-2021.

About half of the loans are extended to sovereigns.

EBID’s Preferred Creditor Status on its sovereign exposure leads to a one notch uplift over the average rating of the loan book, to ‘B’. NPLs are concentrated in the non-sovereign portfolio with no sovereign NPL at end-2021.