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Export Development Bank of Iran’s Financial Strength Rating affirmed at ‘BB-‘; Outlook reverts to ‘Stable’

February 27, 2014 11:07 am

Capital Intelligence (CI), the international credit rating agency, announced that it has affirmed Export Development Bank of Iran’s (EDBI) Financial Strength Rating (FSR) at ‘BB-‘, which continues to reflect the Bank’s strong capital adequacy, its business model, and its privileged access to low cost funding. The FSR is constrained by a still very difficult operating environment and by weak asset quality.

The Bank’s high level of contingent commitments also constrains the rating as they could tighten both liquidity, as well as capital ratios, if drawn. For the FSR to improve there would have to be an improvement in both the non-performing facilities (NPF) and loss coverage ratios without any significant impact on capital adequacy, while liquidity metrics would have to be maintained. CI expects profitability to remain weak because of continued high provisioning needs, but this is of secondary concern given EDBI’s function as a policy bank.

Greater exchange rate stability, coupled with lowering inflation, are gradually stabilising the economy, and there are now more reasonable prospects of greater sanctions relief. Although the Bank’s operating environment is expected to improve only very gradually, and the full impact of the exchange rate adjustment on NPFs is yet to fully be reflected in EDBI’s NPF ratio. Accretion of new NPFs is expected to slow down as the Bank proceeds with work outs and renegotiation of facilities with viable borrowers which is expected to improve recoveries. Accordingly, the Outlook on the FSR reverts to ‘Stable’.

The Support Rating is affirmed at ‘4’ which indicates a moderate level of further foreign currency liquidity and capital support for EDBI by the Iranian government under current conditions. EDBI’s Long- and Short-Term Foreign Currency (FC) Ratings are both affirmed at ‘B’, on a ‘Negative’ Outlook, and remain at the level of Iran’s Sovereign FC Ratings. EDBI’s FC Ratings and/or Outlook would automatically be raised in case Iran’s Sovereign Ratings and/or Outlook are raised.

EDBI is a policy bank established by Act of Parliament in 1991 in order to promote Iran’s non-oil exports by providing financial services to exporters of Iranian goods and services, such as L/C facilities and export finance. The Bank continues to perform an important policy role as Iran redoubles its efforts to increase and diversify its non-oil exports. Despite problems faced by Iranian companies as a result of the sanctions and the shock to the economy caused by the sharp depreciation of the exchange rate, longer-term trend growth in non-oil exports is expected to continue. However, while sanctions remain in place, it remains difficult and costly for the Bank to conduct its international operations.

For more information please contact:
Primary Analyst
Chris Nicolaou
Senior Credit Analyst
Capital Intelligence
Tel: +357 2534 2300