OREANDA-NEWS. Fitch Ratings has affirmed European Investment Bank's (EIB) Long-term foreign and local currency Issuer Default Ratings (IDR) at 'AAA' with a Stable Outlook. A full list of rating actions is below.

The 'AAA' rating primarily reflects EIB's intrinsic strengths, in particular its strong asset quality, conservative and efficient risk management policies, and unique liquidity strengths, as well as the high level of support from EU member states.

KEY RATING DRIVERS
EIB's loans portfolio largely comprises loans to the private sector and to public institutions, a significant share of which is covered by state guarantees (27.7% in 2014). At end-2014, 78.9% of EIB's ultimate borrowers had investment-grade ratings (77.9% in 2013), a ratio towards the higher end of the 'AAA' range. The performance of the loan book remains excellent, with a non-performing loan ratio of 0.2% at end-2014.

As part of its countercyclical role, EIB will participate in the European Fund for Strategic Investments (EFSI; the so-called Juncker Plan) alongside the EU and the European Investment Fund, which will translate into riskier new exposures during the next three years (currently estimated up to EUR49bn of new lending by 2018). The expected increase in risk related to EFSI investments will be mitigated by a guarantee from the EU, covering 25% of EIB's loan commitments under EFSI and 50% of equity investments, on a pro-rata basis.

EIB's exposure to Greece (CCC) remains high (25.5% of equity at end-2014, compared with 26.6% in 2013). As the large majority of EIB's exposures to Greece are guaranteed by or directly to the Hellenic Republic (91.6% of disbursed Greek exposure at end-2014), a Greek sovereign default would materially impact EIB's credit quality. However, despite recent developments in the Greek crisis, which have created significant uncertainty, EIB continues to receive timely payments from all counterparties in Greece.

EIB's risk management policies are in line with multi-lateral development banks' (MDB) highest standards. EFSI's operations will be subject to EIB's usual conservative eligibility criteria, which should prevent political interference. However, the participation in EFSI extends the more aggressive lending policy followed by EIB since the crisis, delaying the return to the pre-crisis level of loan disbursement volumes until 2018.

Although EIB's liquidity slightly weakened in 2014, its access to the ECB refinancing window through a large pool of eligible instruments - a unique feature among European and regional MDBs - insulates EIB from liquidity risk.

At 11.7% at end-2014, EIB's equity/adjusted assets ratio is low compared with 'AAA' peers but we expect it to remain stable in the medium term, as the increase in lending is supported by the EUR10bn capital infusion paid by the EU member states in early 2013. However, despite EIB's involvement in the EFSI, Fitch does not expect a material deterioration of capital adequacy in the near term.

RATING SENSITIVITIES
Downward pressure on the ratings would arise from the following events:
-A Greek sovereign default on obligations to the EIB would cause a material deterioration of the bank's asset quality and its capital adequacy. It would also have negative credit implications, reducing EIB's intrinsic credit quality and making support a more important driver of the ratings.

-A material deterioration in capital adequacy and leverage over the coming years, related to higher than expected lending or a steady deterioration in the loan book portfolio would be negative for the ratings.

KEY ASSUMPTIONS
Fitch assumes that highly rated shareholders would honour their commitment to pay callable capital if required.

Fitch assumes that EIB's preferred creditor status will be respected in any sovereign default scenario, subject to similar competing claims from other preferred creditor lenders.

The full list of rating actions is as follows:
- Long-term foreign and local currency IDR affirmed at 'AAA'; Outlook Stable
- Senior unsecured debt affirmed at 'AAA'/'F1+'
- Commercial Paper affirmed at 'F1+'