DBRS Confirms European Investment Bank’s Rating at AAA with Stable Trend Following UK Vote

DBRS Ratings Limited (DBRS) has confirmed the long-term foreign and local currency issuer ratings of the European Investment Bank at AAA, and the short-term foreign and local currency ratings at R-1 (high). The trend on all ratings is Stable. (See ‘DBRS Confirms the EU, EIB and EIF at AAA Following UK Referendum on EU’.)

The majority of British voted to leave the European Union on a referendum held on 23rd June. The outcome opens a period of significant political uncertainty in Europe. DBRS is of the view that if the UK does in fact leave, then the EU will be poorer, smaller, less influential, and possibly less stable. The exact terms of the potential withdrawal agreement between the UK and the EU and the impact of the UK’s departure on the cohesiveness of the remaining EU member states are unclear at the moment. The potential impact of the UK’s departure from the EU on EIB’s capital structure will depend on the particular terms of the withdrawal agreement between the UK and the EU. The Stable trend on the ratings of the EIB reflects the resiliency of the Bank to downside risk as result of its strong fundamentals.

Despite the challenges brought forward by the vote to leave, DBRS considers the EIB is well positioned to weather potential shocks that could arise in the immediate future. DBRS rates the EIB AAA on the basis of both the Support and the Intrinsic Assessment. The Bank’s shareholders are still the 28 member states of the EU, at least until the potential withdrawal agreement is reached between the EU and the UK, and DBRS expects that they would provide timely support to the EIB if necessary. In addition to the shareholders’ legally binding pledge to support the Bank, DBRS sees member states as having a very strong economic incentive to support the EIB, because each member state is simultaneously a shareholder and a beneficiary. DBRS views the EIB’s risk profile as low and capitalisation as very strong, thus limiting the probability that the Bank will face distressed funding conditions that could trigger an emergency support action. The EIB’s access to the European Central Bank (ECB)’s main refinancing operations further supports the rating.

The Support Assessment of the EIB is primarily based on the overall credit quality of its core shareholders (as defined by DBRS’ methodology “Rating Supranational Institutions” published in March 2016), and on the credibility of their commitment to support the Bank. The uncertainty around the potential shape of the withdrawal agreement raises doubts whether the UK’s commitment to the EIB will continue to be at the same level and at par with the rest of the core shareholders. In consequence, DBRS takes the conservative assumption to exclude the UK from the core shareholder group for the time being. With the exclusion of the UK (AAA, Stable), the core shareholders group would be composed of the Federal Republic of Germany (AAA, Stable), the Republic of France (AAA, Stable), the Republic of Italy (A low, Stable), and the Kingdom of Spain (A low, Stable). The weighted median rating of the new core shareholder group is still AAA. Although the median rating would automatically decline following a downgrade to the AA rating range of any of the AAA-rated core shareholders (France, Germany), the Support Assessment of the EIB would likely remain AAA as a result of (i) the strong credibility of shareholders’ commitments to the EIB, and (ii) the multiple sources of support that the Bank benefits from.

RATING DRIVERS
Downward pressure on the ratings could materialise if several core shareholders experience ratings downgrades or there is a marked deterioration in the creditworthiness of a single core shareholder. This is especially the case if the credit deterioration is caused or compounded by a weakening of cohesiveness among core shareholders, or if there is a weakening of the political commitment of core EU member states. The ratings could also come under downward pressure if the withdrawal of shareholders leads to a weakening of the commitment of the member states to the EIB, or if the EIB’s balance sheet were to weaken. An agreement between the EU and the UK that weakens the EIB’s capital structure would put pressure on the ratings.

Notes:
All figures are in (EUR) unless otherwise noted.

The principal applicable methodologies are Rating Supranational Institutions and Rating Sovereign Governments, which can be found on the DBRS website under Methodologies. The principal applicable rating policies are Commercial Paper and Short-Term Debt, and Short-Term and Long-Term Rating Relationships, which can be found on our website under Rating Scales.

These can be found on www.dbrs.com at: http://www.dbrs.com/about/methodologies

The sources of information used for this rating include the European Investment Bank. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

This is an unsolicited credit rating. This credit rating was not initiated at the request of the issuer.

This rating included participation by the rated entity or any related third party. DBRS had no access to relevant internal documents for the rated entity or a related third party.

DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

Generally, the conditions that lead to the assignment of a Negative or Positive Trend are resolved within a twelve month period. DBRS’s outlooks and ratings are under regular surveillance.

For further information on DBRS historic default rates published by the European Securities and Markets Administration (“ESMA”) in a central repository, see:
http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings Limited are subject to EU regulations only.

Lead Analyst: Javier Rouillet, Assistant Vice President, Global Sovereign Ratings
Rating Committee Chair: Alan G. Reid, Group Managing Director, Global FIG and Sovereign Group
Initial Rating Date: 1 August 2014
Last Rating Date: 31 July 2015

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