DBRS Morningstar Confirms the European Investment Bank at AAA, Stable Trend

DBRS Ratings GmbH (DBRS Morningstar) confirmed the European Investment Bank’s (EIB or the Bank) Long-Term Issuer Rating at AAA and Short-Term Issuer Rating at R-1 (high). The trend on both ratings remains Stable.

KEY RATING CONSIDERATIONS
The Stable trend on the ratings reflects the resilience of the Bank to downside risk as a result of its strong fundamentals. DBRS Morningstar rates the EIB on the basis of both the Support and the Intrinsic Assessments. As the bank of the European Union (EU, AAA, Stable), the EIB works closely with other EU institutions to implement EU policies and to best represent the interests of the EU member states. As the EU climate bank, it also supports the EU's objectives in terms of climate action and environmental sustainability. The EIB borrows funds on the capital markets to support projects through loans and guarantees that contribute to growth and employment in Europe.

The EIB's primary role for the EU member states was confirmed during the Coronavirus Disease (COVID-19) pandemic. The EIB Group is a pillar of the EU's COVID-19 response. On top of an initial financing package focused on SMEs and the health sector launched from March 2020, the EIB Group approved the establishment of a Pan-European Guarantee Fund (EGF) of EUR 24.4 billion. The EGF, endorsed by the European Council and secured by a member states' guarantee, will support up to EUR 200 billion of financing with a focus on SMEs while MidCaps, corporates and public sector companies are also eligible. Outside the EU, the EIB is also contributing for EUR 600 million to the global distribution of COVID-19 vaccines through the COVAX initiative.

Despite the severe economic impact of the COVID-19 pandemic, the asset quality of the EIB's risk portfolio remained very strong in 2020 thanks to the EIB's conservative risk management policies, as well as substantial government support provided to corporates throughout Europe. Although a deterioration of the quality of some of its assets is likely in the coming years, DBRS Morningstar considers that its portfolio is supported by strong credit enhancements and that the EIB's very strong capital position, as well as its sound liquidity and risk management practices should help mitigate the adverse consequences of the pandemic on the Bank's overall financial performance. In addition, DBRS Morningstar continues to expect that EU member states would provide timely support to the EIB, if necessary. The EIB’s ratings are further supported by the European Central Bank (ECB)’s policy measures, EIB being eligible for the ECB's asset purchase programmes and refinancing operations.

RATING DRIVERS
The ratings could be downgraded if one or a combination of the following occur: (1) there is a marked deterioration in the creditworthiness of a single core shareholder, particularly if it reflects a material weakening of the cohesion of core member states or of the strength of their political commitment to the EIB; (2) there is a substantial weakening of the EIB's Intrinsic Assessment; or (3) although unlikely given its Stable trend, there is a downgrade of Germany (AAA, Stable).

RATING RATIONALE
The Support Assessment Reflects the Credit Quality and Support Commitment of Core Shareholders, and Additional Support Stemming from AAA Governments Outside the Core Group

The Support Assessment of the EIB is primarily based on the overall credit quality of its core shareholders, and on the credibility of their commitment to support the Bank. The EIB's core shareholders group is composed of the Federal Republic of Germany (AAA, Stable), the Republic of France (AA (high), Stable), the Kingdom of Spain (A, Stable), and the Republic of Italy (BBB (high), Negative). DBRS Morningstar views these countries as core shareholders of the institution because they represent the four largest EIB shareholders –with a capital share more than double that of the next shareholders, the Kingdom of the Netherlands (AAA, Stable) and the Kingdom of Belgium (AA (high), Negative). The core group represents together 68% of the EIB’s subscribed capital and account for 46% of the geographical distribution of the Bank’s stock of signed loans at the end of 2020.

DBRS Morningstar's Support Assessment remains at AAA. Following the downgrade of France from AAA to AA (high) on October 16, 2020, the median shareholder rating of the core group stands at AA (high) versus AAA previously. Nevertheless, the strong commitment of EU member states towards the institution and the additional support stemming from AAA governments outside the core group provides an additional uplift. Those AAA governments include the Netherlands, the Kingdom of Sweden, the Kingdom of Denmark, the Republic of Austria and Grand Duchy of Luxembourg.

Strong Policy Role with Key EU Mandates and Low Risk Profile are Core Elements of the Bank’s Intrinsic Assessment

The AAA Intrinsic Assessment of the EIB is primarily based on the Bank’s strong mandate and capitalisation, and is supported by its low risk profile as well as stable and recurring earnings. The Bank’s signed loan book is large, representing EUR 559 billion at the end of 2020, of which 82% was for projects within the EU. In addition, the role of the EIB as the ‘EU bank’ has been reinforced by its EU mandate in implementing the European Fund for Strategic Investments (EFSI) since 2015 and the InvestEU programme starting from 2021, although the latter will imply lower volumes from the EIB Group. The implementation of EFSI has been a success: at end-March 2021, the EIB Group had approved a total of EUR 102.1 billion financing operations, which are expected to mobilise investments close to EUR 540 billion, well above the EUR 500 billion initial target. EFSI and InvestEU benefit from EU guarantees, which DBRS Morningstar views positively, as it limits the Bank's risk exposure.

The EIB’s risk profile remains low, with sound asset quality. At the end of 2020, impaired loans represented only 0.4% of the Bank’s total portfolio, stable compared to 2019, largely reflecting the EIB’s strong risk management practices and its high share of secured loans. In addition, the majority of the EIB’s disbursed exposures to projects outside the EU and outside the United Kingdom (U.K., AA (high), Stable), at EUR 39 billion at year-end 2020, benefit from a specific guarantee from the EU budget or directly from member states. DBRS Morningstar’s assessment of the EIB’s risk profile incorporates the assumption that EIB loans to EU member states will continue to be subject to preferred creditor status.

The EIB’s exposure to riskier private and public-sector assets, namely the high risk exposures for loans with internal grading of D- and below (for which allocations to the Special Activities Reserve are made) amounted to EUR 11.2 billion in 2020, slightly increasing from EUR 10.8 billion in 2019 (on a consolidated financial statements basis).

DBRS Morningstar will monitor those asset quality metrics in the short-to-medium-term to assess for a deterioration in the Bank's overall risk profile. Indeed, the significant economic shock derived from the COVID-19 crisis is expected to affect the EIB’s asset quality. Nevertheless, DBRS Morningstar considers that conservative risk and liquidity management practices as well as strong credit enhancements covering 73% of its portfolio should mitigate the impact on the EIB's financials.

The EIB Continues to Benefit from a Very Strong Capital Position and a Sound Liquidity Profile

DBRS Morningstar views the Bank’s capital adequacy as very strong. Its Basel III Core Equity Tier 1 (CET1) ratio stood at 33.1% at year end-2020, slightly above the 32.9% in 2019, but substantially higher than the average of approximately 29% recorded between 2015 and 2019.

The EIB also efficiently manages its liquidity and funding. Funding is well diversified in terms of currency, investor type and geography. The EIB is also one of the largest sustainable-oriented multilateral bond issuers with a strong focus on sustainable funding. In terms of liquidity, the year-end 2020 ratio of net treasury assets over 2021 annual expected cash outflows was equivalent to 78%, well above the minimum requirement of 25%. Importantly, the EIB is an eligible counterparty in the Eurosystem’s monetary policy, and therefore has access to the main refinancing operations of the ECB, which would provide additional protection in circumstances of extreme liquidity tensions.

DBRS Morningstar Sees No Material Impact on the EIB’s Financials from the Brexit

On 1 February 2020, the U.K. ceased to be a EU member state. Consequently, from that date, the U.K. is no longer a shareholder; the Bank’s shareholders consist of the 27 member states of the EU. Under the withdrawal agreement the U.K. remains liable for its share capital in the EIB as it stood before withdrawal for years to come. However, its subscribed capital in the Bank was fully replaced by a pro rata increase of the capital of remaining EU member states as well as by using existing reserves. Subsequently, on 1 March 2020, the EIB also proceeded with increases in the capital subscribed by Poland (A, Stable) and Romania, more than offsetting the effect of the U.K.'s departure on its subscribed capital position. DBRS Morningstar considers that the replacement of the U.K. subscribed capital by the EIB's remaining member states exemplifies and reinforces their full commitment to the institution.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

For more information on the Rating Committee decision, please see the Scorecard Indicators and Building Block Assessments.

DBRS Morningstar notes that this Press Release was amended on July 6, 2021 to incorporate the disclosure for currency used.

Notes:
All figures are in EUR unless otherwise noted.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

The principal methodology is the Global Methodology for Rating Supranational Institutions (3 March 2020) https://www.dbrsmorningstar.com/research/357589/global-methodology-for-rating-supranational-institutions. Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings https://www.dbrsmorningstar.com/research/373262/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (February 3, 2021).

The sources of information used for this rating include the European Investment Bank’s annual reports from 2016 to 2020, the EIB’s Group Climate Bank Roadmap 2021-2025, the EIB Group’s Operational Plan 2021 and the EIB’s Funding Newsletter of May 2021. DBRS Morningstar considers the information available to it for the purposes of providing this rating to be of satisfactory quality.

With respect to FCA and ESMA regulations in the United Kingdom and European Union, respectively, this is an unsolicited credit rating. This credit rating was not initiated at the request of the issuer.

With Rated Entity or Related Third Party Participation: YES
With Access to Internal Documents: NO
With Access to Management: NO

DBRS Morningstar 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 12-month period. DBRS Morningstar’s outlooks and ratings are under regular surveillance.
For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.

The sensitivity analysis of the relevant key rating assumptions can be found at: https://www.dbrsmorningstar.com/research/380309.

This rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.
Lead Analyst: Mehdi Fadli, Vice President, Global Sovereign Ratings
Rating Committee Chair: Thomas R. Torgerson, Managing Director, Co-Head Global Sovereign Ratings
Initial Rating Date: August 1, 2014
Last Rating Date: June 19, 2020

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