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 the Bank’s Short-Term Issuer Rating at R-1 (high). The trend on both ratings is Stable.

KEY RATING CONSIDERATIONS

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 the 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 and continues to integrate climate risk as a key component of its institutional, strategical and risk management frameworks. The EIB borrows funds on the capital markets to support projects through loans and guarantees that contribute to EU growth, employment, climate transition and energy security. The Stable trend on the ratings reflects the resilience of the Bank to downside risk thanks to its strong fundamentals, as seen in recent years despite the headwinds of the Coronavirus Disease (COVID-19) pandemic and the energy and inflation shock following Russia's invasion of Ukraine.

The EIB's primary role for the EU member states was again confirmed since 2020. The EIB Group was a pillar of the EU's COVID-19 response. On top of an initial financing package focused on SMEs and the health sector, the EIB Group launched in 2020 the European Guarantee Fund (EGF) of EUR 24.4 billion. With EUR 23.5 billion of projects approved at year-end 2022, the EGF, endorsed by the European Council and fully secured by member states' guarantees, is expected to support up to EUR 187.3 billion of financing with a focus on SMEs, but also MidCaps, corporates and public sector companies. Moreover, in front of the energy crisis, the EIB is contributing to a key EU sovereignty initiative, REPowerEU, adding EUR 30 billion of financing volumes at the Group level between 2023 and 2027 to reduce the EU's dependence on Russian fossil fuels. The EIB is also providing direct support packages to Ukraine with EUR 1.7 billion disbursed during 2022 and launched last year a EUR 4 billion package for EU member states receiving refugees from Ukraine.

Despite consecutive crises since 2020, the asset quality of the EIB's risk portfolio remains very strong thanks to the EIB's conservative risk management policies, as well as substantial government support provided to corporates throughout Europe during the COVID-19 pandemic. Although the current context of still high inflation and rising interest rates may put some pressure on the credit quality of some of its assets, DBRS Morningstar considers that its portfolio is supported by strong credit enhancements. Moreover, the EIB's very strong capital position, as well as its sound liquidity, strong and innovative debt management and robust risk management practices should help mitigate the consequences of an adverse economic scenario on the Bank's overall financial performance. As the lending exposure to Ukraine continues to grow with the support granted by the European Commission, the exposures at own risk remain very limited as the Bank benefits from various EU guarantee mechanisms. The EIB does not have any lending exposure to Russia at EIB’s own risk. 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 refinancing operations and asset purchase programmes.

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 members, and on the credibility of their commitment to support the Bank. The EIB's core member 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), Stable). DBRS Morningstar views these countries as core members of the institution because they represent the four largest EIB members –with a capital share more than double that of the next members, the Kingdom of the Netherlands (AAA, Stable) and the Kingdom of Belgium (AA, Stable). The core group represents together 68% of the EIB’s subscribed capital and account for 45% of the geographical distribution of the Bank’s stock of signed loans at the end of 2022.

DBRS Morningstar's Support Assessment is at AAA. Following the downgrade of France from AAA to AA (high) on October 16, 2020, the median member rating of the core group stands at AA (high) versus AAA previously. Nevertheless, the strong commitment of EU member states towards the EIB and the additional support stemming from AAA governments outside the core group provides an additional uplift. Those AAA governments include the Kingdom of the Netherlands, the Kingdom of Sweden, the Kingdom of Denmark, the Republic of Austria and the Grand Duchy of Luxembourg. A potential modest weakening of the weighted median rating of the core members is not expected to undermine the credit profile of the EIB, provided that cohesion among of members or their political commitment does not weaken materially, especially among AAA member states.

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 562 billion at the end of 2022, of which 83% 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 implementation of the InvestEU programme from 2022, although the latter will imply lower volumes from the EIB Group. The EIB Group is in charge of the management of 75% of the InvestEU budget guarantee of EUR 26.2 billion, which is expected to mobilize public and private investments above EUR 372 billion. EFSI also benefited 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 2022, impaired loans represented only 0.4% of the Bank’s total portfolio, slightly higher compared to 2021 (0.3%), 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 excluding the United Kingdom (U.K., AA, Stable), at EUR 41 billion at year-end 2022, 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 amounted to EUR 12 billion in 2022, slightly increasing from EUR 11.8 billion in 2021 (on a consolidated financial statements basis).

DBRS Morningstar will monitor those asset quality metrics in the short-to-medium-term to assess for a potential deterioration in the Bank's overall risk profile. Indeed, the current context of still high inflation and rising interest rates could affect the EIB’s asset quality as could also the increase in higher-risk activities and activities outside the EU as initiated in the EIB Group Operational Plan for 2022-2024 and confirmed in its 2023-2025 Operation Plan. Nevertheless, rising interest rates should positively affect EIB’s net surplus generation capacity via increasing net interest income and hence further boost the EIB's capital base. Moreover, DBRS Morningstar considers that conservative risk and liquidity management practices as well as strong credit enhancements covering 70% of its portfolio should mitigate the impact of the current economic and financial context on the EIB's financials.

The EIB Continues to Benefit from a Very Strong Capital Position, a Sound Liquidity and a Diversified Funding Profile, with a Strong Focus on Sustainable and Innovative Issuances

DBRS Morningstar views the Bank’s capital adequacy as very strong. Its Basel III Core Equity Tier 1 (CET1) ratio stood at 35.1% at year end-2022, versus 32.3% in 2021, and substantially higher than the average of approximately 25.1% recorded between 2012 and 2016.

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 sustainability-oriented multilateral bond issuers with a strong focus on sustainability funding, which reached a high 45% of total issuance in 2022 versus 21% in 2021, 15% in 2020 and 8% in 2019. Since April 2021, the EIB also paved the way in terms of innovative digital bond issuances among multilateral institutions. In terms of liquidity, the year-end 2022 ratio of net treasury assets over 2023 annual expected cash outflows was equivalent to 95%, 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.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS

There were no Environmental, Social or Governance factors that had a significant or relevant effect on the credit analysis.

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 (17 May 2022) https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

RATING COMMITTEE SUMMARY
The main points discussed during the Rating Committee include the role of the EIB’s 2022 financial performance, the EIB Group’s operational plan for 2023-2025 including its contribution to REPowerEU, the EIB’s risk profile and the EIB’s climate risk approach.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology is the Global Methodology for Rating Supranational Institutions (16 February 2023) https://www.dbrsmorningstar.com/research/409963/global-methodology-for-rating-supranational-institutions. In addition, DBRS Morningstar uses the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings in its consideration of ESG factors.

The credit rating methodologies used in the analysis of this transaction can be found at:
https://www.dbrsmorningstar.com/about/methodologies.

The sources of information used for this rating include the European Investment Bank’s annual financial reports from 2018 to 2022, the EIB’s Group Climate Bank Roadmap 2021-2025, the EIB Group’s Operational Plan 2023-2025, the EIB Group’s Task Force on Climate-related Financial Disclosures (TCFD) Report 2021, the EIB’s Investor Presentation (May 2023), the Report on the implementation of the EIB Group Transparency Policy in 2021, IMF WEO. 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.

The conditions that lead to the assignment of a Negative or Positive trend are generally 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: https://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. For further information on DBRS Morningstar historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

The sensitivity analysis of the relevant key rating assumptions can be found at: https://www.dbrsmorningstar.com/research/416039.

This rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Mehdi Fadli, Senior 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 17, 2022

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