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

DBRS Ratings GmbH (Morningstar DBRS) 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 trends on both ratings are Stable.

KEY CREDIT RATING CONSIDERATIONS
Morningstar DBRS 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, strategic, 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, digitalization, climate transition, and energy security. The Stable trends on the credit ratings reflect the resilience of the Bank to downside risk, thanks to its strong fundamentals, as seen in recent years despite multiple geopolitical, economic and financial headwinds.

The EIB's primary role for the EU member states has been reemphasised since 2020. The EIB Group was a pillar of the EU's COVID-19 response through the European Guarantee Fund (EGF) of EUR 24.4 billion. The EIB now plays a key role in the implementation of InvestEU, which aims at boosting sustainable investment, innovation, and employment, with around EUR 9.3 billion of financing volumes expected annually at the Group level between 2024 and 2026. Moreover, in front of the energy crisis, the EIB is contributing to a key EU sovereignty initiative, REPowerEU+, adding EUR 45 billion of financing volumes at the Group level between 2023 and 2027 to reduce the EU's dependence on Russian fossil fuels.

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. While the current context of high (although decreasing) interest rates may put some pressure on the credit quality of some of its assets, Morningstar DBRS 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 and financial 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. In addition, Morningstar DBRS 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.

CREDIT RATING DRIVERS
The credit 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's sovereign credit rating (AAA, Stable).

CREDIT 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, Positive), and the Republic of Italy (BBB (high), Stable). Morningstar DBRS 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 together represents 68% of the EIB's subscribed capital and accounts for around 46% of the geographical distribution of the Bank's stock of signed loans at the end of 2023.

Morningstar DBRS' 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 576 billion at the end of 2023, 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 Morningstar DBRS 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 2023, impaired loans represented only 0.4% of the Bank's total portfolio, stable compared with 2022, 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 (UK, AA, Stable), at EUR 41 billion at year-end 2023, benefit from a specific guarantee from the EU budget or directly from member states. Morningstar DBRS' 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 disbursed and undisbursed loans with internal grading of D- and below remained limited despite an increase to EUR 16.5 billion in 2023 compared with EUR 12.0 billion in 2022 (on a consolidated financial statements basis).

Morningstar DBRS 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 high (although decreasing) interest rates and continued geopolitical risks could affect the EIB's asset quality. Another factor that could also affect the EIB's asset quality is 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 2024-2026 Operational Plan, even though its portfolio is supported by strong credit enhancements. Nevertheless, high interest rates should continue to positively affect EIB's net surplus generation capacity via increasing net interest income and hence further boost the EIB's capital base. Moreover, Morningstar DBRS considers that conservative risk and liquidity management practices as well as strong credit enhancements covering 69% 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

Morningstar DBRS views the Bank's capital adequacy as very strong. Its Basel III Core Equity Tier 1 (CET1) ratio remained high at 33.1% at year end-2023, versus 35.1% in 2022, and in line with the 2019-2021 average of 32.8%.

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 (enabled by eligible assets). 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 2023 ratio of net treasury assets over 2024 annual expected cash outflows was equivalent to 63%, 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, AND GOVERNANCE CONSIDERATIONS

Environmental (E) Factors
There were no Environmental factors that had a relevant or significant effect on the credit analysis.

Social (S) Factors
There were no Social factors that had a relevant or significant effect on the credit analysis.

Governance (G) Factors
There were no Governance factors that had a relevant or significant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (23 January 2024) https://dbrs.morningstar.com/research/427030/morningstar-dbrs-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 EIB's governance, the EIB's 2023 financial performance, the EIB Group's operational plan for 2024-2026 including its contribution to InvestEU and 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 2024) https://dbrs.morningstar.com/research/428245/global-methodology-for-rating-supranational-institutions. In addition Morningstar DBRS uses the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings https://dbrs.morningstar.com/research/427030/morningstar-dbrs-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://dbrs.morningstar.com/about/methodologies.

The sources of information used for this credit rating include the European Investment Bank's annual financial reports from 2019 to 2023, the Mid-term review of the EIB Group Climate Bank Roadmap (November 2023), the EIB Group's Operational Plan 2024-2026, the EIB Group's Task Force on Climate-related Financial Disclosures 2022 Report (June 2023), the EIB's Investor Presentation (May 2024), the EIB Group's Corporate Governance 2022 Report (September 2023), IMF WEO. Morningstar DBRS considers the information available to it for the purposes of providing this credit 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

Morningstar DBRS does not audit the information it receives in connection with the credit 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. Morningstar DBRS' outlooks and credit ratings are under regular surveillance.

For further information on Morningstar DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://registers.esma.europa.eu/cerep-publication. For further information on Morningstar DBRS 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 credit rating assumptions can be found at: https://dbrs.morningstar.com/research/434510/.

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

Lead Analyst: Mehdi Fadli, Senior Vice President, Sector Lead, Global Sovereign Ratings
Rating Committee Chair: Thomas R. Torgerson, Managing Director, Global Sovereign Ratings
Initial Rating Date: 1 August 2014
Last Rating Date: 16 June 2023

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