NEW YORK -- Fitch affirms Central American Bank for Economic Integration (CABEI) as follows:
--Issuer Default Rating (IDR) 'BBB+';
--Short-term issuer rating 'F2'.
The Rating Outlook is Stable.
The affirmation reflects CABEI's preferred creditor status and privileges conferred on it by its member countries, as well as its solid fundamentals, including a strong capital base, good asset quality and an established track record in terms of self sustainable profitability. The ratings are limited by the volatility of the economic environments in which the institution operates, its significant loan concentration and the member countries' creditworthiness. The ratings also factor in it's significantly higher than average exposure to the private sector compared to other regional Multilateral Development Banks (MDB).
The robust growth registered since end-2004 surpassed the increase in CABEI's equity, though the bank still shows ample capitalization ratios. The inclusion of Spain, as a non regional shareholder in 2004 also benefits the quality of CABEI callable capital, given the AAA rating of the former. The bank's usable capital/required capital ratio remains relatively strong at 2.6 times (x) compared to the average of other MDB's, though Fitch expects that continued growth may put some pressure on this indicator.
CABEI's five largest consolidated borrowers (the public sector loans to the founding members) accounted for 1.4x equity at end-June 2006, reflecting a significant concentration in its loan portfolio. Substantial exposures to Honduras and Nicaragua have been restructured in recent years through HIPC, which has allowed CABEI to maintain strong asset quality despite these countries' economic problems. CABEI has a significant (40% of loans) exposure to private sector borrowers who do not fall under the protection of preferred creditor status, unlike most MDB's, where lending is highly concentrated in public sector borrowers for whom the lenders benefit from preferred creditor status.
CABEI is a Central American MDB based in Honduras. It is not subject to local regulation and is immune from taxation. It is currently 63% owned by its so-called five founding member states -- Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua. The remaining shares belong to five non-regional members: Argentina, Colombia, Mexico, Taiwan and Spain. CABEI's objective is to fund development projects in Central America by channeling medium and long-term foreign currency resources both to public and private institutions. In the past five years, it has provided around 45% of total MDB funding to Central America.
Like other MDB's 25% of the committed capital has been paid in; the remaining shares could be called in the event of the bank being unable to honor its debt obligations. CABEI's key role of channeling hard currency resources to the region, its shareholders' willingness to provide support, should this be required, is undoubted. However, given its member countries' credit ratings, some question remains as to their ability to provide such support.
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