Fitch Ratings has affirmed the Caribbean Development Bank’s (CDB) creditworthiness with ‘AA+’ for its long-term issuer default rating and a stable outlook.

The rating according to Fitch, is “Underpinned by very high liquidity and excellent capitalisation. This assessment underscores the bank’s resilient financial performance and robust governance standards.”

Fitch added that it assesses CDB’s business environment as medium risk, which does not translate into any adjustment to the solvency and liquidity assessments.

The key drivers of the rating agency’s assessment include: excellent capitalisation, decline in lending volumes, low credit risk, and the election of a new president. Of significant note, Fitch identified the upgrade in the sovereign ratings of Barbados and Jamaica as another driver of the affirmed rating of the regional bank.

Commenting on the appointment of the new president of the CDB, Daniel Best, Fitch writes, “In Fitch’s view, the process to transition to a new president was consistent with the bank’s high governance standards.

“The bank has decided to delay the implementation of its new strategic plan from 2025 until 2026, in order for the strategic direction of the bank to be informed by the president’s vision. The new strategy is expected to run from 2026-2035, which is longer than recent strategies, including the most recent update (2022-2024),” it further outlined.

Continuing to remark on the policy direction of the bank, Fitch pointed out that the CDB approval of loans fell significantly in 2024 due in part to the leadership transition taking place.

With regard to the CDB’s credit risk, the credit rating agency justified its revision from ‘moderate’ to ‘low’ credit risk “ reflects the bank’s very strong record of loan performance (non-performing loans (NPL): 0.1 per cent at end-September 2024)”, in addition to its average rating of loans.

“CDB continues to have no arrears with sovereign borrowers, and its sole NPL is to a small, non-sovereign exposure (around USD1.6 million). Fitch assesses CDB’s preferred creditor status as ‘excellent’, which translates into a ‘+3’ notch adjustment to the ARL when assessing the bank’s solvency,” Fitch stated.

Moreover, the bank’s capitalisation is on par with pre-pandemic levels, pointing to its resilience and strong loan performance. In terms of liquidity, Fitch noted that the CDB has “excellent” liquidity buffers, which can cover up to nine times its short-term debt.

“Fitch expects the bank to continue to operate with large and high-quality liquidity buffers,” the rating agency said.

Notwithstanding, the agency highlighted its concern for the bank’s loan book being dominated by five of its borrowers, which hold 61.3 per cent of the institution’s debt stock.

“The bank’s concentration risk is inherently higher than peers, given the geographical proximity and correlation between borrowing member countries’ economies. Fitch recognises CDB’s ongoing efforts to improve its concentration risk, as it targets loan portfolio diversification towards higher-rated sovereigns as well as exploring an Exposure Exchange Agreement with a highly-rated multilateral development bank,” Fitch explained.

In its assessment of the CDB’s business environment, the agency ascribed medium risk owing to “the relatively weak credit quality and moderate income levels in the bank’s countries of operations”.

Commenting on the affirmation of Fitch’s credit rating, CDB President Daniel Best shared, “We are delighted with the affirmation of our credit rating by Fitch Ratings. This underscores the strength of CDB’s financial health and sound governance, enabling us to pro-actively continue mobilising resources to support our Borrowing Member Countries in their sustainable development initiatives.”