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EADB gets positive credit ratings review

Peter 3rd Oct, 2024 Economy Business Edge Reporter
EADB gets positive credit ratings review

EADB Director General Vivienne Yeda (L) congratulates Michael Mugabi, the Housing Finance Bank Managing Director, after signing a partnership agreement in Kampala. EADB's positive credit ratings enable its partners to pay much lower interest rates. FILE PHOTO


The East African Development Bank's (EADB), the region’s premier development financial institution, has received positive credit results from a review of its credit ratings, raising hopes that borrowers would continue to borrow at more favourable interest rates.

This follows Moody's Ratings announcement of the completion of a periodic review of the region’s leading DFI.

A September 27 statement from Moody’s Ratings stated that the review was conducted through a rating committee held on September 20, 2024.

  • “The EADB’s ratings, including its Baa3 long-term issuer rating, reflects a strong capital position and an improved level of nonperforming assets (NPAs), offset by low development asset credit quality. Its liquidity and funding profile benefits from robust liquidity levels but is marked by a less diverse funding structure than many rating peers,” the statement reads in part.

“We assess member support to be low, reflecting a large cushion of callable capital but also the limited ability of shareholders to provide support in case of need given the low ratings of the EADB's four main shareholders – Kenya (Caa1 negative), Rwanda (B2 stable), Tanzania (B1 stable), and Uganda (B3 stable).”

According to Moody’s, obligations rated ‘Baa’ are judged to be medium-grade and subject to moderate credit risk, while obligations rated ‘B’ are considered speculative and are subject to high credit risk and those rated ‘Caa’ are judged to be speculative of poor standing and are subject to very high credit risk.

  • Last week, the EADB announced a fund of $15 million (about UGX68 billion) that is to be released to three Ugandan banks for onward lending to grassroot small and medium enterprises at an affordable rate of less than 13% compared to the market rate of more than 20%.

Vivienne Yeda, the EADB Director General, on September 27 signed partnership documents in Kampala Uganda with Centenary Bank, Opportunity Bank and Housing Finance Bank for the financing.

She said this new fund aims to reach over 1,500 SMEs across the East African country, with a special focus on entities operating in the agricultural sector and agri-business.

Chief guest Ramadhan Ggoobi, the Permanent Secretary in Uganda’s Ministry of Finance, Planning and Economic Development and also Secretary to the Treasury, saluted EADB for the initiative, saying enabling SMEs to thrive brings numerous benefits.

The three new partner banks now bring the total number of EADB’s local partner financial institutions in Uganda to five, in addition to FINCA and Finance Trust Bank, which came on board more than five years ago.

  • When a DFI has a positive credit rating, it becomes easier for it to attract capital at lower interest rates, which eventually cascades down to entities that borrow from it.
  • Moody’s said the credit profile of EADB is supported by its "baa1" capital adequacy, which balances a strong capital position and the low level of NPAs against relatively weak asset credit quality, while the Bank's "baa1" liquidity and funding score balances ample liquid resources with a more limited quality of funding, with the main sources of financing concentrated in credit lines from multilateral development banks (MDBs) and other financial institutions.

“EADB's leverage ratio under our definition fell to 57% in 2023, one of the lowest among the MDBs that we rate. The steady decline in the leverage ratio has been driven by cautious growth in development assets in recent years,” the statement said, adding that the bank posted net profit of $13 million in 2023, up from $6.6 million in 2022.

The NPA ratio stood at 0.8% in 2023, consisting of a single loan.

In May, the EADB was awarded by the Association of African Development Finance Institutions (AADFI) in the category of Prudential Standards, Guidelines, and Rating System (PSGRS), after scoring highly on the Compliance and Rating index.

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