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

The Stable trend on the ratings reflects the resilience of the Bank to downside risk thanks to its strong fundamentals, as seen during the Coronavirus Disease (COVID-19) pandemic. 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 the EU growth and employment.

The EIB's primary role for the EU member states was confirmed during the Coronavirus Disease (COVID-19) pandemic. 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 implemented in 2021 the Pan-European Guarantee Fund (EGF) of EUR 24.4 billion. The EGF, endorsed by the European Council and secured by member states' guarantees, supports up to EUR 200 billion of financing with a focus on SMEs, but also MidCaps, corporates and public sector companies. Outside the EU, the EIB provided EUR 6.5 billon in favor of COVID-19 investments and contributed for EUR 900 million to the global distribution of vaccines through the COVAX initiative. In total the EIB Group has approved almost EUR 72 billion as a response to the economic consequences of the COVID-19.

Despite the severe economic impact of the COVID-19 pandemic, the asset quality of the EIB's risk portfolio remained very strong in 2020 and 2021 thanks to the EIB's conservative risk management policies, as well as substantial government support provided to corporates throughout Europe. Although the current context of high inflation and rising interest rates may put some pressure on the 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 and risk management practices should help mitigate the consequences of an adverse economic scenario on the Bank's overall financial performance. Regarding the EIB disbursed exposures at own risk in Ukraine, their volume is very low, with no 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 shareholders, and on the credibility of their commitment to support the Bank. The EIB's core shareholders 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 shareholders of the institution because they represent the four largest EIB shareholders –with a capital share more than double that of the next shareholders, the Kingdom of the Netherlands (AAA, Stable) and the Kingdom of Belgium (AA (high), Negative). 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 2021.

DBRS Morningstar's Support Assessment remains at AAA. Following the downgrade of France from AAA to AA (high) on October 16, 2020, the median shareholder 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 Netherlands, the Kingdom of Sweden, the Kingdom of Denmark, the Republic of Austria and the Grand Duchy of Luxembourg.

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 556 billion at the end of 2021, of which 82% 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 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 2021, impaired loans represented only 0.3% of the Bank’s total portfolio, slightly lower compared to 2020 (0.4%), 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 (high), Stable), at EUR 40 billion at year-end 2021, 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 (for which allocations to the Special Activities Reserve are made) amounted to EUR 11.8 billion in 2021, slightly increasing from EUR 11.2 billion in 2020 (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 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 planned in EIB Group Operational Plan for 2022-2024. Nevertheless, DBRS Morningstar considers that conservative risk and liquidity management practices as well as strong credit enhancements covering 72% 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 Issuances

DBRS Morningstar views the Bank’s capital adequacy as very strong. Its Basel III Core Equity Tier 1 (CET1) ratio stood at 32.3% at year end-2021, slightly below the 33.1% in 2020, but substantially higher than the average of approximately 25% recorded between 2012 and 2016. The decrease in the CET1 ratio in 2021 was not due to a deterioration in asset quality but largely due to regulatory changes with the implementation of the Capital Requirements Regulation (CRR II).

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 21% of total issuances in 2021 versus 15% in 2020 and 8% in 2019. In terms of liquidity, the year-end 2021 ratio of net treasury assets over 2022 annual expected cash outflows was equivalent to 117%, 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.

DBRS Morningstar Continues to See No Material Impact on the EIB’s Financials from the Brexit

On 1 February 2020, the U.K. ceased to be a EU member state. Consequently, from that date, the U.K. is no longer a member; the Bank’s members consist of the 27 member states of the EU. Under the withdrawal agreement the U.K. remains liable for its share capital in the EIB as it stood before withdrawal for years to come. However, its subscribed capital in the Bank was fully replaced by a pro rata increase of the capital of remaining EU member states, the corresponding paid-in capital being financed by using existing reserves. Subsequently, on 1 March 2020, the EIB also proceeded with increases in the capital subscribed by Poland (A, Stable) and Romania, more than offsetting the effect of the U.K.'s departure on its subscribed capital position. DBRS Morningstar considers that the replacement of the U.K. subscribed capital by the EIB's remaining member states exemplifies and reinforces their full commitment to the institution.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS

There were no Environmental/ Social/ Governance factor(s) 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 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 during the COVID-19 outbreak, the EIB’s 2021 financial performance, the EIB Group’s operational plan for 2022-2024 including the implementation of InvestEU, the EIB’s risk profile and the EIB’s climate risk approach.

Notes:
All figures are in euros (EUR) unless otherwise noted.

The principal methodology is the Global Methodology for Rating Supranational Institutions (17 February 2022) https://www.dbrsmorningstar.com/research/392578/global-methodology-for-rating-supranational-institutions. Other applicable methodologies include 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 (May 17, 2022).

The sources of information used for this rating include the European Investment Bank’s annual financial reports from 2017 to 2021, the EIB’s Group Climate Bank Roadmap 2021-2025, the EIB Group’s Operational Plan 2022-2024, the EIB Group’s Task Force on Climate-related Financial Disclosures (TCFD) Report 2020, the EIB Group’s Sustainability Report 2020, the EIB’s Investor Presentation (May 2022), IMF (World Economic Outlook April 2022). 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. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.

The sensitivity analysis of the relevant key rating assumptions can be found at: https://www.dbrsmorningstar.com/research/398545.

This rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.
Lead Analyst: Mehdi Fadli, 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 18, 2021

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