A Liberal, a Banker of the Year

Who secures the Aaa of EIB.

Liberals are not exactly popular among bankers, as they stand for competition and a market economy, where many bankers want state protection and privileges. This makes the award for Dr. Werner Hoyer, President of the European Investment Bank (EIB) as Banker of the Year, particularly noteworthy. The laudation from President of the European Commission, Ursula von der Leyen, contains many deserving facts and can be read here. Werner Hoyer is a member of the FDP, the Free Democratic Party in Germany, where he made his career up to the Foreign Office.

Werner Hoyer has been at the helm of the EIB since 2012, which, like few other banks in Europe, also has the undisputed top rating from all major credit rating agencies. Moody’s just released a report with lots of detail.

“The credit profile of the European Investment Bank (EIB) reflects its strong financial metrics, including robust asset quality and asset performance as well as unfettered access to diverse funding markets. The EIB has a long track record of very low levels of non-performing loans (NPLs),” writes Moody’s Investors Service in its “Issuer In-Depth” annual credit analysis, “reflecting its prudent project selection as well as effective monitoring and superior risk-management capabilities.”

According the international rating agency, the EIB is also among the few supranational issuers with access to central bank liquidity, in its case to the European Central Bank’s (ECB) main refinancing operations as well as the Swiss National Bank (SNB): “This ensures access to liquidity in the highly unlikely event it lost access to the capital markets.”

Moody’s sees among the EIB’s shareholders, the EU member states, a strong willingness and ability to support the bank if required. In a stress scenario, says Moody’s, the EIB would be one of the few sources of long-term funding for projects in the EU countries. The EIB is also the key institution implementing the European Fund for Strategic Investments (EFSI) and its successor programme, InvestEU. Similarly, the EIB has played an active role in the EU’s coronavirus crisis response.

“The EIB’s credit challenges, which are marginal at the Aaa rating level, stem from its high leverage compared to many peers as well as only moderate liquidity buffers, although its lending activities carry low intrinsic risk. Moreover,” argue Moody’s experts Steffen Dyck, Raphaele Auberty, Dietmar Hornung and Alejandro Olivo, “leverage has been on a declining trend over the past several years, and the comparatively only moderate liquidity position is mitigated by ECB access, very strong liquidity management and the generally high quality of treasury assets.”

Accodring to Moody’s findings, the EIB’s capital base is now stronger than it was before the United Kingdom’s (UK, Aa3 stable) exit on 31 January 2020 after its remaining shareholders replaced the UK’s share, and Poland (A2 stable) and Romania (Baa3 negative) provided additional capital.

But even with the best conditions, political and economic common sense in the member states of the EU is also important for the EIB: “Downward pressure on the EIB’s rating could emerge in a scenario of a significant and multiyear deterioration in its intrinsic financial strength coupled with a reduced ability to provide support (as evidenced by material rating downgrades of key shareholders), or if shareholders demonstrated less willingness to provide support in case of need.”

Moody’s credit analysis elaborates on EIB’s credit profile in terms of capital adequacy, liquidity and funding and strength of member support, which are the three main analytical factors in Moody’s Supranational Rating Methodology.