East African Development Bank saw its NPLs rise last year to 9.1 per cent from seven per cent the previous year.
The dud loans were caused by the low quality of the loan portfolio arising from a difficult operating environment in the region as well as the high concentration of the loanbook.
The bank, however, had an even weaker portfolio in the period between 2009 and 2012, leading to high NPLs that however fell to 7.0 per cent by 2016.
Full provision and write-off of nonperforming loans (NPLs) owed to East African Development Bank (EADB) could weaken its profitability for this year, rating agency Moody’s has said.
Even as it termed the lender still profitable, the agency noted that the company, which is partly owned by the countries in the region and the African Development Bank, saw its NPLs rise last year to 9.1 per cent from seven per cent the previous year.
“Moody's expects EADB to remain profitable, supported by the expansion in its investment activities, even though the full provision and write-off of NPLs in 2018 could weaken profitability for the year,” said Moody’s in a statement.
The dud loans were caused by the low quality of the loan portfolio arising from a difficult operating environment in the region as well as the high concentration of the loanbook.
The bank, however, had an even weaker portfolio in the period between 2009 and 2012, leading to high NPLs that however fell to 7.0 per cent by 2016.
“Although the bank's level of nonperforming loans (NPLs) decreased significantly during its restructuring period from 2009-12, the NPL ratio climbed to 7.0 per cent in 2016 and rose further to 9.1 per cent in 2017. This increase reflects the low average quality of the bank's loan portfolio due to East Africa's difficult operating environment, and the high concentration of its loan book,” the rating agency said.
The bad loans have constrained its rating compared to other multilateral banks rated by Moody’s.
“Poor credit quality constrains the strength of shareholder support for the bank. Its weighted median shareholder rating of B2 in 2017 is among the lowest of all the multilateral development banks that Moody's rates,” said the agency.
Despite the low-quality portfolio, Moody’s said, the bank’s liquidity was strong as it was reinforced by low levels of borrowing relative to liquid assets and a long-dated debt maturity structure.
"The bank's credit strengths include strong liquidity and capital buffers that are among the strongest of the multilateral development banks we rate," said Aurelien Mali, a Moody's Vice President -- Senior Credit Officer
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