13 JUL 2022

Fitch Affirms African Development Bank at 'AAA';
Outlook Stable
Fitch Ratings - London - 13 Jul 2022: Fitch Ratings has affirmed African Development Bank (AfDB)'s
Long-Term Issuer Default Rating (IDR) at 'AAA' with a Stable Outlook.

Key Rating Drivers
Extraordinary Support Underpins Ratings: AfDB's 'AAA' rating is driven by extraordinary support thebank receives from its non-regional shareholders, which we assess at 'aaa'. This is based on ourexpectation that the bank's net debt will be covered by callable capital from 'AAA' rated member statesover the forecast period. The shareholders' 'strong' propensity to support the bank translates into azero-notch adjustment to our assessment of the capacity to support ('aaa').
Fitch recently stabilised the Outlook on the LT IDR of the United States (AAA), the bank's second-largest
shareholder, accounting for 6.5% of total capital and 38% of 'AAA' rated callable capital at end-2021.
This rating action has eased pressures on the coverage of net debt by 'AAA' rated callable capital, which
had been offset by a temporary increase in callable capital in spring 2021.
Improving Standalone Credit Profile (SCP): AfDB's rating is also supported by its SCP, which Fitch hasrevised to 'aa' from 'aa-'. The upward revision is driven by an improvement in the bank's solvency due
to ongoing capital injections and a strengthening in our assessment of the bank's preferred creditor
status (PCS). AfDB's 'aa' solvency assessment is underpinned by its 'strong' capitalisation metrics and'low' risk profile. The bank's SCP also reflects its 'aaa' liquidity and 'medium-risk' business environment.
Strengthening Capitalisation: Our two capitalisation metrics, equity-to-assets (E/A) and usable
capital-to-risk-weighted assets (FRA) ratios, markedly improved in 2021 owing to capital payments
under the sixth and seventh General Capital Increase (GCI) plans. The E/A ratio was 24% at end-2021(2020: 22%). The FRA ratio was 49% in 2021, from 37% at end-2020, mainly due to a marked increase incallable capital rated 'AA-' and above. Fitch expects the bank to operate with lower leverage in themedium term and the two ratios to remain consistent with an 'excellent' and 'strong' assessments,respectively.
Improving PCS: Fitch has revised its assessment of the bank's PCS to 'strong' from 'moderate' owing toa stronger record of sovereign loan performance, as evidenced by the recent full repayments ofarrears by Somalia and Sudan in 2020 and 2021, respectively. Zimbabwe is now the only sovereign indefault with the bank (out of 29 active sovereign borrowers) and the sovereign NPL ratio was 1.1% atend-2021 (from 1.4% at end-2020).

The stronger PCS assessment is also underpinned by the growing share of sovereign exposures in thetotal loan book (85% at end-2021, and 80% on average over the past five years). The strong PCS now
enhances the weighted average credit quality of loans and guarantees by two notches, to 'BB'.
Rising Non-Sovereign NPLs: AfDB's NPL ratio rose in 2021, to 3.3% from 2.8% a year earlier. This wasdriven by deterioration in the non-sovereign NPL ratio, which increased significantly to 16% at
end-1Q22 from 8.6% at end-2020, mainly due to the non-performance of the bank's largest privatesector loan (accounting for 0.8% of total loans, or 5.3% of non-sovereign loan portfolio).
Fitch expects the overall NPL ratio to remain in the 'moderate' category (3%-6%), owing to an expected
increase in non-sovereign NPLs. The food crisis caused by the Russia-Ukraine conflict and rising yields
add to downside risks to our NPL forecast.
Other Solvency Risks Limited: Fitch believes the bank's risk management policies are conservative
and assessed as 'excellent', in line with its peers. Concentration risk is 'low' and benefits from theExchange Exposure Agreement (EEA) with other MDBs. The five largest exposures accounted for 31% of
total banking exposures after EEA (and 44% before EEA) at end-2021. Fitch expects equity participation
to remain below 5% of the banking portfolio.
Medium-Risk Business Environment: Fitch assesses AfDB's business environment as 'medium risk',balancing the 'low risk' business profile against the bank's 'high risk' operating environment. The
former primarily reflects the large size of the bank's portfolio (XDR22 billion, or USD31 billion atend-2021), the bank's governance and the importance of its public mandate. AfDB's 'high risk'
operating environment is consistent with the low credit ratings, low income per capita and highpolitical risk in the countries where it operates.
'Excellent' Liquidity Profile: AfDB's 'aaa' liquidity assessment reflects the bank's 'excellent' liquidity
buffers, the high quality of liquid assets and its access to capital markets. At end-2021, liquid assets
were 2.3x short-term debt. Around 80% of treasury assets were rated 'AA-' and above. The bank is aregular issuer in international capital markets.

RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
The ratings are 'AAA', which is the highest level on Fitch's scale and cannot be upgraded.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Support: Coverage of net debt by callable capital from members states rated 'AAA' falling below 100%due faster-than-expected growth in lending and debt.
A substantial weakening in the bank's solvency assessment leading to a downward revision of the SCP
assessment below 'aa-' would result in negative rating action as the uplift above the SCP for
extraordinary support is capped at three notches under Fitch's criteria.

Solvency (Risk): A weakening in asset quality for example if the weighted average rating of loans andguarantees fell below 'B-' or the NPL ratio exceeded 6%.
Solvency (Capitalisation): Markedly weaker capitalisation ratios due to delays in capital payments orsignificant losses on assets that affect the bank's own funds.

Best/Worst Case Rating Scenario
International scale credit ratings of Sovereigns, Public Finance and Infrastructure issuers have a bestcase rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in apositive direction) of three notches over a three-year rating horizon; and a worst-case rating
downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negativedirection) of three notches over three years. The complete span of best- and worst-case scenario credit
ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings arebased on historical performance. For more information about the methodology used to determine
sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATINGThe principal sources of information used in the analysis are described in the Applicable Criteria.

ESG Considerations
AfDB has an ESG Relevance Score (ESG.RS) of '4[+]' for 'Human Rights, Community Relations, Access &Affordability'. The AfDB is part of the African Development Bank Group, which extends concessionalloans and grants to low-income countries through the African Development Fund. This supports AfDB's
policy importance and shareholders' propensity to support the bank. This has a positive impact on thecredit profile and is relevant to the ratings in conjunction with other factors.
AfDB has an ESG.RS of '4' for 'Governance Structure'. The high share of capital ownership by borrowing
countries with weak credit fundamentals and limited access to external funding has led to pressure toincrease the pace of operations, potentially at the expense of prudent lending growth. This has anegative impact on the credit profile and is relevant to the ratings in conjunction with other factors.
AfDB has an ESG.RS of '4' for 'Rule of Law, Institutional & Regulatory Quality'. All supranationals attracta score of '4'. Supranationals are neither subject to bank regulation nor supervised by an externalauthority. Instead, supranationals comply with their own set of rules. Fitch pays particular attention tointernal prudential policies, including compliance with these policies. This has a negative impact on thecredit profile and is relevant to the ratings in conjunction with other factors.
The ESG.RS assigned to 'Policy Status & Mandate Effectiveness' has been revised to '3' from '4', toreflect the strengthening in Fitch's assessment of the bank's PCS on its sovereign exposures. This issue
no longer has a negative impact on the credit profile of the bank.
The ESG.RS assigned to 'Labour Relations and Practices' (SLB) has been revised to '2' from '3', given that

restrictions on recruitment based on nationality or quotas is no longer considered to be relevant tomultilateral development banks' ratings.
Except for the matters discussed above, the highest level of ESG credit relevance, if present, is a scoreof '3'. This means ESG issues are credit neutral or have only a minimal credit impact on the entity,either due to their nature or to the way in which they are being managed by the entity. For more
information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.

Fitch Ratings Analysts
Khamro Ruziev, CFA
Associate Director
Primary Rating Analyst+44 20 3530 1813
Fitch Ratings Ltd 30 North Colonnade, Canary Wharf London E14 5GNRalf Ehrhardt
Director
Secondary Rating Analyst+49 69 768076 163
James McCormack
Managing Director - Head of Sovereigns
Committee Chairperson+852 2263 9625

Media Contacts
Peter Fitzpatrick
London+44 20 3530 1103
peter.fitzpatrick@thefitchgroup.com

Rating Actions
ENTITY/DEBT

RATINGRECOVERY

PRIOR

AfricanDevelopment
Bank

LT IDRAAA

AffirmedAAA

ST IDR

F1+

Affirmed

F1+

ENTITY/DEBT

RATINGRECOVERY

PRIOR• seniorLTunsecuredAAA

AffirmedAAA• subordinated
LTAA+

AffirmedAA+• seniorST
unsecured

F1+

Affirmed

F1+

RATINGS KEY OUTLOOK WATCH
POSITIVE
NEGATIVEEVOLVING
STABLE

Applicable Criteria
Supranationals Rating Criteria (pub.11 Apr 2022) (including rating assumption sensitivity)

Additional Disclosures
Solicitation Status

Endorsement Status
African Development BankUK Issued, EU Endorsed

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