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AFRICAN DEVELOPMENT BANK'S $2.5 BILLION DEBT ON FITCHALERT NEGATIVE --FITCH FINANCIAL WIRE (FFW)--

AFRICAN DEVELOPMENT BANK'S $2.5 BILLION DEBT ON FITCHALERT NEGATIVE
 --FITCH FINANCIAL WIRE (FFW)--
 NEW YORK, April 15 /PRNewswire/ -- The African Development Bank's $2.535 billion 'AA+' subordinated debt is placed on FitchAlert with negative implications. Fitch expects the subordinated debt rating to fall no lower than 'AA-'. The bank's $3.757 billion 'AAA' senior debt is affirmed.
 The alert reflects indications that non-regional shareholders will not increase the bank's capital base before 1996, as well as greater loan quality risks and a reexamination of the incentives for supporting the bank given the competing demand for capital in the post-Communist era. Rating action will follow the bank's annual meeting in Senegal on May 14-16. At that time, the bank's board will set final terms for its lending and borrowing for the 1992-1996 period. The rating level will be a function of the amount of the lending program, as well as indications of the size and timing for the next capital increase.
 The collapse of the Soviet Union has changed foreign policy objectives of many of the bank's supporters. Due to diminishing geopolitical incentives to support African development, a greater focus on trade and commercial factors becomes more relevant.
 Shareholder support extending beyond capital contributions is important to the subordinated debt rating. It encompasses the extent of the bank's mandate as a vehicle for development, including the level of concessionary aid under the bank-administered African Development Fund. In addition, Fitch will assess the degree to which the bank secures cofinancing, particularly with trade banks and private commercial banks. Evidence of continued participation with other institutions will enhance the bank's perception as an effective conduit of development.
 At the end of the second five-year operational program in 1991, total debt rose to 103 percent of capital commitments by the strongest member countries (strong callable capital), from 83 percent in 1990. Without a capital increase, strong callable capital coverage is expected to rise above 120 percent over the next five years, well above the 90 percent margin considered appropriate by Fitch. Balance sheet leverage ratios are also under pressure. At year-end 1991, total debt equalled 107 percent of balance sheet capital (paid-in capital, reserves, and liquidity), compared to 79 percent in 1988. Total debt is expected to remain above 90 percent of balance sheet capital over the next five years.
 Operating performance also assumes a greater role in Fitch's ratings because of the inadequate strong callable capital. Loan quality is expected to deteriorate over the next few years. Non-accrual loans doubled in 1991 to 11.6 percent, while loan arrears equalled a high 31 percent of loan income. However, tighter underwriting standards and the implementation of rigorous loan sanctions should enable the bank to maintain its high recovery rate of nearly 80 percent. Despite higher loan loss provisions, profitability should remain strong. At year-end 1991, the return on average assets was 1.71 percent, below the 2.07 percent level a year earlier.
 -0- 4/15/92
 /CONTACT: Ricardo Kleinbaum, 212-908-0525, or Neil Baron, 212-908-0509, both of Fitch/ CO: African Development Bank ST: IN: FIN SU: RTG


TQ -- NY098 -- 8844 04/15/92 15:32 EDT
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Date:Apr 15, 1992
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