East African bank gets Sh2 billion AfDB boost

The African Development Bank is set to increase its stake in the East African Development Bank after it made an investment worth Sh2.06 billion ($24 million).

In a press statement on Wednesday, the African Development Bank (AfDB) said that the equity investment was expected to help EADB in improving its international credit worthiness.

The funds will be used to assist EADB in consolidating a restructuring process that was launched in 2009 and to strengthen its balance sheet.

“This is a crucial condition for mobilising financial resources from capital markets at more affordable terms and meeting the growing demand for investment in the East African Community (EAC),” read the statement in part.

Some Sh860 million ($10 million) of these funds will be paid in immediately while the rest will remain in callable capital — money set aside that EADB will be able to tap into as and when needed.

The AfDB owns about 6.76 per cent of EADB. Kenya, Uganda, and Tanzania each hold 27.20 per cent while Rwanda owns 4.34 per cent of the bank.

Last October, credit rating agency Fitch upgraded EADB’s rating to B with a stable outlook, from B minus.

The agency cited an improved asset quality following the 2009 management reshuffle.

In 2011, the bank had been restored to profitability while its equity to assets ratio peaked at 53.8 per cent.

Despite this, Fitch warned that the low credit quality countries that own the majority stake in EADB were weighing down the bank’s rating.

The agency noted that if non-regional shareholders, such as AfDB, which has the highest Fitch rating, could be persuaded to subscribe to callable capital, this would improve EADB’s rating.

According to Fitch’s grading, a “B” denotes the presence of default risk within an organisation as well as vulnerability to negative changes in the economic environment.

A recent report from the East African Community’s (EAC) council of ministers states that the bank is seeking a local currency rating from the South African Global Credit Rating Company (GCR) in order to start issuing bonds. 

EADB has also decided to get a second foreign currency rating from Moody’s.