St Lucia PM wants CDB to act to reverse Moody’s rating
Dr Kenny Anthony has called on the Caribbean Development Bank to immediately implement policies to reverse its credit rating downgrade.
CASTRIES, St Lucia, Thursday May 30, 2012 – The new chair of the Caribbean Development Bank (CDB) has called on the institution to implement measures to reverse the ratings downgraded issued by Moody’s Investors Services.
St Lucia Prime Minister Dr Kenny Anthony made this call as he addressed the recent annual CDB board of governors meeting in the Cayman Islands.
“The Bank must move quickly to create a dedicated risk management function, adopt comprehensive asset-liability management policies and carry out other necessary reforms to ensure that all its fundamentals get back on track and are sustained,” said Dr Anthony.
His call followed the revelation made at the start of the two-day meeting by CDB President Dr Warren Smith that Moody’s had downgraded the credit ratings for the financial institution by one notch from Aaa to Aa1.
Smith said the downgrade the United States-based credit rating agency followed a routine examination of the region’s premier development bank and that “we are disappointed at the decision”.
His sentiments were echoed by Anthony who said: “The Bank has, for many years, maintained an international credit rating of “Triple A” with Moody’s Investment Service and Standard and Poors. We are, understandably, very concerned by the downgrading of the Bank by Moody’s to “Aa1” with a negative outlook, earlier this month.”
The St Lucian prime minister said that some of the underlying reasons for the downgrade “were somewhat surprising” noting that the “reliance in recent years on borrowing with bullet maturities, has evidently caused the payment profile of the Bank’s debt to be heavily front loaded, thereby increasing its exposure to refinancing risk.
“In addition, the Bank’s non-compliance with its own liquidity policy for the last five years is a matter of great concern. The inevitable question is this: were directors and governors explicitly informed? “
Anthony said that in the opinion of Moody’s, those shortcomings were inconsistent with the standards associated with “Triple A” rated banks and reflect deficiencies in the management of the Bank’s assets and liabilities and in its financial planning. But he noted that on the positive side, CDB’s ability to service its debt in a timely manner appears not to have been compromised.
“Nevertheless, the Bank must move quickly to create a dedicated risk management function, adopt comprehensive asset-liability management policies and carry out other necessary reforms to ensure that all its fundamentals get back on track and are sustained.
“Other areas underlying the downgrade are CDB’s weak capital adequacy ratio despite the recent general capital increase, and the high degree of risk associated with its 55 per cent loan concentration in its four top borrowers. The Bank must examine all available strategies to address those concerns with the relevant stakeholders, including its non-borrowing and borrowing members.
“The Bank must make every effort to stabilise and prevent further erosion in its credit rating, reverse the negative outlook and return to the higher rating threshold,” Anthony said.