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Risk assessor Fitch Ratings has downgraded the long-term credit rating of the New Development Bank (NDB), established by the Brics group of emerging nations, due to its links with sanction-hit Russia.
The bank has been downgraded to AA from AA+, taking it from its second-highest ranking to third, with a negative outlook, the agency said on Tuesday.
“The rating downgrade principally reflects Fitch’s view that deterioration in access to US capital market could significantly affect NDB’s current business model,” it said.
The NDB’s business model is reliant on its ability to access the long-term US dollar bond market at low rates and to pass on its low funding cost to its borrowers. Russia has been hit by unprecedented sanctions in the wake of its invasion of Ukraine, with Fitch saying it may struggle to issue long-term bonds on US markets or to work with US institutions.
As of end-2021, Russia’s share in NDB’s total loan portfolio was 13%, or $1.8bn (R30.6bn), of which the majority is directly linked to the Russian sovereign, Fitch said.
Loans are denominated in US dollars, euros and Swiss francs, and the bank does not have any local currency (rouble) exposure to the Russian sovereign. As of mid-2022, the Russian loans were all performing, it said.
Brazil, Russia, India, China and SA — known together as Brics — are members of the NDB.
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Published by Arena Holdings and distributed with the Financial Mail on the last Thursday of every month except December and January.