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Fitch Affirms Agence Francaise de Developpement at 'AA+'; Outlook Stable
February 7, 2014 / 3:25 PM / 4 years ago

Fitch Affirms Agence Francaise de Developpement at 'AA+'; Outlook Stable

PARIS, February 07 (Fitch) Fitch Ratings has affirmed Agence Francaise de Developpement's (AFD) Long-term foreign and local currency Issuer Default Ratings (IDRs) at 'AA+' with a Stable Outlook, and its Short-term foreign currency IDR at 'F1+'. A full list of rating actions is available below. The IDRs of AFD are underpinned by an implicit solvency guarantee from the French state (AA+/Stable/F1+), given its status as a public agency (EPIC). They also reflect AFD's strategic role as the main supplier of French development aid, a key foreign policy instrument. KEY RATING DRIVERS Fitch classifies AFD as a dependent public sector entity (PSE) under its rating of public sector entities criteria, due to its statutory solvency guarantee, legal status, strategic importance to, and, to a lesser extent, control by and integration with the State. As a result the ratings of AFD are equalised with and credit- linked to France's ratings. AFD is the State's development bank. Its missions are defined by the government and monitored by sponsor ministries (foreign affairs, finance, interior and overseas). The policy framework for French development aid was last updated in June 2013 and confirmed AFD's role as a central operator. The State provides funding to AFD through loan guarantees, budgetary transfers and long-term loans. Fitch expects state funding to remain stable in the medium term as development aid is protected from the French government's spending cuts. Fitch expects AFD's outstanding loans in 2013 to have grown at a pace similar to the 19.4% seen in 2012. This is in line with AFD's business plan of EUR8bn of new commitments per year, which could lead to the balance sheet doubling in size by 2020. Business growth in 2012 was almost entirely due to AFD's own-risk lending to foreign countries. Of its outstanding loans 92.4% were contracted at AFD's own risk at end-2012, focusing on Africa and the Middle East. Financing commitments reached EUR8.95bn at end-1H13, of which 87.6% were granted at AFD's own risk. At end-1H13, AFD benefited from EUR1.79bn of explicit loan guarantees from the State. Net results totalled EUR112m in 2012 and Fitch expects profitability to remain stable in 2013. AFD benefited from low borrowing costs and loan impairment charges, despite prudent provisioning. Its cost/income ratio remains high, reflecting its narrow interest margin, the cost of its agencies' network, and the importance of higher-cost advisory services provided to borrowers and foreign governments. Strong asset growth has weakened AFD's capital ratios since 2007. Capitalisation remains sound, but the regulatory capital ratio declined to 19% in 2012, from 29.14% in 2010. Core Tier 1 ratio is expected to have declined to 9.3% in 2013, from 10.2% in 2012. AFD intends to broaden its eligible capital base so that lending growth remains compatible with regulatory capital requirements. We believe the State will ensure AFD has the means to implement its business plan while maintaining safe capital ratios. AFD enjoys solid liquidity, underpinned by its long-term funding structure and its strong capital base. Short-term funding comprises EUR2bn certificate of deposits and a EUR25bn EMTN programme. At end-1H13, AFD had a significant liquidity buffer in EUR1.64bn of available-for-sale securities and EUR685.4m held-to-maturity securities. As a public agency, AFD has access to liquidity support from the French Treasury. RATING SENSITIVITIES A rating action on the Republic of France would be reflected in AFD's ratings. A change in AFD's legal status that weakens potential support from the state would lead to a downgrade. The rating actions are as follows: - Long-term IDR: affirmed at 'AA+'; Outlook Stable - Short-term IDR: affirmed at F1+ - EUR25bn EMTN programme: affirmed at 'AA+'/'F1+' - EUR2bn certificates of deposits programme: affirmed at 'F1+' - Senior unsecured notes: affirmed at 'AA+' - Subordinated notes: affirmed at 'AA' Contact: Primary Analyst David Lopes Associate Director +33 1 44 29 91 45 Fitch France S.A.S. 60, rue de Monceau 75008 Paris Secondary Analyst Arnaud Dura Associate Director +33 1 44 29 91 79 Committee Chairperson Guido Bach Senior Director +49 69 768076 111 Media Relations: Francoise Alos, Paris, Tel: +33 1 44 29 91 22, Email: francoise.alos@fitchratings.com; Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available on www.fitchratings.com Applicable criteria, "Tax-Supported Rating Criteria", dated 14 August 2012 and "Ratings of Public Sector Entities - Outside the United States� dated 4 March 2013, are available on www.fitchratings.com Applicable Criteria andALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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