Fitch Ratings lowered the New Development Bank’s credit rating by a notch on Monday while keeping the outlook negative, citing the fallout from Russia’s war in Ukraine. Development banks rarely take hits to their ratings.
Russia is a founding member of the BRICS club — a grouping that also comprises Brazil, India, China, and South Africa — which is behind the Shanghai-based NDB. Moscow owns almost 20% of the bank’s capital. NDB did not respond to a request for comment on the decision, which moved down the bank’s rating from AA+ to AA, Fitch’s third-highest rating.
U.S. risk: The agency said NDB could face issues with issuing bonds in the United States, a key capital market, because of sanctions on Russia. “The rating downgrade principally reflects Fitch's view that deterioration in access to US capital market could significantly affect NDB's current business model,” according to a statement. Development banks borrow at low rates, due to their generally high credit worthiness, which they pass on to their own borrowers.
China market: NDB is able to raise capital in Chinese markets, and in May issued a so-called panda bond worth over $1 billion (7 billion yuan). However, since the Russian invasion of Ukraine in February, the bank has not attempted a new U.S. dollar issuance.
Existing U.S. dollar bonds, including a $1.5 billion issuance maturing next year, continue to be traded on Western markets, and Fitch said it expects the bank to “honour its debt obligations over the medium term.”
Not enough: Following the invasion, NDB said it halted new projects in Russia, but Fitch argued it has been unable to “break the Russian nexus” because of Moscow’s ownership. Russia is subjected to a slew of international sanctions, leaving the country cut off from Western markets and leading to a default on its debt — the first in two decades.
However, there are signs that NDB could add new members, which would make the institution’s portfolio more diverse and reduce Russian risk.
About the author
Shabtai Gold
Shabtai Gold is a Senior Reporter based in Washington. He covers multilateral development banks, with a focus on the World Bank, along with trends in development finance. Prior to Devex, he worked for the German Press Agency, dpa, for more than a decade, with stints in Africa, Europe, and the Middle East, before relocating to Washington to cover politics and business.
