OREANDA-NEWS. Fitch Ratings has today affirmed the North American Development Bank's (NADB) Issuer Default Ratings (IDRs) at 'AA'/'F1+'. The Rating Outlook is Stable. A full list of NADB's ratings follows at the end of this press release.

KEY RATING DRIVERS

The affirmation and Stable Outlook reflect the following key rating factors:

-- The bank has strong capitalisation; equity has accounted for roughly 34% of assets on average the last three years. Leverage continues to be low, with debt representing 194.4% of equity at the end of 2014. However, NADB continues to ramp-up its lending, with the number of loans growing quickly. Fitch expects that the bank's capital will continue to decline due to the accelerated growth, although capital ratios will continue to be commensurate with 'AA' rating.

-- Asset quality is under control. Despite the bank's private-sector lending orientation (73% of exposure as of end-2014), which does not enjoy preferred creditor status, impaired loans have remained low, at 0.3% of total loans at end-2014. This is partly due to the support of the Mexican state, which provides a form of guarantee to local authorities.

-- The average rating of the loan portfolio is stable, at 'BBB-' in 2014, but Fitch anticipates a slight deterioration. Most loans have been issued recently and as they mature, difficulties in loan servicing may appear, placing modest pressure on asset quality.

-- Loan concentration has gradually been reduced due to the rapid growth of the loan portfolio and conservative underwriting standards. Concentration ratios are now similar to those shown by peers' lending to private-sector borrowers. The bank's five largest exposures accounted for 26.5% of total loans in 2014, compared with figures above 50% shown in the past years.

-- The bank had excellent liquidity at end-2014. Liquid assets accounted for 27.3% of total assets at year-end and the bank had no short-term debt. NADB's ratio of treasury assets to short-term debt is expected to remain excellent as no bond is expected to mature before 2018.

-- Credit risk on treasury assets is managed conservatively. Interest rate and foreign exchange risks are kept to a minimum, in line with most other multilateral development banks. The bank's risk management is being progressively improved. In 2014, the bank hired a risk manager to create a risk department and a risk management committee has been created in order to capture and monitor overall NADB's risk environment.

-- While support is no longer a major factor in the bank's ratings, Fitch believes that the support of its two member countries is strong; ratings of the U.S. ('AAA'/Stable Outlook) and Mexico ('BBB+'/Stable Outlook) have remained unchanged since last review. However, the average rating of key shareholders remains lower than some multilateral development bank peers, which would constrain a support-driven rating. Support takes the form of callable capital, accounting for 85% of subscribed capital. U.S. and Mexican governments continue to support the bank's growth as demonstrated by the announcement of a USD450 million increase in paid-in capital, along with authorization of USD\$2.55 billion in additional callable capital from the two governments.

RATING SENSITIVITIES

As NADB's ratings are driven by intrinsic factors, the Stable Outlook reflects Fitch's assessment that NADB's credit profile will remain commensurate with its 'AA' rating. The factors that could, individually or collectively, affect NADB's ratings are:

-- A stronger than currently expected deterioration of capitalisation, related to more aggressive growth and/or to rising losses on the loan portfolio, would be detrimental for the rating.

-- The building up of a healthy track record, associated with moderate growth in the loan portfolio, limited losses and lower concentration levels would be favourable for the ratings.

KEY ASSUMPTIONS
The ratings and Outlook are sensitive to a number of assumptions, particularly:

-- Fitch assumes that NADB's business model will remain unchanged and in particular will include a significant element of lending to private-sector borrowers.

--Fitch assumes that NADB will maintain its conservative risk management and governance policies.

Fitch affirms NADB's ratings as follows:

--Long-term IDR at 'AA'; Outlook Stable;
--Short-term IDR at 'F1+';
--Senior unsecured long-term notes at 'AA'.