S&P Global Ratings on June 12 revised its outlook on Corporación Andina de Fomento, or CAF, to negative from stable, due to the possibility of Venezuela not paying its debt to the multilateral lender.
The negative outlook reflects the greater than one-in-three chance that Venezuela's worsening economic and liquidity conditions could reduce its capacity to treat CAF as preferred, leading to a deterioration of the bank's risk-weighted capital adequacy and an impaired business profile, S&P said. In general, Venezuela treats CAF more favorably than other multilateral lending institutions when it comes to payment, but S&P believes "the ability to treat them as preferred [is] increasingly constrained."
Over the past year, CAF has persistently seen payment delays from Venezuela, with arrears accumulating to $136 million as of December 2017, S&P said. Although these were subsequently cleared in January, further payment delays past 90 days started accumulating in the second half of 2018.
"While Venezuela is now current on these payments, we expect persistent and longer-term payment delays to eventually accrue over the next 24 months as economic conditions in Venezuela continue to worsen, compounded by sanctions and declining oil production," S&P said.
Nonpayment risks are also heightened given CAF's significant exposure to Venezuela, which accounts for a 14% share of the bank's portfolio.
S&P also affirmed CAF's AA-/A-1+ long- and short-term issuer credit ratings.
This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings, a separately managed division of S&P Global. Descriptions in this news article were not prepared by S&P Global Ratings. The original S&P Global Ratings documents referred to in this news brief can be found here.
