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Moody's upgrades CABEI as South Korea's membership bolsters capital

Moody's on Sept. 18 upgraded its ratings on Banco Centroamericano de Integración Económica, or CABEI, after the development bank completed the membership process for South Korea.

The rating agency raised the bank's senior unsecured bond and long-term issuer ratings to Aa3 from A1, while affirming the short-term issuer rating at P-1. It also changed the outlook on the ratings to stable from positive.

South Korea's legislature approved the country's membership in CABEI in August, with a capital subscription totaling $450 million. The membership follows the signing of a free-trade agreement between South Korea and Central America in 2018.

The capital subscription will be split into $112.5 million of paid-in capital and $337.5 million in callable capital. The paid-in capital will be disbursed over four years starting in 2019.

Once the capital subscription is integrated into CABEI's capital structure, South Korea will have a 9.2% share in CABEI's capital, the second-largest stake for a non-regional member after Taiwan's 10.2% ownership.

South Korea's membership will diversify CABEI's shareholder base and will boost capital buffers to mitigate key credit risks. The capital subscription, meanwhile, will increase the bank's share of investment-grade rated shareholders to 38% by the end of 2019 from 32% at year-end 2018.

The stable rating outlook on CABEI reflects Moody's view "that conservative liquidity management, adequate capital buffers, and prudent lending will continue to balance the risks associated with a regionally concentrated lending portfolio and a challenging operating environment."