CDB Downgrade Effects Unlikely

Details

Economy

Wednesday, 30 May 2012 02:30

By caribarena news

Antigua St John's - The Caribbean Development Bank (CDB) experienced a noticeable bump in its once all-star AAA rating last week from the US-based Moody's Investment Services.

The CDB now holds an AA1 credit rating, and has opted to review and strengthen its risk-management practices, that could be reflected through the anticipated rise in borrowing costs for Antigua and the rest of the Caribbean.

According to a senior banking official in Antigua, since the CDB is not a political body, this does not affect the country directly.

The source pointed out also that Antigua has always stood without a credit rating, having never provided the relevant rating agencies with the necessary information. Countries like The Bahamas and the Cayman Islands have ratings, which allow them to stand more firmly on their bonds and other assets.

Speaking to the downgrade’s effect on the CDB itself, the senior banker said the world’s perception of the bank’s corporate bonds and security is likely to be altered.

The CDB is still free to lend to countries like Antigua and others, but this capital continues to depend on depositors and investors’ confidence in the bank’s security and return guarantees.

“It does not immediately affect the lending aspect of the bank, but it does affect the depositors side and investors who fund the bank," the source said. "They may have concerns about what rating the banks have."

Requests for a comment on the subject from Finance Minister Harold Lovell have gone unanswered.

In the meantime however, President of the Caribbean Development Bank (CDB) Dr Warren Smith told the CDB board of governors that the downgrade was not surprising in today’s “environment of uncertainty”.

Smith said, “We are undertaking an in depth examination of our risk management framework and we will implement appropriate recommendations as we build resilience to the more dangerous world which we now occupy."

The CDB’s downgrade comes amidst mixed economic standings from downturns in Trinidad & Tobago, Antigua & Barbuda, and St Vincent and the Grenadines to slight growth in Barbados, St Lucia, and the British Virgin Islands.

In other parts of the Caribbean like Grenada, the matter is being seen as untimely and unfortunate for borrowing countries dealing with “fragile” economies, and brings with it new problems for the region with the possibility of higher borrowing costs.

Further to the downgraded credit rating, the Wall Street-based international credit agency Standard & Poor's warned that Caribbean debt is increasing in light of the global economic crisis.

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Official figures show that in contrast to Latin America, which grew by six percent in 2011, Caribbean countries only grew by an average 2.3 percent. The CDB is projecting that economic growth in the region will be between 1.5 and two percent this year.

The figures also show Caribbean economies face serious debt challenges, with some countries having public debt-to-GDP ratios reaching 100 percent.

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