Standard & Poor's and Moody's assigned this month a triple-A credit rating (AAA/Aaa) to the European Investment Fund (EIF), the risk capital and guarantee arm of the European Investment Bank, operating in conjunction with the European Commission. According to the rating agencies, the issuer rating reflects the strong shareholder support and high levels of AAA-rated callable capital, as well as the Fund's prudent financial policies, sophisticated risk management and monitoring systems and the strength of its management team. The rating outlook was qualified as stable.
Francis Carpenter, EIF's Chief Executive, declared: We are most satisfied to obtain the top credit rating, as it is indeed a key for the development of our business, especially with guarantee intermediaries who will continue to benefit from our creditworthiness and from economic and regulatory capital relief, particularly as part of the Basel II Capital Accord. The external ratings will notably underpin the further development of EIF guarantee activity in the area of securitisation of SME financing, where EIF acts as an external credit enhancer for noteholders investing in Asset-Backed Securities backed by portfolios of SME loans.
The European Investment Fund is the European Union's Financial Institution specialised in venture capital and guarantees for SMEs. Based in Luxembourg, the EIF was established in 1994 and operates as a joint venture between the European Investment Bank (61% shareholder), the European Community - represented by the European Commission - (30%) and some 30 European banks and financial institutions. EIF's capital amounts to EUR 2 billion, of which EUR 400 million paid-in. 95% of the subscribed capital is from triple A-rated institutions.
Guarantee intermediaries benefit from reduced regulatory capital allocation on assets guaranteed by the EIF thanks to a 20% risk weighting, instead of 100%, allowing financial institutions to expand their lending capacity to SMEs while improving their return on equity. EIF guarantees also facilitate the risk transfer to third party investors and the credit risk transfer to capital markets through bond issuances.
EIF has generated profits since its inception in 1994. Net profit in 2002 amounted to EUR 18.7 million, despite a difficult market environment.