(The following statement was released by the rating agency)
June 21 - Fitch Ratings has affirmed the Islamic Development Bank's (IsDB)
Long-term Issuer Default Rating (IDR) at 'AAA' with a Stable Outlook and
Short-term IDR at 'F1+'.
IsDB's ratings are underpinned by strong intrinsic features, primarily by
excellent capitalisation. IsDB is one of the most highly capitalised
multilateral development banks (MDBs) covered by Fitch. The ratio of equity to
assets has remained above 60% since inception (64.1% at end-1432H, equivalent to
25 November 2011 in the Gregorian calendar), mainly thanks to regular capital
inflows from shareholders and steady yet moderate profits. The ratio of debt to
equity is low, at 49.2% at end-1432H. The bank also maintains a comfortable
level of liquid assets, which more than fully covered its short-term liabilities
Credit risk is moderate. The IsDB mainly extends project financing guaranteed by
member states or state-owned banks to finance infrastructure or social services.
Due to compliance with Islamic finance principles, most financing is
asset-backed. As with other MDBs, activity is mostly focused on speculative
grade borrowers (63.7% at end-1432H) but the bank benefits from
preferred-creditor status on sovereign-guaranteed operations, therefore keeping
impaired operations at a minimum. It limits concentration risk as it operates in
a diversified number of countries and abides by strict country and single
obligor limits. The five largest borrowers accounted for 32.8% of equity at
end-1432H, a lower level than most peers.
Fitch deems other risks under control. Credit risk on treasury assets is
mitigated by the recourse to short-term investments in a diversified range of
instruments and banks. Interest rate risk and foreign exchange risk are strictly
hedged. The bank's risk on equity investments is higher (equity stakes and fund
participations accounted for 16.2% of total operations at end-1432H and have
suffered significant unrealised losses recently) but remains manageable given
the bank's long-term investment horizon and comfortable cushion of equity.
Shareholders' support is also supportive of the rating. IsDB's capital is owned
by 56 countries, all members of the Organisation of Islamic Cooperation, which
have committed to provide callable capital in case the bank should require it to
honour its liabilities. Although the proportion of highly rated callable capital
is lower than for peers (with 43.4% of callable capital being rated 'AA-' or
above at end-1432H), willingness to support is strong as illustrated by
continuous capital inflows to the bank.
The bank undertook countercyclical action in 2009-2011, significantly increasing
its loan portfolio. It has temporarily slowed its growth rate in 1433H but
intends to significantly reinforce the use of its capital resources in the
coming years. This should affect capitalisation and leverage but Fitch expects
the IsDB to preserve its cautious prudential framework.
Downward pressure on IsDB's ratings would occur if Fitch observed a pronounced
deterioration of asset quality or a sudden and unexpected deterioration in
capitalisation and leverage.
The IsDB is based in Jeddah, Saudi Arabia. It was established in 1975 with the
aim of fostering economic development and social progress, and provides project
and trade finance as well as technical assistance to its member countries. It
employed 739 staff at end-1432H and operated through four regional offices in
Morocco, Malaysia, Kazakhstan and Senegal.
+33 1 44 29 92 82
Fitch France S.A.S.
60 Rue de Monceau
+33 1 44 29 91 33
+44 20 3530 1444
(Reporting By Hilary Russ)