Nov
16- Fitch Ratings has affirmed the Islamic Development Bank's (IDB)
Long-term Issuer Default Rating (IDR) at 'AAA' with a Stable Outlook and
Short-term IDR at 'F1+'.
The
ratings primarily reflect IDB's strong capitalisation. The bank is one
of the most highly capitalised multilateral development banks (MDBs)
rated by Fitch. The equity to assets ratio has remained above 65% since
inception (70.7% at end-1431H, equivalent to 6 December 2010 in the
Gregorian calendar). The IDB also maintains comfortable liquidity and
compliance with Sharia'h principles induces extremely low leverage
(21.3% at end-1431H). (source)
IDB's capital is owned by 56 countries, all members of the Organisation of the Islamic Conference. Its main shareholder is Saudi Arabia
('AA-'/Stable), which owned 24.6% of callable capital at end-1431H.
Although the proportion of 'AAA' and 'AA' rated shareholders is lower
than for other 'AAA'-rated MDBs (42.5% at end-1431H), support is strong,
as indicated by continuous capital increases since 2006.
IDB mainly extends project financing guaranteed by states or state-owned banks to finance
infrastructure or social services; due to compliance with Islamic
finance principles, most financing is asset-backed. As for other MDBs,
activity is mostly focused on speculative-grade borrowers (68.8% at
end-1431H), but the bank benefits from preferred-creditor status on
sovereign-guaranteed operations, which has enabled it to keep NPLs at a
minimum (1.0% of non-equity operations at end-1431H).
The
bank also abides by strict country and single obligor limits on its
financing operations, limiting concentration risk (the five largest
obligors accounted for 30.7% of equity at end-1431H, which compares
favourably with other MDBs).
Credit
risk on treasury assets is mitigated by the recourse to short-term
investments in a diversified range of regional and European banks.
Interest rate risk and foreign exchange risk are also limited. The
bank's risk on its equity investments is higher, as illustrated by
rising impairment provisions since 1429H (2008) but remains manageable.
As
is typical of MDBs, the IDB is not profit oriented and does not
distribute dividends. Its profits are used to strengthen the equity
base. RoE has averaged 2.9% since 2006, and profitability improved in
1431H thanks to reduced borrowing costs, depreciation and provisions for
loan losses.
Like
other MDBs, the bank has carried out countercyclical activity since
2009: total outstanding operations rose by 19.2% in 1430H (2009) and
9.4% in 1431H. It intends to increase operations by 10% a year until
2013 but with no significant shift in business model:
sovereign-guaranteed operations should remain prominent despite rising
private-sector financing. Fitch does not expect any loosening in the
bank's prudential framework.
Established
as an MDB in 1975, the IDB provides financial assistance to member
countries and Muslim communities in non-member countries based on the
principles of Sharia'h and on asset-based methods of finance.
Headquartered in Jeddah, Saudi Arabia, the bank operates through four
regional offices (in Morocco, Malaysia, Kazakhstan and Senegal).
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