International agency Fitch Ratings Inc has affirmed the Islamic Development Bank’s (IDB) long-term issuer default rating (IDR) at ‘AAA’ with a stable outlook. The short-term IDR has been affirmed at ‘F1+’. The trust certificates issued by IsDB Trust Services Ltd and guaranteed by IsDB have also been affirmed at ‘AAA’.
The ratings reflect its intrinsic credit strengths with its solvency and liquidity assessment both at ‘aaa’.
The ‘aaa’ solvency assessment reflects IDB’s excellent capitalisation and low risk. Its equity-to-asset ratio was 43% in 2017, one of the strongest among multilateral development banks (MDBs), the agency said in a statement.
The ratio has declined in recent years, compared to 49% in 2015, reflecting rapid growth in IDB’s banking portfolio.
“However, Fitch expects lending growth to decelerate in line with IDB’s strategy and the equity-to-asset ratio to remain above 40% through to 2020. Ongoing capital increase (IDN2.4 billion of paid-in expected over the next 10 years) and internal capital generation will further support capitalisation,” it added.
Fitch has described IDB’s overall risks as low, while the credit risk was said to be moderate.
“The bank’s risk management is conservative overall and risk management policies are deemed strong. Prudential rules include strict limits on country, sector and single borrower exposures,” it said.
However, Fitch said the provisioning of impaired assets was less conservative than at other ‘AAA’-rated peers.
It noted that pressure on the ratings would arise from a pronounced weakening of asset quality or deterioration of capitalisation and leverage.
“Deterioration in the quality of IDB’s treasury asset portfolio could lead to pressure on the bank’s intrinsic credit profile and, in turn, IDR,” it said. — TMR