International rating agency Fitch has assigned a Long-term rating of AA- and Short-term rating of F1+ to the Islamic Development Bank (IDB). These ratings, the first ever assigned to the IDB, are based on the bank's high level of capitalization and liquidity, good protection against credit risk and support from member countries.
IDB is strongly capitalized with shareholders' equity, as at 25 March 2001, accounting for 94.8 percent of total assets. It maintains a large portfolio of liquid assets which, in accordance with the bank's internal prudential rules, must cover at least three-years of net disbursements, defined as loans disbursed minus repayments. Of these funds, 98 percent are held in convertible currencies.
To obey the principles of Islamic law, Sharia, which forbids charging interest on loans, IDB offers Islamic financings, typically made of asset-backed instruments such as leasing. Most of IDB's financings are also guaranteed by State-owned financial institutions. In addition, they benefit from IDB's preferred creditor status, common to all Multilateral Development Banks (MDB), which gives the bank priority over other creditors in the event of default on a sovereign guaranteed financing.
Although its portfolio is made of financings to developing countries, with a significant concentration in Indonesia, Pakistan and Turkey, IDB has historically had a relatively low level of arrears, 5.9 percent of outstandings at 25 March 2001, and these are 63 percent covered by provisions.
IDB's capital is controlled by its 53 member-countries, which have all joined the Organization of Islamic Conference (OIC). Saudi Arabia and Kuwait are IDB's largest shareholders with 24.6 percent and 12.2 percent of capital respectively, the latter also being the most highly rated member-country with AA- and F1.
Two-thirds of subscribed capital has been paid-in, and the remaining portion can be called-up if the bank is unable to meet its financial obligations. Responding to capital calls constitutes an unconditional commitment from member countries. These have demonstrated their willingness to support the bank by subscribing to a 100 percent capital increase in 2001.
Capacity to pay such capital on time is less certain, as more than half of IDB's shareholders are sub-investment grade countries. However, the largest shareholders are oil exporters, most of which have investment grade ratings and hold 69.88 percent of subscribed capital.
IDB is an MDB based in Jedda, Saudi Arabia, created in 1975 to provide development and trade finance to its member countries. It operates in accordance with the principles of Islamic law, Sharia. IDB also manages several autonomous funds, which participate in the bank's operations, but are not consolidated in its accounts. — (menareport.com)
© 2002 Mena Report (www.menareport.com)
