Jeddah : Saturday, July 8, 2006
Moody's Investors Service, a major world credit rating agency, has disclosed that it has assigned Aaa long-term and Prime-1 short-term issuer ratings to the Islamic Development Bank and that the outlook on the ratings is stable.
According to Mr. Pierre Cailleteau, a Senior Vice President in Moody's Sovereign Risk Unit, the Islamic Development Bank is a unique multilateral development bank (MDB) for three main reasons:
a) It fulfills its development mission through Sharia-compliant asset-backed methods of finance
b) It is exclusively composed of developing or emerging market economies. In contrast to most other MDBs, the IDB does not have any Aaa-rated countries as shareholders. Although many of its members have over time acquired a strong economic and financial standing such as Saudi Arabia, Kuwait, the Emirates, Malaysia, for instance, the commitment of shareholders to the IDB is not directly reflective of their economic strength but rather of a strong community ethos" Cailleteau explained.
c) The Bank has been reliant on shareholders' funds almost exclusively until recently, and still to a significant extent. As a result, the institution's leverage ratios are very low, and thanks to a prudent approach to operations, the IDB can cover its entire operational assets and equity investment shares with its usable capital" Cailleteau added.
Mr. Cailleteau further stated that the Aaa rating reflects the fact that both the IDB's financial strength and the commitment of its shareholders are extremely sound although the IDB operates in a challenging environment. The majority of the countries benefiting from its projects are at the low end of the rating spectrum or would presumably be so if they were rated. The institution's capital base and liquidity are very strong certainly comparable to those of the highest-rated MDBs and the quality of its portfolio is enhanced by the asset-backed nature of Islamic finance, the existence of sovereign guarantees and a prudent risk management approach. "In addition, the underlying community ethos for an institution such as the IDB may transcend the precarious financial situation of many of its members, explaining the low level of payment of arrears", Cailleteau noted.
Mr. Cailleteau also indicated that the IDB now raises a proportion of its funds on the Islamic bond market. According to Cailleteau, "the borrowing activity reflects more a desire to promote the development of the Islamic bond market than a need to release shareholders from further equity financing obligations". The medium-term issue for the IDB will be to be responsive to the desire of its shareholders to see its profile raised and its impact increased while not weakening the Bank's current financial solidity. In Moody's view, the decision taken by the member states at the recent Annual Meeting in Kuwait to increase considerably the Bank's authorized and subscribed capital stock indicates that this challenge can be met.
It should be recalled that Moody's Investors Service is among the world's most respected and widely utilized sources for credit ratings as well as research and risk analysis. In addition to its core ratings business, Moody's publishes market-leading credit opinions as well as deal research and commentary thereby serving more than 9,000 customer accounts at some 2,400 institutions around the globe.
Moody's independence and integrity have earned it the trust of capital market participants worldwide. Its ratings and analysis track debt in more than 100 sovereign nations, 11,000 company issuers, 25,000 public finance issuers, 70,000 structured finance obligations
Moody's Investors Service has offices in most of the world's financial centres and employs more than 2,400 people worldwide including more than 1,000 analysts.
Moody's rating of the Islamic Development Bank has come to complement the same level of rating assigned to it by Standard & Poor's for the fourth time in a row. Standard & Poor's AAA long-term and A-1+ short-term issuer ratings assigned to the Bank are based on the Bank's capital stock, minimum ratio of operational assets to shareholders' rights compared to all international financing institutions with the highest rating, operational assets portfolio's unparalleled performance notwithstanding part of its financing extended to least developed countries, and solid liquidity position.