JEDDAH, 6 December 2007 — Fitch Ratings has upgraded yesterday Islamic Development Bank’s (IDB) long-term issuer default rating (IDR) to “AAA” from “AA+”. Fitch has changed the outlook for the long-term IDR to stable from positive. Fitch has also affirmed IDB’s short-term IDR at “F1+”.
The upgrade stems from further improvements made in the credit standing of the bank’s main shareholders, their ongoing subscription to the capital increase initiated in May 2006 and the progress observed in the establishment of its concessional fund, the Islamic Solidarity Development Fund (ISDF).
IDB benefits from the strong support of its 56 member countries, all members of the Organization of the Islamic Conference (OIC). Support takes the form of uncalled subscribed capital that the bank would be authorized to call in case of need to meet its financial obligations. Several Islamic countries have recently benefited from an upturn in their sovereign ratings.
and this trend was affirmed in 2007. In particular, the Outlook for Saudi Arabia’s long-term IDR (IDB’s largest shareholder with 27.9 percent of subscribed capital) was revised from stable to positive on July 31,2007, following Fitch’s upgrade of its long-term IDR to “A+” from “A” in 2006. Furthermore, the agency assigned the Emirate of Abu Dhabi (the largest of the seven emirates making up the United Arab Emirates and IDB’s fifth-largest shareholder with 7.9 percent of subscribed capital) a long-term IDR of “AA” with a stable outlook on July 2, 2007, reflecting IDB’s improving credit environment.
Fitch also predicted an eventual improvement in the bank’s operating performance and asset quality. While most of IDB’s financing is directed to speculative-grade countries, IDB has traditionally recorded a very low level of non-performing assets, with impaired financed operations standing at only 1.2 percent of the bank’s portfolio (excluding equity stakes).
Concessional financing has been historically funded through the bank’s ordinary capital, while other multilateral development banks generally rely on a separate financial arm.
The rating action is also supported by the shareholder’s further adherence to the decision of IDB’s board of governors to launch a substantial increase in subscribed, paid-in and callable capital. To date, the bank has received acceptance from shareholders accounting for 84 percent of its capital compared with 40 percent of the shares at end-November 2006.
