New York, October 20, 2015 — The Islamic Development Bank’s (IsDB) Ordinary Capital Resources has increased its use of sukuk instruments, not only boosting its lending capacity but also promoting the global Islamic financial markets, says Moody’s Investors Service. The IsDB currently has a long-term issuer rating of Aaa with a stable outlook.
Moody’s observations were contained in its just released report “Islamic Development Bank — Ordinary Capital Resources.” The IsDB has a long-term issuer rating of Aaa with a stable outlook. The report elaborates on the rationale behind Moody’s rating of the IsDB.
Moody’s highlights that IsDB’s Aaa rating reflects the Bank’s (1) strong shareholder support, including from several highly-rated sovereigns; 2) the institution’s preferred creditor status, which ensures that debt it is owed is excluded from the imposition of capital account controls, as well as any restructuring of sovereign obligations; (3) a strong capital base and prudent financial and risk management policies; and (4) solid liquidity levels.
The IsDB is one of the largest issuers of sukuk, along with the governments of Malaysia (A3 positive), Indonesia (Baa3 stable) and Qatar (Aa2 stable), all IsDB members. IsDB issued four series of Trust certificates in 1435H under the recently upsized MTN program, increasing total borrowings by 19% to Islamic Dinars (ID, or SDR) 7.4 billion in 1435H ($10.9 billion). In late 1436H, the IsDB decided to increase the ceiling on its sukuk program (IDB Trust Services Limited, Aaa) to $25 billion from $10 billion.
Despite increased leverage from sukuk issuance, the IsDB benefits from a large and expanding capital base. Because of the recent general capital increase, callable capital rose fourfold to ID40.5 billion at end-1435H, of which about half comes from member countries rated A or higher. Besides, its ratio of liquid assets to borrowings remains higher and its gearing ratio lower than several Aaa-rated multilateral development banks (MDBs). The debt-to-equity ratio is expected to rise to 125% in the coming years, a level still well below that of other Aaa-rated MDBs.
“Despite the risks inherent in its role as a development bank, the IsDB’s operational assets continue to perform well, with a low level of impairment,” said Mathias Angonin, a Moody’s Analyst and an author of the report.
“As a supranational entity, besides its development mandate, the IsDB strongly promotes and sets standards for Islamic finance,” added Mathias Angonin. “The bank has helped many of its 56 members to introduce the necessary legislation for the issuance of sovereign sukuk and to develop the regulatory and legal framework for Islamic banking. The bank’s public offerings have enabled it to develop a sukuk yield curve, with a target of at least one benchmark dollar-denominated issuance every year. ”
Originally published on www.moodys.com