Fitch upgrades IDB to ‘AA’

Fitch Ratings, the international rating agency, upgraded the long-term rating of Saudi based Islamic Development Bank (IDB) to ‘AA’, reflecting IDB’s implementation of conservative lending policies, the bank’s low gearing and the success of the capital increase initiated in 2001, said the rating agency.

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By  Massoud Derhally Published  May 11, 2003

Fitch Ratings, the international rating agency, upgraded the long-term rating of Saudi based Islamic Development Bank (IDB) to ‘AA’ from ‘AA-‘ (‘AA minus’) and affirmed its short-term rating of ‘F1+’, reflecting IDB’s implementation of conservative lending policies, the bank’s low gearing and the success of the capital increase initiated in 2001, said the rating agency.

IDB has a low risk profile as a result of its portfolio of loans to emerging and developing countries. Up to now, the bank was funded by equity and thus showed an unusually high level of capitalisation with equity to asset ratio of 97.3% as of March 14 2002, said Fitch.

However, the bank has decided to resort to market funding in 2003, with the launch of a US $300 million Sukuks issue. In order to comply with Islamic Law, Sharia, the Sukuks will be issued by a special purpose vehicle and will be guaranteed by the IDB.

In 2002, the bank introduced a new policy limiting the mobilisation of resources from the market to 30% of shareholders’ equity. By restricting the recourse to the market, this policy will allow the bank to maintain a high level of capitalisation in the years ahead.

The bank should also continue to benefit from strong support from member countries in the future, as evidenced by the 100% capital increase decided by its board of governors in 2001, which has been well received by shareholders.

The 54 countries, which control the IDB’s capital, are the members of the Organisation of Islamic Conference (OIC). Saudi Arabia and Kuwait are among the IDB’s largest shareholders with 27.33% and 6.86% of capital respectively.

IDB is based in Saudi Arabia and was created in 1975 to provide development and trade finance to its member countries. It operates in accordance with the principles of Islamic law, Sharia. The IDB also manages several autonomous funds, which participate in the bank’s operations, but are not consolidated in its accounts.

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