The Malaysian Rating Corporation Berhad(MARC) has affirmed its long- and short-term Financial Institution (FI) ratings of AAA and MARC-1 respectively on the Islamic Development Bank (IDB). Concurrently, the rating agency affirmed its AAAIS rating on the Sukuk Wakalah programme of up to RM400 million issued by Tadamun Services Berhad (Tadamun), a trust established by IsDB for the purpose of issuing the sukuk. The outlook on the ratings is stable. The ratings are based on the Malaysian national scale.
The affirmed FI ratings continue to be premised on IDB’s strong capital and liquidity position, its strong shareholding structure, and preferred creditor status that mitigates sovereign risk.
In a statement, the rating institution said: “IDB remains well supported by its shareholders since its establishment as a multilateral development bank (MDB) in 1975 by the Organisation of Islamic Cooperation (OIC) to facilitate economic development of OIC member countries. Of its shareholders, Saudi Arabia, Kuwait, Qatar and the United Arab Emirates (UAE) have a combined stake of 45per cent in IDB.”
Continuing, it stated: “IDB’s capital, as reflected by an equity-to-asset ratio of 45.9per cent as at end-2016, remains strong and compares favourably with many MDBs. The bank’s members’ equity stood at Islamic Dinar (ID) 8.3 billion as at end-December 2016, up from ID7.8 billion as at October 13, 2015.
The growth in members’ equity was due mainly to an increase in retained earnings of ID185.1 million and paid-up capital of ID203.4 million during the financial period ended December 31, 2016 (FP2016). MARC notes that the bank maintains a prudent policy of restricting earnings distribution until general reserves attain 25% of subscribed capital; as at end-2016, this stood at 4.9per cent.”
The rating institution also observed that in 2016 the IDB issued a total of ID2.3 billion sukuk to support lending operations, resulting in its leverage ratio increasing to 114.2per cent from 101.8per cent as at end-October 2015.
“The increase in sukuk issuance to finance its operations is also partly to support the growth of the global sukuk market. Nonetheless, the leverage level remained below its internal cap of 125per cent and is sharply lower than some of its peers. The bank’s liquidity position remained sound with liquid assets-to-total borrowings standing at 47.9per cent (October 2015: 47.4per cent),” MARC stated.