MARC Ratings has affirmed its long-term and short-term financial institution (FI) ratings of AAA/MARC-1/Stable on Islamic Development Bank (IsDB). Concurrently, MARC Ratings has affirmed the rating of AAAIS on the Sukuk Wakalah programme of up to RM400 million issued by Tadamun Services Berhad, a trust established by IsDB.
The affirmed FI ratings continue to be driven by IsDB’s status as a multilateral development bank (MDB), with strong shareholder support, solid capitalisation, and sound liquidity. Additionally, the ratings acknowledge IsDB’s preferred creditor status, providing the MDB with a priority claim over other creditors in the event of a sovereign default. These strengths mitigate the risk exposures in its financing and investment portfolios.
MARC Ratings views the low overdue instalments is due to IsDB’s credit risk management framework, which necessitates full sovereign guarantees for financing and limits exposure to non-sovereign entities through stringent requirements. As at end-2022, overdue instalments stood at 1.27% of total financing. Concentration risk is mitigated by the MDB’s financing policy under which financing and investments are diversified across multiple countries.
IsDB’s capitalisation remains strong, with a members’ equity-to-assets ratio of 37.2% as at end-2022, surpassing many of its peers. Its paid-in capital grew by 3.8% y-o-y to ID6.4 billion, with the remainder of the ID14.8 billion of the called-up capital to be paid over the next 14 years. MARC Ratings views positively the strong shareholder support from Saudi Arabia, Kuwait, Qatar, and the United Arab Emirates, which together hold a combined stake of 45.1%. IsDB’s policy of restricting earnings distributions until general reserves attain 25% of subscribed capital, comprising callable capital of ID40.9 billion and called-up capital, is deemed as prudent.
Total sukuk outstanding rose to ID16.4 billion in 2022 from ID15.6 billion in 2021, with the proceeds utilised for its financing initiatives. Liquidity, as reflected by liquid assets-to-total borrowings ratio of 49.6%, remains strong and is supported by liquid assets of ID8.3 billion as at end-2022. Issuance of sukuk with long tenures has helped the MDB’s asset-liability profile. As at end-2022, assets with maturities of less than 12 months were about 2.3x of liabilities with similar maturities, effectively mitigating refinancing risk. As at end-July 2023, the outstanding amount under the rated programme stood at RM350 million. The programme will expire on June 28, 2024.