Fitch also affirmed IDB's short-term IDR at 'F1+'.
The Agency said that IDB benefits from the strong support of its 56 member countries in the form of uncalled subscribed capital that the bank is authorised to call in case of need to meet its financial obligations. The rating is also supported by the shareholder’s further adherence to the decision of IDB’s Board of Governors (BOG) to launch a substantial increase in subscribed, paid-in and callable capital. To date, the bank has received acceptance from shareholders accounting for 84% of its capital compared with 40% of the shares at end-November 2006. Once completed, the capital increase will translate into an approximate 50% rise in paid-in capital over the next five years to Islamic Dinars (ID) 4.1bn from ID2.7bn illustrating the willingness of the shareholders to support the bank. This will also reinforce IDB’s comfortable capitalisation, which already benefits from its large equity base.

Since inception, IDB has been funded mainly by equity until it started resorting to market funding in 2003. Since then, it has been exhibiting extremely low leverage ratios (debt accounted for 12.6% of shareholders’ equity at end-1427H (19 January 2007)). It is expected that the capital increase will enable the bank to maintain leverage below 20% of shareholder’s equity while increasing its financing by 10% per annum. In addition to these positive developments, Fitch foresees an eventual improvement in the bank’s operating performance and asset quality.

While most of IDB’s financing is directed to speculative-grade countries (79.5% of the bank’s portfolio at end-1427H), IDB has traditionally recorded a very low level of non-performing assets, with impaired financed operations standing at only 1.2% of the bank’s portfolio (excluding equity stakes) at end-1427H. The performance of IDB’s portfolio is all the more noteworthy since concessional financing has been historically funded through the bank’s ordinary capital, while other multilateral development banks (MDBs) generally rely on a separate financial arm. Hence, IDB’s credit risk exposure will be further diluted by the establishment of the ISFD which was formally approved by the Board of Governors in May 2007. The target capital of ISFD is USD10bn and up to now, 30 member countries (compared with 18 at end-November 2006) have agreed to participate in the fund for a total amount of USD1.6bn in addition to a commitment of USD1bn by the bank. As the bank progressively transfers some of its riskiest assets to this fund, the average credit quality of its portfolio is expected to improve, thereby fuelling its capitalisation and the resilience of its credit profile to the projected growth in operating assets.