Dagong Upgrades the Rating Outlook of International Investment Bank to Positive
Dagong Global Credit Rating Co., Ltd
February 7, 2018
Dagong Global Credit Rating Co., Ltd. (hereinafter referred to as “Dagong”) has decided today to upgrade the credit rating outlook of International Investment Bank (a multilateral development bank, hereinafter referred to as “IIB”) to positive from stable, while maintaining its long-term issuer credit rating (“ICR”) at A. IIB’s major member states maintained political stability and shown economic recovery. The favorable credit environment lowered the funding cost of IIB, and the financing sources became more diversified. Relatively strong capital strength and member states support enhanced the overall repayment capability of IIB.
The main reasons for upgrading the credit rating outlook of IIB are as follows:
1. The repayment environment of IIB has improved, considering the stable political environment, relatively favorable credit environment and the lowered risk of financial system. With the recovery in the commodity prices and foreign exchange market, the commodity exporters among IIB’s major member states will continue to pursue monetary easing policy to stimulate the domestic economy. EU's overall monetary easing policy is also conducive to the improvement of credit environment in Central and Eastern Europe member countries. The macroeconomic recovery and improvement in financial regulation in IIB’s major member states will further benefit the asset quality in the financial sector and eventually reduce risks in the financial system.
2. IIB’s wealth creation capacity will benefit from its rising market demand, diversified business lines and cost-control capability. IIB’s major member states’ borrowing-weighted GDP growth rate is expected to reach 2.33% in 2018, which means IIB’s major member states economy has boded better and also conducive to the business expansion. In the meantime, with the implementation of new strategy, IIB has seen a rapid expansion in business lines and asset scale. It has acquired additional wealth creation capability by increasing diversification, strengthening risk control, lowering financial costs, and improving net interest margin.
3. IIB’s repayment sources remain strong and can fully guarantee the debt repayment. Although the capital adequacy ratio declined to 36.18% in the first half of 2017, continued to be in a high level among the peers. The continuous improvement in asset quality, diverse financing channels and overall prudent risk appetite will help guarantee IIB’s debt repayment. The macroeconomic stabilization and upswing will also be conducive to the improvement of loan quality and the overall credit risk can be controlled.
4. The member states’ stable sovereign repayment capabilities and IIB’s unique voting system will continue to strengthen the support of member countries. The sovereign credit ratings of IIB’s major member states overall remained stable. With the implementation of the “double majority” voting mechanism, IIB will continue to fully protect the interests of small and median sized member countries and improve its regional influences. All these abovementioned factors facilitate IIB to obtain solid and lasting member country support and also attract new member state.
The main reasons for maintaining IIB's long-term issuer credit rating are: first, some of its key financial ratios related to capital and liquidity showed a downward trend, although the potential risks are quite controllable; second, profitability is relatively low among the peers, although multilateral development bank is not usually profit-driven; third, the current loan impairment provision system may delay revealing and covering its NPL and leads potential credit risk. Dagong will continue to monitor changes in IIB’s rating factors and risks, and thereof makes corresponding adjustments if necessary.