Moody's publishes issuer report on Islamic Development Bank

Based in Jeddah, Saudi Arabia, the IsDB was established as a multilateral development bank ("MDB") in 1975 by the Organisation of the Islamic Conference with the mission of providing finance and technical assistance to member countries and Muslim communities around the world, based on the principles of Shari'ah or Islamic law. Like other MDBs, the IsDB enjoys preferred creditor status.

"The IsDB's capital base is strong, its usable equity exceeds its total operational assets and equity investment, and its risk asset coverage ratios generally compare favourably with those of other MDBs," notes Tristan Cooper, a Moody's Vice President / Senior Analyst and author of the report. Although the weighted average sovereign credit quality of the IsDB's member countries is lower than for other Aaa-rated MDBs, IsDB members are strongly committed to the organisation, as illustrated by a decision in May 2006 to double the bank's subscribed capital and increase its paid-in capital by around 50% over a five-year period. More recently, in June 2008 the board of governors voted to raise the subscribed capital by a further 7%.

Despite a risky operating environment, inherent in its role as a development bank, the IsDB's operational assets continue to perform well, with a very low level of impairment. Moody's additionally notes that the most risky, concessional portion of the bank's operational assets will gradually be transferred to a new poverty reduction fund that is financially separated from the bank -- resulting in increased profitability and an enhanced risk profile.

Meanwhile, the bank enjoys a high level of liquidity and a very low level of debt, partly because of the Islamic, asset-based nature of its operations that is unique among MDBs. "Although the bank plans to issue more sukuks (Islamic bonds) over the medium term, its prudent financial policies and the ongoing increase in its ample capital base will ensure that its gearing ratios remain considerably lower than most other MDBs," says Cooper.