Fitch Affirms Inter-American Investment Corp. at 'AAA'; Outlook Stable
OREANDA-NEWS. Fitch Ratings has affirmed Inter-American Investment Corporation's (IIC) long-term Issuer Default Rating (IDR) at 'AAA'. The Rating Outlook is Stable. A full list of rating actions follows at the end of this release.
The IDRs and senior debt ratings have been affirmed given IIC's stable financial performance and risk profile.
KEY RATING DRIVERS
IIC's ratings are driven by its intrinsic strengths. The affirmation and Stable Outlook reflect the following key rating factors:
IIC has one of the highest equity/adjusted assets among multilateral development banks (MDBs) rated 'AAA' by Fitch. Unlike most MDBs, all capital is paid-in. Capitalization ratios will remain strong over the forecast horizon as the corporation expands its mandate to execute all private sector operations for the IADB group given its 10-year capitalization plan.
IIC has solid liquidity: The corporation's liquid assets/short-term debt ratio of 215.6% at end-September 2015 compared to a median of 187% for other 'AAA' rated MDBs and its treasury portfolio has a weighted average rating of 'AA-'. The IIC also has a long-standing committed loan facility for USD300 million with the Inter-American Development Bank (IaDB, 'AAA'/Stable) and an additional USD229 million with commercial banks.
Although not subject to banking regulations, IIC abides by its own prudential framework. Management carefully monitors capital adequacy, liquidity and credit risk through conservative risk-management policies based on self-imposed prudential ratios and limits and consistently operates well within these guidelines.
IIC's asset quality is adequate, as Fitch estimates the weighted average rating (based on publicly available international credit ratings) of IIC's loan portfolio was 'BB' at end-September 2015. Historically, non-accrual loans have been maintained at manageable levels even though almost one-third of its loans are extended directly to small- and medium-sized corporations. Loan loss reserve coverage is sufficient, while concentration by creditor is low relative to other highly rated MDBs.
Support is not a key rating factor. Although no callable capital has been subscribed by shareholders, Fitch views the consolidation of the IADB group's private sector operations at IIC and the associated capitalization plan as evidence of the member countries' commitment to IIC. The proportion of IIC's 'AAA' and 'AA' rated shareholders is lower than for other 'AAA' MDBs, declining to 23.8% of subscribed capital at September 2015 from 35% at year-end 2014. Its relationship with the IADB, in terms of common shareholders and their boards of governors and directors, also underpins IIC's ratings.
Inter-American Investment Corporation's (IIC) ratings are primarily driven by intrinsic factors. The Stable Outlook reflects Fitch's assessment that IIC's credit profile will remain commensurate with its 'AAA' rating. The factors that could, individually or collectively, affect IIC's ratings are:
--A prolonged and significant decline in capitalization related to asset losses, unbalanced growth in operations, increased earnings volatility, or failure to comply with paid-in capital contributions could be negative for IIC's ratings.
--A structural weakening of liquidity would also be detrimental to IIC's creditworthiness.
--A stress situation in a member country that significantly affects asset quality or results in transfer and convertibility restrictions would be negative for creditworthiness.
The ratings and Outlook are sensitive to a number of assumptions as follows:
Fitch assumes that member countries, even if experiencing severe difficulties (such as Argentina, rated 'RD'), will continue to exempt IIC's private sector borrowers from any measures that may impact the transfer and/or convertibility of their debt service payments, should any member country decide to default selectively to their creditors.
Fitch assumes that IIC will maintain its conservative risk management and governance polices.
Fitch affirms IIC's ratings as follows:
--Long-term IDR at 'AAA'; Outlook Stable;
--Short-term IDR at 'F1+';
--Senior unsecured medium-term note program at 'AAA';
--Senior unsecured notes at 'AAA'.