IslamicFinance.de

Fitch Ratings has affirmed the Islamic Development Bank (IsDB)’s Long-term Issuer Default Rating (IDR)’s at ‘AAA’ with a Stable Outlook. The Short-term IDR has been affirmed at F1+. The trust certificates issued by IDB Trust Services Ltd and guaranteed by IsDB have also been affirmed at ‘AAA’. The ratings reflect its strong capitalisation, high liquidity and low concentration risk compared with other regional multilateral development banks (MDBs). Even though some limits, such as leverage, have been relaxed, the risk framework remains stringent, and IsDB is progressively aligning it with that of other highly rated MDBs, for example through its liquidity policy. However, compared with other ‘AAA’-rated MDBs, provisioning is fairly low given the bank’s exposure to countries experiencing deep political troubles.

The recent decline in oil prices has sparked expectations that Saudi Arabia may issue domestic sovereign debt this year for the first time since 2007. Much of this debt would probably be long term and would be bought by the country’s banks. Sovereign debt issuance would create another benefit for potential corporate issuers by helping create a pricing benchmark. Another factor that is likely to spur Saudi sukuk issuance in the medium term is the Capital Market Authority’s plan to reform the corporate debt market, including measures to make regulatory approval of debt products easier. The main factor likely to slow or limit sukuk growth is higher initial costs compared to other forms of borrowing.