NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the Inter-American Investment Corporation's (IIC) long-term Issuer Default Rating (IDR) at 'AAA' with a Stable Outlook. A full list of IIC's ratings follows at the end of this press release.
KEY RATING DRIVERS
The affirmation and Stable Outlook reflect the following key rating factors:
--IIC's intrinsic strengths, including its robust capitalization, solid liquidity, and good asset quality underpin its ratings. At 44.8% as of Sept. 30, 2013, the IIC has one of the highest equity to assets ratios among Fitch-rated multilateral development banks (MDB). As a result, the IIC's debt to equity ratio, which reached 114% in this same period, is also low relative to its peers. Leverage is likely to increase from current lows as the corporation seeks to expand its balance sheet, though it will continue to compare favorably to other 'AAA'-rated MDBs over the medium term.
--IIC's liquidity is solid and the corporation has strictly complied with its internal guidelines. Liquidity compares favorably to peers, as liquid assets accounted for 44% of total assets and covered 644% of short-term borrowings at Sept. 30, 2013. The estimated weighted average rating of IIC's investment securities was 'AA-' at end-September 2013.
--The estimated average rating of the corporation's loan portfolio has been stable through Sept. 2013, at 'BB'. The IIC's non-performing loans (NPLs) to gross loans ratio tends to be higher and more volatile than at other MDBs given its private sector focus. However, at 2% as of Sept. 30, 2013, NPLs to gross loans were low compared with other regional MDBs concentrated in the private sector, and loan loss reserve coverage is ample. This private sector focus also reduces loan concentration risk relative to other regional MDBs.
--As is the case with other MDBs, the IIC is not profit oriented, though it adheres to self-imposed performance targets and internal capital generation has been sufficient to sustain the growth of its operations without jeopardizing the strength of its solvency. The IIC's return on average assets (ROAA) increased to 0.7% at end-September 2013 from 0.3% at year-end 2013 mostly due to a reversal of loan provisions. Fitch expects the corporation's ROAA to average around 1% over the medium term due to the IIC's strong pipeline of approvals and sustained steady expansion in its operations. Additionally, transfers to pension and postretirement benefit plans have declined significantly and are expected to remain manageable over Fitch's forecast horizon.
--The IIC's ratings also benefit from its relationship with the Inter-American Development Bank (IADB) in terms of common shareholders and common members of its Board of Governors and Board of Executive Directors. Additionally, it has as a committed credit line for USD300 million from the IADB.
--IIC's capital is owned by 44 countries, of which 26 are regional shareholders. Its main shareholder is the United States (rated 'AAA' with a Negative Outlook by Fitch), which owned 23% of paid-in capital at Sept. 30, 2013. Although the proportion of 'AAA' and 'AA' rated shareholders is lower than for other 'AAA'-rated MDBs (35% of subscribed and paid-in capital at Sept. 30, 2013), support is strong, as demonstrated by continuous capital increases since 2000.
The Stable Outlook reflects Fitch's assessment that downside risks to the 'AAA' rating are currently not material. However, the negative ratings triggers that could, individually or collectively affect IIC's ratings, are the following:
--A prolonged and significant decline in capitalization related to asset losses, fast growth in operations or an increase in earnings volatility;
--A structural decline in liquidity combined with weakening market access;.
--A stress situation in a member country that significantly affects asset quality or results in transfer and convertibility restrictions.
KEY ASSUMPTIONS AND SENSITIVITIES
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 'CC'), 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 also makes the assumption that despite the gradual deterioration in capitalization and leverage, those metrics will remain consistent with an 'AAA' rating.
--Finally, shareholder support is expected to remain strong as demonstrated by the swift reallocation in early 2013 of a small portion of shares previously released.
An adverse change to the above assumptions could be detrimental to IIC's ratings.
Fitch affirms IIC's ratings as follows:
--Long-term Issuer Default Rating (IDR) at 'AAA'; Outlook Stable;
--Short-term IDR at 'F1+';
--Senior unsecured certificates at 'AAA(mex)';
--Senior unsecured medium-term note program at 'AAA';
--Senior unsecured notes at 'AAA'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Rating Multilateral Development Banks' (May 23, 2012).
Applicable Criteria and Related Research:
Rating Multilateral Development Banks