The Islamic Corporation for the Development of the Private Sector benefits from a robust capital position and strong liquidity, although its weak asset quality remains a challenge, said Moody’s in its annual Credit Analysis report.

The Islamic Corporation for the Development of the Private Sector (ICD, Aa3 stable) benefits from a robust capital position and strong liquidity, although its weak asset quality remains a challenge, said Moody’s in its annual Credit Analysis report.

"The ability, and willingness, of the ICD's main shareholders to provide support are also credit strengths, demonstrated by strong participation in the second general capital increase to date" said Thaddeus Best, an analyst at Moody's, and co-author of the report.

Key points:

•    The ICD's main shareholder, the Islamic Development Bank (IsDB, Aaa stable), continues to support the corporation's credit profile, even as its shareholding is slowly diluted through capital increases.

•    As with many multi-lateral development banks (MDBs), the ICD maintains high levels of liquidity to compensate for the lack of recourse to emergency funding such as central bank liquidity.

•    ICD's debt service coverage ratio remains strong at 15.4 per cent in 2017, and it maintains a minimum of one year's net cash requirements under stressed conditions, assuming no market assess.

•    MDBs that focus on the private sector tend to have riskier operating profiles than other MDBs and equity investments can be more volatile than lending. Due to these two features, the ICD has a structurally weaker asset quality profile than other MDBs, as evidenced by the large losses sustained in 2017 arising from revaluations in the equity portfolio, and the history of high non-performing loans.

•    Recent sukuk issuance has also helped to lengthen the maturity profile of the ICD's debt stock, pushing down the ratio of short-term and currently maturing long-term debt to just 15.5 per cent of liquid assets - or 15.4 per cent after discounting the liquid assets for expected loss.

The research is an update to the markets and does not constitute a rating action, Moody’s said in a statement. – TradeArabia News Service