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The International Investment Bank (IIB), the Soviet equivalent of the European Bank for Reconstruction and Development (EBRD), has retained its investment-grade credit rating from Fitch Ratings. After placing the IIB on Rating Watch Evolving (RWE) in mid-January, Fitch on February 18 affirmed the investment grade rating of the bank at 'BBB-', improving its outlook to Stable.

The IIB was set up in 1970 as a Soviet development bank to help the USSR's less-developed allies.  Headquartered in Moscow, its mission is "to support the economies of its member states primarily through direct project financing as well as through financial intermediaries, while partnering with leading financial institutions".

However it is not a solely Russian development bank. The Russian state is the largest shareholder with 55% of paid in capital as of September 2014, but there are currently seven other shareholders from the territory in which it invests, including Bulgaria, Cuba, Czech Republic, Mongolia, Romania, Slovakia and Vietnam. Since the bank was founded, it has made over €7bn of investments and has authorised capital of €1.3bn as of December last year.

Fitch's decision to maintain IIB's 'BBB-' rating chuffed the bank no end, as the decision effectively decouples IIB from the weakening Russian sovereign rating story and is recognition of the improvements the bank has made over the last couple of years.

"Fitch Ratings has affirmed International Investment Bank's (IIB) Issuer Default Rating (IDR) at 'BBB-' and removed it from Rating Watch Evolving (RWE). The issue ratings on IIB's senior unsecured bonds have also been affirmed at 'BBB-' and the Short-term IDR at 'F3' and removed from RWE. The Outlook on the Long-term IDR is Stable," the agency said in a press release.

IIB has been a bit lost in the last two decades, but as development banks come back to the fore in the midst of the crisis that started in 2008 it is re-finding its purpose.

"The Bank is unique among its peers by its shareholder composition – by itself a result of historical circumstances – as it does not have a regional or fully global character, but it is truly international. While it is proud of its history, during the past two years the IIB has undergone a major modernization, reinventing itself and transforming into a modern multilateral development bank in order to respond to the current needs and challenges of its shareholders, at the same time following the highest standards in corporate governance and sustainable development," the bank says in its mission statement.

On top of this, emerging markets have become more interested in boosting development banks other than the traditional the EBRD and the World Bank and its IFC, which they believe are too close to the West, so politically sullied. Russia has already retooled it's Vnesheconombank (VEB), formerly the state debt agency, into a development bank. In addition, last year the BRICS nations founded their own development bank with $100bn in capital.

One of the side-effects of the showdown with the West over Ukraine is that the IIB has found that there is more interest from some of Russia's neighbours in working with the bank as a source of funds.

"The bank is progressively building a track record under its revised risk management framework and business plan aimed at reshaping the bank after more than 20 years of stagnation. Throughout 2014, management consistently implemented the business plan designed in 2013, expanding operations while strengthening credit and market risk management, issuing its first medium- and long-term debt, recruiting staff to reorganise its operations, and streamlining the bank's governance framework," Fitch said.

Although the bank is not solely Russian, it is heavily exposed to the Russian market: 38% of gross loans and 54.2% of treasury assets were exposed to Russia at end-2014. Still, its international shareholding structure means that it was partly insulated from the recent Russian turmoil following the sharp ruble devaluation in December. Its functional currency is the euro and its supranational status meant it was exempted from EU sanctions against Russian state-owned banks.

The bank remains well capitalised with a capital adequacy ratio of 95% as of June last year, which is a very comfortable level and miles ahead of the 12% average for the Russian banking sector as a whole at the start of this year.

The bank is also cleaning up its loan book having inherited some very dodgy loans from the Soviet era. In the last year it has drastically reduced its non-performing loans (NPLs) to 5.3% of gross loans as of September last year. Still, Fitch warns that its loan quality remains fairly low with 89.3% of loans exposed to borrowers rated in the B and C and unrated categories.

"Given the challenging business environment in some member countries, the fast lending pace and still limited track record, Fitch expects NPLs to rise over the next two to three years," the agency said in its statement.