International ratings agency Standard & Poor’s (S&P) has upgraded multinational development bank International Investment Bank's (IIB’s) long-term rating to BBB+ stable, the bank said in a statement.
The upgrade was driven by an improvement in the bank’s financial profile, which was revised to “Very Strong” from “Strong”. This revision was driven by three key factors: firstly, the fact that IIB’s NPLs are “below the peer group average”, secondly that the bank has “demonstrated low credit costs”, and thirdly “the sustained improvement of the quality of the treasury portfolio,” the ratings agency said in its assessment.
S&P Global also stated that the stable outlook on the IIB’s BBB+ rating reflects their “view that IIB will continue expanding its loan portfolio to reach the target while maintaining a very strong capital position and ample liquidity”.
Set up in Soviet times to foster cooperation and trans-border investment amongst the Comecon countries, IIB has been remaking itself as a modern International Financial Institution (IFI) and the transition programme officially came to an end at the close of 2015. Headquartered in Moscow, five out of the bank’s nine shareholders are EU members. The current members include Bulgaria, Cuba, the Czech Republic, Hungary, Mongolia, Romania, Russia, Slovakia and Vietnam.
IIB published its IFRS audited results for 2017 on February 15. The IIB witnessed a significant growth in assets in 2017 — by €215mn or 24% to a total of €1.096bn — due to the growth of the bank’s credit portfolio. In 2017, the IIB broadened the country diversification of its credit portfolio. By achieving total growth in the credit portfolio of €301mn net, the IIB also increased the volume of net loans issued to borrowers in shareholder countries by €308mn, bringing it to a level of €589mn, which is 89% of the total loan portfolio.
S&P said that it may upgrade the bank again “in the next 12-24 months if we were to observe an improving business position. This could be the result of a growing loan portfolio that is supported by shareholder capital injections”. Such a statement puts IIB in good stead, as the idea of growth backed by new capital from shareholders is a key fundament of the bank’s 2018-2022 Strategy.
S&P Global added it, “positively assesses the stability and strength of the relationship between IIB and its shareholders”.
Chairman of the board of IIB Nikolay Kosov commented that “The rating action reflects the bank’s successful competition of its 2013-2017 Relaunch Strategy, as well as, confirms the financial soundness of the bank’s new 2018-2022 Strategy. It is also worth noting that IIB has shown such results in a rather turbulent external environment.”
“The IIB position on the MDB map and further improvement of the rating profile depends directly on joint efforts of management and member states, under the umbrella of fostering development impact of our financing and conservative approach to risk management,” noted IIB chief economist and head of ratings Elliott Auckland.
In December of last year, Fitch Ratings raised the outlook on IIB’s BBB rating to positive citing “the continuing diversification of the bank’s operations in Central and Eastern Europe”. In May, Moody’s Investors Service also raised IIB’s Baa1 rating to positive outlook citing the improved diversification and quality of the bank’s treasury assets. In February 2018, Dagong Global Credit Rating Co. raised the outlook on IIB’s A rating to positive owing to improved diversification of assets and risk management policies.
In related news the bank also announced that the shareholders have appointed Denis Ivanov as chairman of sister bank, the International Bank for Economic Cooperation (IBEC). Ivanov was the deputy chairman of the board of IIB for the last five years, where he was responsible for the lending and investment operations block, the main business unit of IIB.
Ivanov started his career at the Russian Ministry for Foreign Affairs, spent a number of years in London, where, among other professional achievements, he headed Vnesheconombank's (VEB’s) representative office in the UK.
IIB’s Kosov said that IIB is fully committed to a closer collaboration between the two institutions. Discussions are currently being held on possible forms and instruments of further convergence of IIB and IBEC, including a possibility of forming a banking group. There is a common understanding, however, that both banks will keep their independent status.