TEXT-Fitch affirms Inter-American Investment Corp at 'AAA'
Feb 25 - 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 ratings primarily reflect the IIC's intrinsic strengths, which includes its strong capitalization, high liquidity, and good asset quality, as well as shareholder support. Additionally, the IIC benefits 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 also underpin its ratings, as well as through a committed credit line for USD300 million. Despite a decline in capitalization since 2011, at 50.4% as of Sept. 30, 2012, 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 93% 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. Historically, IIC's liquidity has been solid and the corporation has strictly complied with its internal guidelines. Liquidity compares favorably to peers, as liquid assets accounted for 37% of total assets and covered 616% of short-term borrowings at Sept. 30, 2012. The estimated average rating of the corporation's loan portfolio is '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. Nevertheless, NPLs to gross loans only reached 2.3% at Sept. 30, 2012, 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) averaged 0.8% from 2008 through Sept. 30, 2012, in line with other MDBs. Nevertheless, despite the IIC's strong pipeline of approvals and sustained steady expansion in its operations, Fitch expects the corporation's ROAA to decline slightly over the medium term due to increased contributions to its pension and postretirement benefit plans to offset the forecasted underfunded status of these plans. 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 subscribed and paid-in capital at Sept. 30, 2012. Although the proportion of 'AAA' and 'AA' rated shareholders is lower than for other 'AAA'-rated MDBs (36% of subscribed and paid-in capital at Sept. 30, 2012), support is strong, as demonstrated by continuous capital increases since 2000. RATING SENSITIVITIES The Stable Outlook reflects Fitch's expectation of continued conservative risk management, which should result in an adequate risk profile compatible with its 'AAA' rating. A stress situation in a member country that significantly affects asset quality or results in transfer and convertibility restrictions would be negative for creditworthiness. Additionally, a prolonged and significant decline in capitalization related to asset losses, fast growth in operations or increase in earnings volatility as well as a structural weakening of liquidity could also be negative for IIC's ratings. KEY ASSUMPTIONS AND SENSITIVITIES The ratings and Outlook are sensitive to a number of assumptions. Fitch assumes that member countries, even if experiencing severe difficulties (such as Argentina - '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, despite the U.S. reducing their share ownership. The invalidation of such scenarios could be detrimental to IIC's ratings. Fitch affirms IIC's ratings as follows: --Long-term Issuer Default Rating (IDR) at 'AAA'; Stable Outlook; --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'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings. Applicable Criteria and Related Research: --'Rating Multilateral Development Banks' (May 23, 2012). Applicable Criteria and Related Research Rating Multilateral Development Banks