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
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
The Stable Outlook reflects Fitch's expectation of continued conservative risk
management, which should result in an adequate risk profile compatible with its
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