IBRD (World Bank) — Moody’s affirms IBRD’s Aaa rating, maintains stable outlook
Rating Action: Moody’s affirms IBRD’s Aaa rating, maintains stable outlookGlobal Credit Research – 27 Jan 2022New York, January 27, 2022 — Moody’s Investors Service (“Moody’s”) has today affirmed the International Bank for Reconstruction and Development’s (World Bank) Aaa long-term issuer and senior unsecured ratings. The outlook remains stable.The key factors underpinning the affirmation are:1. High capital adequacy, supported by a robust risk management framework and preferred creditor status that contributes to very strong asset performance2. Ample liquidity and extraordinary access to global funding markets3. Very high shareholder support, underpinned by a large cushion of callable capital and very high willingness of global shareholders to provide non-contractual supportThe IBRD’s (P)Aaa senior unsecured MTN program rating and P-1 other short-term rating have also been affirmed.The stable outlook reflects Moody’s expectations of no material changes to IBRD’s intrinsic financial strengths or shareholders’ support in the coming years, given the bank’s key global development policy role and strong governance.RATINGS RATIONALERATIONALE FOR AFFIRMATION OF Aaa RATINGFIRST DRIVER: HIGH CAPITAL ADEQUACY, SUPPORTED BY ROBUST RISK MANAGEMENT AND PREFERRED CREDITOR STATUS THAT CONTRIBUTE TO VERY STRONG ASSET PERFORMANCEIBRD’s intrinsic financial strength is supported by high capital adequacy, which reflects its high development asset credit quality (DACQ) and very strong asset performance. IBRD’s DACQ of “aa” reflects relatively moderate borrower credit quality, significant credit support from the bank’s preferred creditor status and high diversification among international sovereign borrowers. In addition, the bank’s robust risk management framework supports its strong asset performance and provides a buffer to absorb shocks inherent to business risk.While the bank’s Weighted Average Borrower Rating of “b1” reflects its focus on lending largely to developing middle-income sovereigns, it uses various safeguards, including statutory lending limits, to reduce concentration risk and ensure strong capital adequacy. Meanwhile, IBRD’s highly diverse loan portfolio across countries and sectors reduces the risk that a significant proportion of its assets become non-performing. This has led to a very strong record of asset performance, consistent with an assessment of “aaa,” with, on average, only 0.2% of total outstanding development assets qualifying as nonperforming over the past three fiscal years.These strengths offset the credit impact of the bank’s relatively weaker leverage ratio, which Moody’s measures as development-related assets and liquid assets rated A3 or lower divided by usable equity. As of the fiscal year ending on June 2021 (FY2021), this leverage ratio stood at 4.75, compared to the 5.19 in FY2020, but significantly higher than the median of 2.96 for Aaa-rated MDB peers. The gradual rise in the bank’s leverage over the longer term has been driven by the bank’s pursuit of its Board-mandated development policy objectives and more recently from demand for its resources by member countries to support pandemic relief efforts. Looking ahead, Moody’s expects the leverage ratio to gradually decline in line with more recent pre-pandemic levels.SECOND DRIVER: AMPLE LIQUIDITY AND EXTRAORDINARY ACCESS TO GLOBAL FUNDING MARKETSIBRD’s intrinsic financial strength is further supported by its ample liquidity and extraordinary access to global funding markets.Moody’s measures an MDB’s availability of liquid resources as the percentage of liquid assets of estimated net cash outflows over a period of 18 months. With a ratio of about 137% in FY2021, IBRD’s liquid resources more than fully covered potential outflows and are assessed as “aa3.” Moody’s expects them to remain ample given the bank’s prudent internal liquidity management policies, policy restrictions on leverage and pending paid-in capital contributions.IBRD’s liquidity is underpinned by its conservative asset and liability management policies, which include the use of derivatives to manage exposure to interest and currency risks, and repricing between loans and borrowing. The bank’s liquid asset investment portfolio consists mostly of short-term, highly rated sovereign government bonds, debt instruments issued by sovereign government agencies, and bank time deposits. IBRD’s official liquidity policy requires liquid assets to cover a target level of 12 months of projected debt service and net loan disbursement needs, which helps to limit the bank’s exposure to potential market disruptions that might affect its funding.IBRD’s access to international funding markets is extraordinary, which is reflected in its “aaa” quality of funding score. In FY2021, the bank raised a total of $67.5 billion in new issuances of medium- and long-term debt. The bank is a benchmark issuer in the MDB space and fulfills most of its borrowing needs through frequent bond issuance in the international capital markets in major trading currencies. In addition, it issues in other less liquid currencies and different thematic formats, such as green and sustainable development bonds, to help deepen and develop capital markets. IBRD’s investor base is diversified by both investor type and geography, demonstrating global support for its development mandate and the Basel Committee’s classification of IBRD securities as a high quality liquid asset with zero risk weight.THIRD DRIVER: VERY HIGH SHAREHOLDER SUPPORT UNDERPINNED BY LARGE CUSION OF CALLABLE CAPITAL, VERY HIGH WILLINGNESS OF SUPPORTIBRD’s large cushion of callable capital and very high willingness of shareholders to support the bank, underpin Moody’s very high assessment of the bank’s strength of member support.At 107%, the bank’s amount of callable capital more than fully covers its outstanding debt stock. At Baa2, IBRD’s Weighted Average Shareholder Rating (WASR) is strong. The bank’s track record of consistent general capital increases, including the most recent increase in 2018, implies a very strong willingness of support by its members for its role as the preeminent international Multilateral Development Bank (MDB) dedicated to global poverty reduction and development. Shareholders’ high capacity to provide support is also underpinned by the high creditworthiness of the bank’s largest members, which include the Government of United States of America (US, Aaa stable), the Government of Japan (A1 stable), the Government of China (A1 stable), the Government of Germany (Aaa stable), the Government of France (Aa2 stable) and the Government of United Kingdom (Aa3 stable).RATIONALE FOR STABLE OUTLOOKThe stable outlook reflects Moody’s view that despite relatively high leverage, through prudent and comprehensive risk management policies the IBRD will maintain its very strong capital adequacy and liquidity, along with very high member support, thus keeping its credit profile in line with its Aaa rating.ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONSIBRD’s ESG credit impact score is positive (CIS-1), reflecting neutral-to-low exposure to environmental risk, positive exposure to social risk and very strong governance. IBRD’s resilience to ESG risks is further supported by the very diverse global membership and the particular importance assigned to the bank by large non-borrowing members, including the US.IBRD’s neutral-to-low environmental issuer profile score (E-2) reflects its highly diversified lending portfolio, both from a regional and sector perspective, along with its robust environmental safeguard policies and technical assistance capacities for climate mitigation and adaptation project lending. IBRD is a leader among MDBs in its use of climate financing and in its active role in supporting global climate change initiatives.IBRD’s positive social issuer profile score (S-1) reflects its strong position regarding responsible production and the credit positive support to its mandate from demographic and societal trends. The IBRD extensively uses public consultation processes to ensure buy-in from key stakeholders, and has outstanding community and stakeholder outreach. IBRD does not face any issues attracting highly skilled personnel and there are no health and safety considerations that would negatively or positively affect the issuer profile.IBRD’s governance issuer profile score is positive (G-1), reflecting the bank’s very high quality of management and best-in-class financial strategy and risk management practices. IBRD has one of the longest track records of strong and credible management among MDBs.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSDownward pressure on the rating could occur in the event of substantial deterioration in capital adequacy, which could result from a rapid expansion in leverage combined with a decline in asset quality resulting from sovereign credit stress among IBRD’s largest borrowing countries. Despite the bank’s intrinsic financial strength derived from its strong financials and conservative risk management, a decline in shareholder support would also be credit negative.The principal methodology used in these ratings was Multilateral Development Banks and Other Supranational Entities Methodology published in October 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1232238. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. William Foster VP – Senior Credit Officer Sovereign Risk Group Moody’s Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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