The credit rating of International Bank for Economic Co-operation (hereinafter, IBEC, or the Bank) is driven by its strong intrinsic financial strengths that stem from strong capital adequacy, a satisfactory risk profile, adequate liquidity and funding, as well as moderately strong shareholder and structure support.
Headquartered in Moscow, IBEC is an International Financial Institution (IFI)/supranational development bank founded in 1963 with a mandate to facilitate international trade, economic development, and collaboration among its member states and the rest of the world. As of end-year 2020, the member states of IBEC were the Russian Federation (51.6%), the Czech Republic (13.3%), the Republic of Poland (12%), the Republic of Bulgaria (7.6%), Romania (7.1%), the Slovak Republic (6.7%), Mongolia (1.3%), and the Socialist Republic of Vietnam (0.4%).
Historically, the Bank has taken part in key multilateral initiatives aimed at fulfilling its mandate, including the implementation of a collective currency and payment platform among the member states, then known as COMECON/CEMA (Council for Mutual Economic Assistance), which included its current and former member states — GDR (East Germany, now defunct), Hungary, and Cuba.
After several years of reduced activities following the dissolution of the Soviet Union in the early 1990s, the member states of the Bank reaffirmed their commitment and decided to reform and relaunch the Bank in 2018, reinforcing its original mandate.
Key rating assessment factors
The Bank’s management quality, strategy, and operational transparency is adequate. A key aspect of the Bank’s relaunch in 2018 was the introduction of an experienced international management team and general HR overhaul aimed at attracting top talent to the Bank. Since its relaunch, IBEC has made significant changes to its governance framework and personnel, which introduced new key mechanisms such as a transition from a country quota-based employment system to international competition as well as a set of other management and governance practices.
IBEC’s capital adequacy position is strong. IBEC’s capital levels remain substantial and enable the Bank to withstand potential material deterioration in asset quality that may be caused by systemic events such as the ongoing COVID-19 pandemic. Paid-in capital stood at EUR 200 mln of as of end-year 2020, while authorized capital stood at EUR 400 mln. However, the Bank has yet to implement a callable capital mechanism. By Basel terms, the Tier 1 capital ratio stood at 38.94% as of the same period. Return on equity stood at 1.8% at end-year, 2020, as calculated by ACRA.
ACRA assesses IBEC’s asset risk profile as satisfactory. IBEC’s total assets grew by more than 25% to EUR 815 mln at end-year 2020, from EUR 651 mln at year-end 2019, which was mainly driven by an increase in both securities and loan portfolios. The credit portfolio amounted to around 45% of total assets as of end-year 2020, with about two-thirds being loans to customers and a substantial part of it being either secured by corporate, state or other guarantees. The Bank has been maintaining its focus on trade financing which is considered as one of its main activities, which stood at EUR 74 mln as of end-year 2020 (4% less compared to the same period a year ago). At its relaunch, the Bank’s legacy non-performing assets of EUR 39 mln were fully written off. A portion of the Bank’s current outstanding credit is exposed to assets with low creditworthiness — at year-end 2020, the bank reported EUR 7.2 mln of Stage 3 assets. However, ACRA notes the full sovereign guarantee from a major shareholder, specifically covering this set of assets. The Bank continues to build its portfolios and implement robust industry standard risk management measures focused on ensuring the stable availability of the liquidity and material buffer, maintaining strict underwriting criteria for credit, and diligent treasury operations.
IBEC’s liquidity and funding position is adequate. IBEC’s liabilities are moderately diversified in terms of funding sources (the Herfindahl–Hirschman Diversity score by type stands at 31%). IBEC has aggregate long-term borrowings, which stood at EUR 183 mln (22% of total funding including capital) as of year-end 2020. IBEC’s net stable funding ratio (NSFR) and liquidity coverage ratio (LCR) stood at 114% and 316%, respectively, at end-year 2020. IBEC issued its first placement in the Russian market in 2019 for a volume of RUB 7 bln (around EUR 100 mln at the time of placement) with a tenure of ten years. The Bank also issued another ten-year RUB 5 bln tranche at the end of H1 2020 in addition to attracting a long-term tied loan (for infrastructure projects) of EUR 41 mln.
ACRA assesses support from shareholder countries as moderately strong. This assessment is supported by two elements: ACRA’s view that the importance of IBEC’s operations for shareholder countries is generally high and the moderately strong creditworthiness assessment of shareholder countries on an aggregate basis. However, the level of support from shareholder countries does not limit the SCA of the Bank, which drives the final rating.
Underlining the Bank’s systemic importance, IBEC has co-founded the International Fund for Technological Development, alongside Russia, its majority shareholder. The Bank also acts as a trustee holder of the assets and financial agent of this fund, which supports technological development and adaptation through soft loans in the member states of IBEC.
IBEC’s credit rating is AAA(RU), outlook Stable, under the national scale for the Russian Federation as per the Methodology for Mapping Credit Ratings Assigned on ACRA’s International Scale to Credit Ratings Assigned on ACRA’s National Scale for the Russian Federation.
Key assumptions
- Maintaining member state creditworthiness, as well as IBEC’s systemic importance to the member states;
- Maintaining the current strategy and business model within the 12 to 18-month horizon;
- Maintaining the capital adequacy ratio well above 25%;
- Continued refinement of governance and risk management policies.
Potential outlook or rating change factors under the international scale
The Stable outlook assumes that the rating will most likely stay unchanged within the 12 to 18-month horizon.
A positive rating action may be prompted by:
- Notable and sustained improvement in asset risk profile.
A negative rating action may be prompted by:
- Deterioration in asset quality;
- Substantial deterioration in capital adequacy and risk profile assessments;
- Deterioration in liquidity and funding position.
Potential outlook or rating change factors under the national scale for the Russian Federation
The Stable outlook assumes that the rating will most likely stay unchanged within the 12 to 18-month horizon.
A negative rating action may be prompted by:
Decrease in IBEC’s credit rating under the international scale.
Rating components under the international scale
SCA: a-.
Adjustments: none.
Issue ratings
International Bank for Economic Co-operation exchange-traded bond Series 001P-02 (RU000A101RJ7), maturity: June 3, 2030, issue volume: RUB 5 bln — AAA(RU).
Regulatory disclosure
The credit rating has been assigned to International Bank for Economic Co-operation under the international scale based on the Methodology for Assigning Credit Ratings on the International Scale to International Financial Institutions and Other Supranational Development Institutions. The credit rating was assigned to International Bank for Economic Co-operation and the bond issued by International Bank for Economic Co-operation (RU000A101RJ7) under the national scale for the Russian Federation based on the Methodology for Mapping Credit Ratings Assigned on ACRA’s International Scale to Credit Ratings Assigned on ACRA’s National Scale for the Russian Federation and the Key Concepts Used by the Analytical Credit Rating Agency within the Scope of Its Rating Activities. In the course of assigning a credit rating to the bond issue above, the Methodology for Assigning Credit Ratings to Individual Issues of Financial Instruments under the National Scale of the Russian Federation was also used.
Credit ratings of International Bank for Economic Co-operation under the international scale and the national scale for the Russian Federation were published by ACRA for the first time on May 18, 2020. The credit rating assigned under the national scale for the Russian Federation to the bond issued by International Bank for Economic Co-operation (RU000A101RJ7) was published by ACRA for the first time on June 15, 2020. The credit ratings and credit rating outlooks for International Bank for Economic Co-operation, as well as the credit rating of the bond issue listed above, are expected to be revised within 182 days following the publication date of this press release as per the Calendar of planned sovereign credit rating revisions and publications.
The credit ratings are based on data provided by International Bank for Economic Co-operation, information from publicly available sources, and ACRA’s own databases. The rating analysis was conducted using the IFRS reporting of International Bank for Economic Co-operation. The credit ratings are solicited, and International Bank for Economic Co-operation participated in their assignment.
In assigning the credit rating, ACRA used only information, the quality and reliability of which was, in ACRA’s opinion, appropriate and sufficient to apply the methodologies.
ACRA provided no additional services to International Bank for Economic Co-operation. No conflicts of interest were discovered in the course of the credit rating assignment.
