CREDIT ANALYSIS IBRD (World Bank)treasury.worldbank.org/cmd/pdf/Moodys_IBRD_Report_2014.pdfJANUARY...

CREDIT ANALYSIS

SOVEREIGN & SUPRANATIONAL JANUARY 31, 2014

RATINGS

IBRD (World Bank) Rating Outlook

Long-term Issuer Aaa STA Short-term Issuer P-1 STA Senior Unsecured Aaa STA

Table of Contents:

OVERVIEW AND OUTLOOK 1 Organizational Structure and Strategy 2

RATING RATIONALE 3 Capital Adequacy: Very High 3 Liquidity: Very High 6 Strength of Member Support: Very High 8 Rating Range 11 Comparatives 12

APPENDICES 13 Rating History 13

ANNUAL STATISTICS 14 MOODY’S RELATED RESEARCH 17 RELATED WEBSITES 17

Analyst Contacts:

NEW YORK +1.212.553.1653

Steven A. Hess +1.212.553.4741 Senior Vice President [email protected]

Annette Swahla +1.212.553.4037 Analyst [email protected]

Bart Oosterveld +1.212.553.7914 Managing Director - Sovereign Risk [email protected]

This Credit Analysis provides an in-depth discussion of credit rating(s) for IBRD (World Bank) and should be read in conjunction with Moody’s most recent Credit Opinion and rating information available on Moody's website.

IBRD (World Bank) Supranational

Overview and Outlook

This Credit Analysis elaborates on the International Bank for Reconstruction and Development’s (IBRD or World Bank, Aaa stable) credit profile in terms of Capital Adequacy, Liquidity and Strength of Member Support, which are the three main analytical factors in Moody’s Supranational Rating Methodology.

The IBRD’s credit strengths are its sound financial policies, preferred creditor status (which aids asset quality) and strong shareholder support. Its financial policies ensure strong and stable credit metrics in terms of capital adequacy and liquidity. Conservative asset/liability management policies greatly reduce financial risks. These, and other, policies complement the moderate credit risk of the bank's loan portfolio, which is enhanced by its preferred creditor status. Preferred creditor status means that most countries give priority to repaying their obligations to the IBRD. In addition to the bank’s very strong intrinsic financial strength, bondholders enjoy substantial protection in the form of the bank's large cushion of callable capital. The IBRD has never had to resort to a call on capital.

The IBRD’s credit challenges stem from the credit risk that it faces from its lending activity. As a result of its development mandate, the bank lends to riskier sovereigns, some of which have no or very limited access to capital markets. As such, the bank could, albeit with low probability, experience significant asset-quality deterioration should there be simultaneous financial crises in several large borrowers. Despite the benefit to asset quality that it receives from preferred creditor status, the IBRD experiences arrears on debt service from its borrowers. However, these amounts have been minimal over the past few years and are amply covered by loan loss provisions.

The outlook on the bank’s rating remains stable. The institution’s strong capital base should allow it to withstand crises in developing countries without impairing its ability to service its obligations. The rating could face downward pressure if several of the IBRD's largest borrowers end up in default and are unwilling or unable to meet their obligations to the bank.

http://www.surveygizmo.com/s3/1133212/Rate-this-research?pubid=162861

https://www.moodys.com/credit-ratings/IBRD-World-Bank-credit-rating-410525

https://www.moodys.com/credit-ratings/IBRD-World-Bank-credit-rating-410525

http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_161372

SOVEREIGN & SUPRANATIONAL

2 JANUARY 31, 2014

CREDIT ANALYSIS: IBRD (WORLD BANK)

Organizational Structure and Strategy

The World Bank Group’s Public-Sector Lender The IBRD is one part of the larger World Bank Group, which also includes the International Development Association, the group’s soft-loan window; the International Finance Corporation (IFC), a vehicle for lending to or investing in private companies in emerging markets without the benefit of host country government guarantees; the Multilateral Investment Guarantee Agency, which insures certain investments against political risks in emerging markets; and the International Centre for Settlement of Investment Disputes.

The IBRD and IFC are the only global multilateral development banks (MDB). With 188 members, all of which are sovereigns, the IBRD’s member base is the largest in the MDB universe. While the IBRD does not lend to all of its members, it does have a significantly larger number of borrowing members than do other MDBs. As of 30 June 2013, there were 76 members with outstanding IBRD loans.

The IBRD was established in 1945 to help Europe rebuild after World War II. Today, its main goal is to promote sustainable economic development and reduce poverty in developing member countries. It does so by providing loans and guarantees and serving as a catalyst for additional external financial flows to those countries through co-financing arrangements. The bank finances both investment projects and development policy programs in support of policy reforms alongside borrowing governments, official aid agencies, and private financial institutions. The IBRD lends exclusively to member countries that meet eligibility requirements, or to borrowers in those jurisdictions under the guarantee of the member states. The bank does not aim to maximize profits, although it earns a significant net income.

Capital Increase Affects Voting Power and Supports Growth in Lending Operations In March 2011, the Board of Governors approved a capital increase, which supported the IBRD’s intrinsic financial strength in light of the bank’s elevated level of lending after the global crisis. The capital increase also positioned the bank to be able to respond to any further global economic or financial turmoil. The bank’s large size (it is the second largest MDB, by assets, after the European Investment Bank) also enables it to fulfill its members’ request to serve as a counter-cyclical lender during recessions or periods of financial instability.

The capital increase includes a general component as well as a selective component that together boosted the bank’s total subscribed capital by $86.2 billion. The general component amounted to $58.4 billion, of which $3.5 billion will be paid in and the remainder will be callable. The selective component amounted to $27.8 billion, of which $1.6 billion will be paid in; this component has also increased the voice and participation of developing and transition countries, by 4.6% since FY 2008. These countries now have a total voting power of 47.2%. Begun in 2008, the Voice Reform has the long-term goal of achieving equitable voting power between developed and developing member countries.

Developments in the shareholdings of the United States and China illustrate the impact of the selective capital increase. Since FY-end 2011, the US shareholding has fallen from 16.0% to its current level of 15.2%; at the same time, China’s shareholding increased from 2.7% to 5.5% by FY-end 2013. During this period, China moved up from being the sixth largest shareholder to the third largest. Although the US shareholding has dropped, the country retains its status as the largest shareholder and the only one with veto power.


3 JANUARY 31, 2014


As of 30 June 2013, total subscriptions received from the capital increase amounted to $33.1 billion with the paid-in portion amounting to $1.9 billion (of which $1.0 billion was paid in during FY 2013). The remaining amounts should arrive by 30 June 2016, the end of the five-year capital increase period.

Rating Rationale

Our determination of a supranational’s rating is based on three rating factors: Capital Adequacy, Liquidity and Strength of Member Support. For Multilateral Development Banks, the first two factors combine to form the assessment of Intrinsic Financial Strength, which provides a preliminary rating range. The Strength of Member Support can provide uplift to the preliminary rating range. For more information please see our Supranational Rating Methodology.

Capital Adequacy: Very High

Risk Management Mitigates Challenges Arising from Mandate

Factor 1

Scale Very High High Medium Low Very Low

+ -

Capital adequacy assesses the solvency of an institution. The capital adequacy assessment considers the availability of capital to cover assets in light of their inherent credit risks, the degree to which the institution is leveraged and the risk that these assets could result in capital losses.

Capitalization Ratios’ Turnaround Due to Capital Increase The steady expansion of IBRD’s capital resources over the years, combined with strict lending limitations, means that the bank has sufficient capital to cope with its business risk. The bank views its capital adequacy as the ability of its equity to generate future net income to support normal loan growth and respond to a potential crisis without having to resort to a call on capital.

There are various safeguards used to protect capital adequacy. The statutory lending limit is defined in the IBRD charter and stipulates that the total amount outstanding of disbursed loans, participations in loans, and callable guarantees may not exceed the total value of subscribed capital (which includes callable capital), reserves, and surplus. As of 30 June 2013, the bank’s total exposure to borrowing countries was well below the limit at 57%, down from 59% the previous fiscal year.

We assess an MDB’s capital position using a narrower definition of capital. Our asset coverage ratio dimensions usable equity against total loans outstanding and risk-weighted liquid assets,1 where usable equity excludes callable capital. For the bank, this ratio steadily trended downward from 42.0% in 2008 to 26.9% in 2012. However, as a result of the capital increase, the ratio increased slightly to 27.5% by FY-end 2013. Despite the deterioration, these levels continually qualified as ‘High’ in our analysis, which we expect to remain so in the medium term.

Moderate Asset Quality Supported by Benign Operating Environment… Despite its declining trend, the bank’s asset coverage ratio is still strong. Moreover, while it was declining, the overall quality of the loan portfolio was improving. Exhibit 1 shows the proportion of

1 Risk-weighted according to our expected loss rates at five years.



4 JANUARY 31, 2014


loans outstanding to the 10 largest borrowers during 2008-13. During the six-year period, the creditworthiness of many of the bank’s largest borrowers improved. The weighted average borrower rating of the total portfolio improved to Ba1 from Ba2, reflecting the bank’s strengthening asset quality.

While large emerging economies may face challenges over the coming years, we do not expect that deterioration in the macroeconomic conditions of the bank’s borrowers will pose a serious threat to the bank’s asset quality. Supporting this view is the bank’s global scope, which makes the financial and economic linkages and thus contagion risk among its members low. We have an overall positive assessment of the bank’s medium-term operating environment, boosting our capital adequacy assessment.

EXHIBIT 1

Public Sector Focus Leads to Concentration Risk in Portfolio Gross Loans Outstanding – Country Detail (% of total)

2008 2009 2010 2011 2012 2013

Mexico 4.1 6.1 8.7 9.2 10.0 10.4

Turkey 7.8 8.2 8.5 9.8 9.3 9.0

China 12.0 12.0 10.7 9.8 9.6 9.0

India 7.2 7.4 9.0 8.6 8.6 8.3

Brazil 9.9 10.1 9.4 7.9 7.4 8.0

Indonesia 6.4 6.2 6.3 6.8 7.3 7.3

Colombia 4.9 5.6 6.0 5.6 5.5 5.3

Poland -- 2.9 3.2 4.2 4.1 4.7

Argentina 5.3 4.9 4.4 4.1 4.1 4.1

Romania -- -- -- 2.5 2.6 2.4

Philippines 2.7 -- -- -- -- --

Russia 4.1 3.3 -- -- -- --

Ukraine -- -- 2.7 -- -- --

Top 10 Total 64.4 66.8 68.9 68.4 68.4 68.3

Total Portfolio - Wtd Avg Borrower Rating [1] Ba2 Ba2 Ba1 Ba1 Ba1 Ba1

[1] Weighted average borrower rating is calculated using probability of default rates associated with our foreign currency government bond ratings as of 30 June 2013.

Source: IBRD and Moody’s

…and Net Neutral Portfolio Concentration Overall, portfolio concentration is not a credit concern. The bank has a highly concentrated portfolio by exposures, as shown in Exhibit 1. Due to its lending to the public sector, it has fewer borrowers than do MDBs that lend to the private sector. The 10 largest borrowers represent 68% of its total portfolio. However, as the only global public-sector MDB, the IBRD has very low country and regional concentration. Its regional concentration is the second lowest in the MDB universe, following the IFC, its sister organization. The balance of high concentration of exposures and low regional concentration results in a neutral impact of concentration risk on our assessment of the bank’s capital adequacy.


5 JANUARY 31, 2014


Regarding exposure concentration risk, the IBRD limits its exposure (both development-related lending and treasury investments) to individual borrowers based on its risk-bearing capacity. The single-borrower exposure limit for FY 2013 was $17.5 billion for India and $16.5 billion for the other large borrowing countries deemed to be the most creditworthy by the IBRD. The Board reviews and approves this limit every year and has left it unchanged for FY 2014. Also, there is an equitable access limit of 10% of IBRD’s subscribed capital, reserves and unallocated surplus, which amounted to $25 billion at FY-end 2013. The overall country limit for the largest and most creditworthy borrowing countries is the lower of the single-borrower limit and the equitable access limit. The IBRD can continue to lend to a country that has reached its limit, provided arrangements are made so that the bank’s net exposure to it will not increase. As of 30 June 2013, China was the only country with which the bank had such an arrangement, and since it was below the limit the arrangement was not activated.

Leverage Influenced by Demand for IBRD Loans The bank’s leverage has increased over the past few years, but remains moderate and in line with a broader historical context. The ratio of gross debt to usable equity fell between FY 2012 and FY 2013, from 396.2% to 358.0%.

The high level in FY 2012 was due to both numerator and denominator effects. Despite the capital increase’s positive impact on paid-in capital, usable equity fell by almost 8% because of a larger-than-normal accumulated other comprehensive loss related to a net actuarial loss on benefit plans. In FY 2013, usable equity bounced back to FY 2011 levels and nominal debt fell, bringing the debt-to-usable equity ratio down.

Despite the decrease between FY 2012 and FY 2013, the ratio is considerably higher than the historical low of 210.4% in FY 2008. In the run-up to the global crisis, IBRD’s borrowing needs decreased because it was experiencing negative net loan disbursements, meaning annual loan repayments from borrowers exceeded loan disbursements to borrowers. Since that trough, the bank’s borrowing needs have increased significantly in order to support much higher lending volume in response to the global crisis. We view positively the increased borrowing in that it reflects healthy demand for IBRD loans. Since the crisis has eased, IBRD’s increased borrowing needs have eased as well. We expect that demand will remain healthy, albeit at moderated levels compared with the crisis period, and that the debt-to-usable-equity ratio will likewise remain stable within a range.

Problem Loans Remain Very Small The bank’s assets continue to perform very well with only one country in nonaccrual status as of FY-end 2013, Zimbabwe. During the first half of FY 2014, the bank placed Iran on nonaccrual status, but the situation was quickly resolved and all overdue amounts were cleared in a few months.2

The bank does not reschedule its loans. It has never written off a loan and continues to seek recovery on all arrears. Zimbabwe has been in nonaccrual status since FY 2001. As of FY-end 2013, the amount in nonaccrual status amounted to approximately $462 million, or 0.3% of total gross loans outstanding, and was amply covered by accumulated loan loss provisions of $1,659 million. While the bank places its loans on non-performing status when a country is overdue on its payments by more than six months, the figures do not change if a 90-day period is used.

Problem loans have steadily decreased since FY 2005 when the ratio of non-performing loans (NPLs) to total loans outstanding reached 3.4%. This is notable given the bank’s counter-cyclical lending

2 For more information, see IBRD’s (World Bank) Preferred Creditor Status Upheld by Quick Resolution of Iranian Arrears, October 2013.



6 JANUARY 31, 2014


during the global crisis. IBRD has historically experienced higher NPL levels than have other Aaa-rated MDBs, such as the Asian Development Bank, European Investment Bank, Inter-American Development Bank and Nordic Investment Bank, all of which have long-term histories of zero or near-zero NPL ratios. However, the IBRD’s asset quality does benefit from preferred creditor status, in which members, who are also the borrowers, pledge to prioritize debt service to the IBRD over debt service to market and official bilateral creditors.

Despite its preferred creditor status, the IBRD has had periods of higher NPLs because its geographically broad lending scope and development mandate result in lending to financially weak sovereigns who only have official debt. Therefore, when those borrowers run into problems, there are no market creditors to subordinate to the IBRD, only bilateral creditors. Given the bank’s lending distribution, with almost 14% of loans outstanding to sovereigns rated B3 or lower, or not rated, its NPL level would likely be much higher without the benefit of preferred creditor status.

Liquidity: Very High

Strong Debt Service Coverage and Very Strong Market Access

Factor 2


+ -

A financial institution’s liquidity is important in determining its shock absorption capacity. We evaluate the extent to which liquid assets cover debt service requirements and the stability of the institution’s access to funding.

Stability of Strong Liquidity Position Ensured by Policy The IBRD has a high liquidity position when measured by our debt service coverage ratio. This ratio dimensions the stock of short-term and currently maturing long-term debt against the stock of liquid assets.3 Exhibit 2A shows the evolution of the ratio since 2006. Despite annual fluctuations, the ratio consistently falls in the 60%-100% range.

The IBRD’s liquidity management influences the debt service coverage ratio. The goal is to ensure cash flows are available to meet all of the bank’s financial commitments. The liquidity policy stipulates that liquid assets must equal at least the highest consecutive six months of anticipated debt service plus one-half of the anticipated net loan disbursements over the coming fiscal year, if positive. As such, it is possible for the debt service coverage ratio to exceed 100%, although that has not occured as shown in Exhibit 2A. As a result of the policy, we expect the bank’s debt service coverage ratio will be stable within the high assessment.

3 In our analysis, we discount liquid asset investments according to our expected loss rates at five years. However, for the entire sector, we publish the ratio without the

discounting applied.


7 JANUARY 31, 2014


EXHIBIT 2A

Debt Service Coverage Stability Within a Range… ST + CMLTD/Liquid Assets (%)

ST=Short term; CMLTD=Currently maturing long-term debt Liquid assets used for the calculation displayed here are not discounted. Source: IBRD and Moody’s

EXHIBIT 2B

…Supported by Debt Composition Maturity of Outstanding Borrowings (% of total)

Source: IBRD and Moody’s

Both the maturity profile of the bank’s borrowings and the historical precedence of over-compliance with its liquidity policy support our assessment of expected stability in the bank’s liquidity position. Exhibit 2B shows the evolution of the remaining time to maturity of the bank’s debt. Despite annual fluctuations, the ‘one year or less’ time bucket generally remains the smallest bucket, averaging around 23% of the total debt portfolio. The shrinking of the ‘more than five years’ bucket in response to market preference has moved this bucket to the middle. While the IBRD has short-term borrowings, primarily through its USD discount note program, it primarily relies on medium-term issuance.

The bank’s actual liquidity has tended to be comfortably above the minimum set by the policy and is conservatively managed to protect the principal amount of the investments while generating a reasonable return. For FY 2014, the prudential minimum is $24.5 billion, which is $2.5 billion higher than the level in FY 2013.4 As of 30 June 2013, balance-sheet liquid assets amounted to $41.4 billion, comfortably exceeding the prudential minimum.

Asset/Liability Management Effectively Minimizes Liquidity Risk and Supports Stability of High Position The aim of IBRD’s asset/liability management framework is to provide adequate funding for each loan and liquid asset at the lowest available cost and to manage the portfolio of liabilities supporting each loan and liquid asset within the prescribed risk guidelines. To that end, the bank uses derivatives to manage its exposure to interest and currency risks, manage repricing between loans and borrowings, extend the duration of equity, and assist borrowing member countries in managing their interest and currency risks. It does not enter into derivatives for speculative purposes. As mandated by its articles, the bank matches borrowings in any one currency with assets in the same currency.

Strong Brand Underpins Exceptional Market Access The IBRD scores very high in our assessment of funding, or market access. It fulfills its borrowing needs via bond issuance in the international capital markets. Given its very long and solid track record of market debt issuance, brand recognition as a premier MDB, and global presence, the bank has unquestionable market access. Over the past few years, the strength of its market access was tested and

4 In general, the liquid asset portfolio should not exceed 150% of the prudential minimum liquidity level. From time to time, it may exceed 150% to provide flexibility in

timing its borrowing transactions and to meet working capital needs.

0

20

40

60

80

100

120

2006 2007 2008 2009 2010 2011 2012 2013

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2006 2007 2008 2009 2010 2011 2012 2013

1 Year or Less 1-5 Years Over 5 Years


8 JANUARY 31, 2014


proven. Developed nations were hit hard by the global crisis and several of the bank’s largest members experienced a deterioration of creditworthiness as evidenced by either downward movement or downward pressure5 on their bond ratings. Nevertheless, the IBRD did not experience market dislocation and actually benefitted from the market’s risk aversion to sovereign and affiliated debt as investors sought out its bonds as a safe investment during the sovereign turmoil. We expect the bank’s market access to remain very strong over the medium term.

The IBRD has a sizeable annual borrowing program and regularly issues benchmark bonds. Its FY 2013 program totaled $25.5 billion while $30.0 billion is the FY 2014 target. During FY 2013, it issued bonds in 21 different currencies in a total of 300 transactions, including benchmark bonds in US, Canadian and Australian dollars. Placements were distributed fairly equally in the Americas, Europe and Asia, with central banks constituting the largest portion of the investor base. The IBRD’s spreads have performed well in the market context and changes have been more a result of general market conditions rather than reaction to IBRD-specific factors.

Strength of Member Support: Very High

Committed Global Member Base Supports Intrinsic Financial Strength

Factor 3


+ -

Contractual support primarily manifests itself in the callable capital pledge, which is a form of emergency support. Extraordinary support is a function of shareholders’ ability and willingness to support the institution in ways other than callable capital. Strength of member support can increase the preliminary rating range determined by combining factors 1 and 2 by as many as three scores.

Members’ Callable Capital Complements IBRD’s Own Resources If the bank was unable to service its own debt — an event we consider to be extremely remote as reflected in our ‘Very High’ assessment of its intrinsic financial strength — it would have the option of making capital calls on all member countries in proportion to their subscribed shares. Although the bank has never called capital, we believe it is very likely that members would fully meet any call on capital.

We measure the strength of contractual support with the callable capital (CC) coverage of debt stock indicator whereby we dimension the bank’s gross outstanding debt against the CC pledged by members rated Aaa through Baa3.6 The IBRD scores very high on the measure, with the FY 2013 ratio standing at 82.9%. The high portion of CC pledged by members rated Aaa through Baa3, at 84.1% of total CC, supports the stability of the contractual support assessment. Exhibit 3 shows the capital breakdown of the bank’s 11 largest members, all of whom are rated Baa3 or higher.

5 Downward pressure is indicated by negative outlooks or ratings being placed on review for downgrade. 6 Callable capital is discounted using our 30-year expected loss rates.


9 JANUARY 31, 2014


EXHIBIT 3

Largest Members Exemplify Strength of Contractual Support Capital Subscriptions (2013, $ Million)

Par Value of Shares

Rating [1]

Percent of Total Total Paid-in Callable

Voting Power Per cent of Total

United States Aaa/STA 16.05 35,814 2,229 33,585 15.19

Japan Aa3/STA 8.94 19,958 1,222 18,736 8.48

China Aa3/STA 5.76 12,859 775 12,084 5.47

Germany Aaa/NEG 4.73 10,553 652 9,901 4.50

France Aa1/NEG 4.22 9,409 583 8,826 4.01

United Kingdom Aa1/STA 4.22 9,409 602 8,807 4.01

Canada Aaa/STA 3.15 7,040 433 6,606 3.01

India Baa3/STA 3.07 6,845 413 6,432 2.93

Italy Baa2/NEG 2.54 5,663 350 5,312 2.43

Russia Baa1/STA 2.48 5,529 334 5,195 2.37

Saudi Arabia Aa3/STA 2.48 5,529 335 5,194 2.37

Others 42.38 94,575 5,506 89,069 45.23

Total 100.00 223,181 13,434 209,747 100.00

[1] Foreign currency government bond rating as of 30 January 2014. Source: IBRD and Moody’s

The United States has in place legislation (including the Bretton Woods Agreements Act) that allows the Secretary of Treasury to pay up to $7.7 billion of the $33.6 billion in CC pledged to the IBRD without any further congressional action.

CC is an unconditional and full faith obligation of each member country, the fulfillment of which is independent of the action of other shareholders. Should one or more of the member countries fail to meet this obligation, successive calls on the other members would be made until the full amounts needed were obtained. However, no country would be required to pay more than its total callable subscription. Based on this, we do not consider the IBRD to have support pledged on a joint-and-several basis.

Members’ Willingness Complements Strong Ability to Provide Extraordinary Support We assess members’ extraordinary support of the IBRD to be very high. As Exhibit 3 shows, the creditworthiness of the bank’s largest members is very high. Overall, the weighted median shareholder rating of its 188 members was Aa3 at the end of FY 2013. This figure, while remaining strong, has trended downward over the past six years, from Aaa in 2008. We expect stability in this indicator as the European sovereign debt crisis eases; we also believe a stronger European recovery could cause extraordinary support to improve mildly.

Members’ willingness to provide extraordinary support to the bank is very strong. The bank’s origins in the Bretton Woods Agreements, its status as the archetypal MDB, and its global member and lending base indicate very high political linkages and thus reputational risk should its members not


10 JANUARY 31, 2014


support it during financial duress. Furthermore, the recent capital increase indicates that members remain supportive of the bank’s mandate and its ability to fulfill that mandate. All of these attributes also indicate that even when resources are scarce, members will likely prioritize supporting the IBRD over other MDBs that may require support at the same time.

Global Status and Separation of Credit Risk from Support Ensures Materialization of Support Favorable characteristics of the bank’s member base support our ‘Very High’ assessment of the strength of member support. In view of the largest shareholders shown in Exhibit 3 and the fact that the IBRD has a global member base consisting of 188 sovereigns, the concentration of members as well as the financial and economic linkages among members is low. Regional MDBs with smaller member bases and narrower geographic mandates tend to have higher concentration of capital. As a global MDB, with good geographic distribution of members, the IBRD does not face the risk that regional crises will affect a large number of members due to contagion via financial and economic linkages.

Another favorable characteristic is that the bank has borrowing and non-borrowing members. Only three of the members in Exhibit 3 – China, India, and Russia – are borrowers; the rest have never borrowed or no longer borrow from the bank. In addition, there are other members not displayed who are highly rated non-borrowers. The largest risk the bank faces is credit risk from its lending activity. Therefore, the benefit of this separation of borrowing and non-borrowing members is that there is a high number of large shareholding members who will be called upon to provide financial assistance that are not the same ones that caused the financial stress in the first place.


11 JANUARY 31, 2014


Assigned Rating: Aaa

Rating Range: Aaa – Aa2

Rating Range

Combining the scores for individual factors provides an indicative rating range. While the information used to determine the grid mapping is mainly historical, our ratings incorporate expectations around future metrics and risk developments that may differ from the ones implied by the rating range. Thus, the rating process is deliberative and not mechanical, meaning that it depends on peer comparisons and should leave room for exceptional risk factors to be taken into account that may result in an assigned rating outside the indicative rating range. For more information please see our Supranational Rating Methodology.

Supranational Rating Metrics: IBRD (World Bank)

Capital Adequacy How strong is the capital buffer?

Intrinsic Financial Strength

Sub-Factors: Capital Position, Leverage, Asset Performance

Very High High Medium Low Very Low

+ -

Liquidity How strong is the institutions’ shock absorption capacity?


+ -

Sub-Factors: Position, Funding


+ -

Strength of Member Support

How strong is members’ support of the institution?

Sub-Factors: Contractual Support, Extraordinary Support


+ -



12 JANUARY 31, 2014


Comparatives

This section compares credit relevant information regarding the IBRD with other supranationals we rate. It focuses on a comparison with supranationals within the same rating range and shows selected credit metrics and factor scores.

The IBRD is the only global and the second largest MDB in the peer group. Its credit metrics tend to be close to the median for its rating category. The indicators that fall furthest from the median are the indicators that include measures of debt.

EXHIBIT 4

IBRD (World Bank) Key Peers

Year IBRD [5] ADB AfDB EIB IADB NIB Aaa Median

Rating/Outlook

Aaa/STA Aaa/STA Aaa/STA Aaa/NEG Aaa/STA Aaa/STA --

Total Assets (US$ million) 2012 324,367 122,925 32,605 670,423 92,209 34,644 51,497

Factor 1

Very High Very High Very High Very High High Very High --

Usable Equity/Gross Loans Outstanding + Equity Operations (%) [1] 2012 27.5 30.5 46.6 13.4 30.1 17.6 30.5

Debt/Usable Equity (%) [1] 2012 358.0 391.6 248.7 769.1 317.0 823.1 283.1

Gross NPLs/Gross Loans Outstanding (%) [2] 2012 0.3 0.0 2.8 0.0 0.1 0.0 0.1

Factor 2

Very High Very High Very High Very High Very High Very High --

ST Debt + CMLTD/Liquid Assets (%) [3] 2012 85.7 53.6 94.4 91.3 60.2 76.3 47.9

Bond-Implied Ratings (Average) 2012 Aaa Aaa Aa1 Aaa Aaa Aaa Aaa

Intrinsic Financial Strength (F1+F2)

Very High Very High Very High Very High Very High Very High --

Factor 3

Very High Very High Very High High Very High Very High --

Total Debt/Discounted Callable Capital (%) [4] 2012 82.9 48.0 75.0 208.7 77.3 385.0 82.9

Weighted Median Shareholder Rating (Year-End) 2012 Aa3 Aa3 Ba1 Aa1 A2 Aaa Aa2

Rating Range (F1+F2+F3)

Aaa-Aa2 Aaa-Aa2 Aaa-Aa2 Aaa-Aa2 Aaa-Aa2 Aaa-Aa2 --

Notes:

[1] Usable equity is total shareholder’s equity and excludes callable capital

[2] Non performing loans

[3] Short-term debt and currently maturing long-term debt

[4] Callable capital pledged by members rated Baa3 or higher, discounted by our 30-year expected loss rates associated with ratings

[5] IBRD data is as of its most recent FY-end, 30 June 2013

Source: Moody’s, respective MDB financial statements


13 JANUARY 31, 2014


Appendices

Rating History

IBRD (World Bank)

Issuer Rating Senior Unsecured Outlook

Long-term Short-term

Date

Rating Assigned -- P-1 -- -- Aug-10

Outlook Assigned -- -- -- Stable March-97

Rating Assigned Aaa -- -- -- December-94

Rating Assigned -- -- Aaa -- March-93


14 JANUARY 31, 2014


Annual Statistics

IBRD (World Bank)

2006 2007 2008 2009 2010 2011 2012 2013

Balance Sheet ($ Million) [1]

ASSETS

Total 212,326 207,900 233,311 275,420 281,835 314,211 338,178 324,367

Cash 758 765 890 3,044 1,803 2,462 5,806 4,763

o/w Unrestricted Cash 65 41 122 2,380 1,581 2,312 5,682 4,555

Investments 25,826 23,336 26,598 41,045 36,249 32,645 33,675 36,874

Derivative Assets 78,483 81,436 102,833 123,065 121,823 144,711 160,819 137,385

Gross Loans Outstanding 103,004 97,805 99,050 105,698 120,103 132,459 136,325 143,776

Less Accumulated Loan Loss Provision 2,296 1,932 1,370 1,632 1,553 1,549 1,690 1,659

Less Deferred Loan Income 487 440 412 409 446 440 426 425

Equals Net Loans Outstanding 100,221 95,433 97,268 103,657 118,104 130,470 134,209 141,692

Other Assets 7,038 6,930 5,722 4,609 3,856 3,923 3,669 3,653

LIABILITIES

Total 175,852 168,104 191,763 235,383 245,574 274,528 301,493 284,844

Total Borrowings 95,835 87,759 87,402 110,040 128,577 135,242 145,339 141,500

Derivative Liabilities 74,877 75,191 96,731 115,642 110,615 130,429 144,837 129,809

Other Liabilities 5,140 5,154 7,630 9,701 6,382 8,857 11,317 13,535

EQUITY

Total 36,474 39,796 41,548 40,037 36,261 39,683 36,685 39,523

Total Subscribed Capital 189,718 189,801 189,801 189,918 189,943 193,732 205,394 223,181

Less Total Callable Capital 178,235 178,315 178,315 178,427 178,451 182,012 192,976 209,747

o/w Callable Capital of Aaa-Baa3 Members [2] 140,834 141,288 141,288 141,288 145,503 149,811 159,599 176,151

Equals Paid-in Capital 11,483 11,486 11,486 11,491 11,492 11,720 12,418 13,434

Nonnegotiable, Noninterest-bearing Demand Obligations on Account of Subscribed Capital

-- -- -- -- -1,123 -1,137 -845 -456

Receivable Amounts to Maintain Value of Currency Holdings

-- -- -- -- -171 -52 -79 -81

Deferred Amounts to Maintain Value of Currency Holdings

52 -22 487 359 313 848 561 282

Retained Earnings 24,782 27,831 29,322 29,870 28,793 29,723 29,047 29,265

Accumulated Other Comprehensive Income/Loss 157 501 253 -1,683 -3,043 -1,419 -4,417 -2,921

TOTAL LIABILITIES AND EQUITY 212,326 207,900 233,311 275,420 281,835 314,211 338,178 324,367

Memo:

Undisbursed Balance of Effective Loans 25,856 24,874 26,397 29,567 42,778 45,005 49,544 50,326

Loans Approved But Not Yet Effective 9,082 10,566 11,779 21,558 20,796 19,430 13,372 10,980

Guarantees Outstanding 995 938 788 1,713 1,726 1,969 1,753 1,881

[1] Fiscal year ending June 30 [2] Member countries that we rate Aaa through Baa3


15 JANUARY 31, 2014


IBRD (World Bank)

2006 2007 2008 2009 2010 2011 2012 2013

Income Statement ($ Million)

Total Gross Income 6,235 7,012 6,863 5,037 4,206 4,377 4,389 4,246

Income from Loans 4,864 5,467 5,497 3,835 2,491 2,470 2,585 2,380

Interest 4,791 5,391 5,426 3,789 2,458 2,449 2,572 2,359

Commitment Fees 73 76 71 46 33 21 13 21

Investment Income 1,107 1,281 1,066 603 367 363 214 241

Other 264 264 300 599 1,348 1,544 1,590 1,625

Total Gross Expenses 4,495 5,353 4,592 4,465 3,406 3,354 3,606 3,370

Borrowing Expenses 3,987 4,519 4,017 2,739 1,750 1,687 1,652 1,483

Interest on Borrowings 3,882 4,427 3,934 2,664 1,750 1,687 1,652 1,483

Other borrowing expenses 105 92 83 75 -- -- -- --

Administrative Expenses 1,059 1,066 1,082 1,244 1,519 1,564 1,631 1,761

Provision for Loan Losses -724 -405 -684 284 -32 -45 189 -22

Contribution to Special Programs 173 171 176 197 168 147 133 147

Other 0 2 1 1 1 1 1 1

Net Operating Income 1,740 1,659 2,271 572 800 1,023 783 876

Plus Board of Governors-approved transfers -650 -957 -740 -738 -839 -513 -650 -663

Plus net unrealized gains (losses) on non-trading portfolio

-3,479 -842 -40 3,280 -1,038 420 -809 5

Equals Net Income -2,389 -140 1,491 3,114 -1,077 930 -676 218


16 JANUARY 31, 2014


IBRD (World Bank)

2006 2007 2008 2009 2010 2011 2012 2013

Financial Ratios

Capital Adequacy (%)

Usable Equity/Gross Loans Outstanding [1] 35.4 40.7 41.9 37.9 30.2 30.0 26.9 27.5

Debt/Usable Equity [1] 262.7 220.5 210.4 274.8 354.6 340.8 396.2 358.0

Gross NPLs/Gross Loans Outstanding [2] 1.0 1.1 0.5 0.4 0.4 0.4 0.3 0.3

Allowance for Loan Losses/Gross NPLs [2] 221.2 180.6 295.3 354.8 339.8 332.4 365.8 359.1

Return on Average Assets 0.8 0.8 1.0 0.2 0.3 0.3 0.2 0.3

Interest Coverage Ratio (x) 1.4 1.4 1.6 1.2 1.5 1.6 1.5 1.6

Liquidity (%)

Liquid Assets/Total Assets 12.2 11.2 11.5 15.8 13.4 11.1 11.6 12.8

Liquid Assets/Total Debt 27.0 26.6 30.6 39.5 29.4 25.8 27.1 29.3

ST Debt + CMLTD/Liquid Assets [3] 84.9 97.8 95.7 72.0 89.8 76.0 56.1 85.7

Bond-Implied Ratings (Average) Aaa Aaa Aaa Aaa Aaa Aaa Aaa Aaa

Strength of Member Support (%)

Callable Capital of Aaa-Baa3 Members/Total Callable Capital

79.0 79.2 79.2 79.2 81.5 82.3 82.6 84.1

Total Debt/Discounted Callable Capital [4] -- -- -- -- -- -- 93.3 82.9

Weighted Median Shareholder Rating (Year-End) Aaa Aaa Aaa Aa2 Aa2 Aa2 Aa3 Aa3

[1] Usable equity is total shareholder's equity and excludes callable capital

[2] Non-performing loans

[3] Short-term debt and currently maturing long-term debt

[4] Callable capital pledged by members rated Baa3 or higher, discounted by our 30-year expected loss rates associated with ratings


17 JANUARY 31, 2014


Moody’s Related Research

Credit Opinion:

» IBRD (World Bank)

Issuer Comment:

» IBRD’s (World Bank) Preferred Creditor Status Upheld by Quick Resolution of Iranian Arrears, October 2013 (159089)

Rating Methodologies:

» Multilateral Development Banks and Other Supranational Entities, December 2013 (161372)

» Sovereign Bond Ratings, September 2013 (157547)

Moody’s Website Links:

» Sovereign Risk Group Webpage

» Supranational Ratings List

To access any of these reports, click on the entry above. Note that these references are current as of the date of publication of this report and that more recent reports may be available. All research may not be available to all clients.

Related Websites

For additional information, please see:

» The IBRD (World Bank) website: www.worldbank.org

MOODY’S has provided links or references to third party World Wide Websites or URLs ("Links or References") solely for your convenience in locating related information and services. The websites reached through these Links or References have not necessarily been reviewed by MOODY’S, and are maintained by a third party over which MOODY’S exercises no control. Accordingly, MOODY’S expressly disclaims any responsibility or liability for the content, the accuracy of the information, and/or quality of products or services provided by or advertised on any third party web site accessed via a Link or Reference. Moreover, a Link or Reference does not imply an endorsement of any third party, any website, or the products or services provided by any third party.

https://www.moodys.com/research/IBRD-World-Bank-Credit-Opinion--COP_410525





http://www.moodys.com/researchandratings/market-segment/sovereign-supranational/-/005005/4294966293/4294966623/-1/0/-/0/-/-/en/global/rr

http://v2.moodys.com/moodys/cust/content/loadcontent.aspx?source=StaticContent/BusinessLines/Sovereign-SubSovereign/RatingsListSR.htm&Param=ALL

http://www.worldbank.org/

http://www.surveygizmo.com/s3/1133212/Rate-this-research?pubid=162861


18 JANUARY 31, 2014


Report Number: 162861

Authors Annette Swahla Steven Hess

Editors Mina Kang Robert Cox

Production Associate David Dombrovskis

© 2014 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. (“MIS”) AND ITS AFFILIATES ARE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND CREDIT RATINGS AND RESEARCH PUBLICATIONS PUBLISHED BY MOODY’S (“MOODY’S PUBLICATIONS”) MAY INCLUDE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL, FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND MOODY’S OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. CREDIT RATINGS AND MOODY’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND MOODY’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. NEITHER CREDIT RATINGS NOR MOODY’S PUBLICATIONS COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS AND PUBLISHES MOODY’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

MOODY’S CREDIT RATINGS AND MOODY’S PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS FOR RETAIL INVESTORS TO CONSIDER MOODY’S CREDIT RATINGS OR MOODY’S PUBLICATIONS IN MAKING ANY INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER.

ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT.

All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided “AS IS” without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY’S is not an auditor and cannot in every instance independently verify or validate information received in the rating process or in preparing the Moody’s Publications.

To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY’S.

To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information.

NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER.

MIS, a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MIS have, prior to assignment of any rating, agreed to pay to MIS for appraisal and rating services rendered by it fees ranging from $1,500 to approximately $2,500,000. MCO and MIS also maintain policies and procedures to address the independence of MIS’s ratings and rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Shareholder Relations – Corporate Governance –Director and Shareholder Affiliation Policy.”

For Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail clients. It would be dangerous for “retail clients” to make any investment decision based on MOODY’S credit rating. If in doubt you should contact your financial or other professional adviser.

http://www.moodys.com/

CREDIT ANALYSIS IBRD (World Bank)treasury.worldbank.org/cmd/pdf/Moodys_IBRD_Report_2014.pdfJANUARY...

Documents

Transcript of CREDIT ANALYSIS IBRD (World Bank)treasury.worldbank.org/cmd/pdf/Moodys_IBRD_Report_2014.pdfJANUARY...