-- Following a review of the International Finance Corporation (IFC)
under our revised criteria for multilateral lending institutions (MLIs), we
have affirmed our long- and short-term issuer credit ratings on IFC at
-- The stand-alone credit profile for IFC is 'aaa', reflecting our
assessment of its "very strong" business profile and "extremely strong"
financial profile, as our criteria define these terms.
-- The stable outlook reflects our view that IFC's capital position and
liquidity are strong enough to withstand a period of severe financial distress
affecting private sector entities in its countries of operations.
On Dec. 27, 2012, Standard & Poor's Ratings Services affirmed its 'AAA/A-1+'
long- and short-term issuer credit ratings (ICRs) on the International Finance
Corporation (IFC). The outlook is stable.
The ratings on the IFC are based on its "very strong" business profile and
"extremely strong" financial profile, as our criteria define these terms. Its
stand-alone credit profile (SACP) is 'aaa'. We outline these factors in our
revised criteria, "Multilateral Lending Institutions And Other Supranational
Institutions Ratings Methodology," published Nov. 26, 2012, on RatingsDirect
on the Global Credit Portal.
Our "very strong" assessment of IFC's business profile rests on our view of
its role, mandate, strength of its relationship with shareholders, governance,
and preferential treatment by shareholders vis-a-vis commercial lenders. IFC
is a member of the World Bank Group, along with the International Bank for
Reconstruction and Development (IBRD), the International Development
Association (IDA), the Multilateral Investment Guarantee Agency, and the
International Centre for Settlement of Investment Disputes. Although it
cooperates closely with IBRD, the IFC is legally and financially independent
of other World Bank Group entities, with its own Articles of Agreement,
shareholders, financial structure, management, and staff. It was established
in 1956 to complement the activities of IBRD by encouraging the growth and
development of the private sector in developing member countries. IFC has
gradually increased its number of shareholders during the past 56 years: It
began with 56 members, and currently has 184 members -- second only to IBRD,
among rated MLIs, in terms of the breadth of global representation among
IFC pursues its mandate principally by lending to and investing in
private-sector entities, without government guarantees. Although in the past
IFC obligors have been exempted from exchange controls when debtors of
commercial external creditors have not and although the IFC has greater
influence on governmental policy formation regarding the members' business
environment, it does not benefit from preferred creditor treatment in the same
manner as an MLI lending only to the public sector, in our view.
Our assessment of IFC's financial profile is "extremely strong". IFC had US$76
billion in total assets at fiscal year-end 2012, of which US$23 billion was
loans and debt issued by clients and US$10 billion was equity investments. In
addition, IFC had US$3 billion in guarantees outstanding, bringing its
purpose-related exposure (PRE) to US$36 billion, or 46% of total assets plus
guarantees. This relatively low percentage for an MLI is mirrored by IFC's
unusually high holdings of cash, deposits, and liquid securities, which
equaled 49% of total assets.
As a global institution, IFC's geographic exposure is well diversified, both
within countries and aggregating exposures at the country level. In terms of
aggregate country level exposures, the Republic of India has been IFC's
largest country of exposure for several years, with about 9% of its disbursed
investment portfolio at fiscal year-end June 30, 2012. Its five largest
country PREs totaled less than 33% of total exposure. IFC's high level of
geographical and sectorial diversification accounts in part for our
calculation of risk-adjusted capital (RAC) after adjustments of 31% being
higher than our figure of 18% before adjustments. The main cause of the higher
ratio after adjustments is, however, the cap to the risk weight for high risk
exposures, so that the capital allocated does not exceed the exposure amount.
In addition, IFC's loss experience has been modest. The IFC wrote off US$69
million in loans during the past two years (less than 0.5% of total loans as
of fiscal 2012 year-end, and partially offset by recoveries of US$6 million).
We expect IFC to be able to finance a large part of its growth through
internal capital generation, given its profitable record. IFC recorded net
income of US$1.3 billion in fiscal 2012, and US$1.5 billion before net losses
on non-trading financial instruments; the latter measure represented a return
on equity of more than 5% in each of the past 10 years except fiscal 2009 (in
which IFC lost about 3.5%, by this measure). Although habitual grants to IDA
and other board of governors approved transfers (US$330 million in fiscal
2012) reduce the flow from income to retained earnings, we still expect the
latter to continue to grow, as they have in each of the past 10 years except
In addition, on March 9, 2012, IFC's board of governors approved a US$200
million increase in paid-in capital, to be paid in over a number of years.
Our funding and liquidity ratios for IFC indicate that it would be able to
fulfill its mandate for at least one year, even under extremely stressed
market conditions, without access to the capital markets. Moreover, we
estimate that it would not need to reduce the scheduled disbursements of its
loan commitments, even if half of the total commitments were to be drawn in
one year. We believe IFC benefits from strong access to capital markets,
bolstered by frequent issuance in many markets and currencies.
IFC has no callable capital, unlike most MLIs, so our ICRs reflect our 'aaa'
The outlook on IFC is stable. We expect IFC's capital position and liquidity
to be strong enough to withstand severe financial distress in its countries of
operation. The most recent capital increase, while small, nevertheless shows
continued shareholder commitment to the MLI. If -- contrary to our
expectations -- either IFC's capitalization or liquidity ratios were to
decline materially, or we were to come to the view that shareholder support
for its public policy importance had diminished, the ratings could come under
Related Criteria And Research
Multilateral Lending Institutions And Other Supranational Institutions Ratings
Methodology, Nov. 26, 2012
International Finance Corp.
Issuer Credit Rating
Foreign Currency AAA/Stable/A-1+
Senior Unsecured AAA
Senior Unsecured cnAAA