Moody’s: APICORP’s credit strengths include its robust capital adequacy and strong shareholder support

Frankfurt am Main, October 12, 2017 — The credit profile of the Arab Petroleum Investments Corporation (APICORP, Aa3 stable) is supported by its robust capital adequacy, a high-quality investment asset portfolio, de facto preferred creditor status and strong shareholder support, Moody’s Investors Service said in a recent report.

The annual update, “Arab Petroleum Investments Corporation (APICORP) — Aa3 stable, Annual credit analysis”, is now available on www.moodys.com. Moody’s subscribers can access this report via the link at the end of this press release. The research is an update to the markets and does not constitute a rating action.

“APICORP has maintained a high level of equity relative to its risk assets, and its corresponding capital adequacy ratios exceed regulatory guidelines,” said Steffen Dyck, a Moody’s Vice President — Senior Credit Officer and co-author of the report. “Relatively low leverage also contributes to APICORP’s high intrinsic financial strength, while the increase in callable capital in 2016 underlines its shareholder support.”

The multilateral development bank’s strong capital position and low leverage offset its somewhat weaker-than-peers asset quality in its lending activity. Its capital position is also supported by the strong quality of its asset portfolio, reflected in comparatively high weighted average credit ratings for different asset classes.

APICORP’s credit challenges include a funding profile marked by a comparatively high share of short-term wholesale deposits, an improving but still relatively large asset-liability maturity mismatch, and high geographic and sector concentration relative to peers.

Efforts to diversify its funding sources are ongoing and there was a further moderation of the short-term maturity gap in 2016. Nevertheless, the degree to which the corporation remains reliant on wholesale deposits adversely affects Moody’s assessment of its liquidity.

In addition, APICORP’s operating environment is challenging given the political turmoil in a number of member countries since 2011, more prominent geopolitical risks recently and sustained low oil prices, which saw net profit decline 13.2% year-on-year in 2016. That said, asset quality and capital adequacy have not been materially impacted yet.

APICORP’s share of non-performing loans in total gross loans remains higher than for its peers. At year-end 2016, gross NPLs represented 2.06% of gross corporate finance loans. The ratio has come down from 2.4% in 2015 and is estimated to have decreased further to 2% as of June 2017.

Upward pressure on APICORP’s ratings could follow any further material progress in addressing liquidity risk by diversifying its funding base and reducing maturity mismatches, while maintaining its capital adequacy despite the challenging operating environment.

Conversely, downward pressure on its ratings could emerge should a prolonged period of very low oil prices or a regional political shock significantly impair asset quality.

Further rating downgrades of its main shareholders that indicate a weaker ability to financially support APICORP would be negative, as would any other indication emerge that shareholders’ willingness to support APICORP was weakening. Finally, a liquidity risk increase or any funding pressures emerge as a result of a worsening of the operating environment would exert downward pressure on the rating.

Subscribers can access the report at: http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1092179