Moody's: World Bank's financial position remains robust due to strong capital base

The financial position of the International Bank for Reconstruction and Development (IBRD or World Bank, Aaa stable) remains robust reflecting a strong capital base and liquidity position and substantial protection from large callable capital, says Moody's Investors Service in a report.

The IBRD's strict lending limitations, combined with its diversified portfolio composition and stable asset quality, ensure that it has sufficient capital to cope with its business risk. The bank uses various safeguards, including statutory lending limits, to protect its capital adequacy.

Under the lender's preferred creditor status, members of the World Bank Group, who are also the borrowers, pledge to prioritize debt service to the IBRD over other obligations, such as payments to market or bilateral creditors.

"The IBRD's strong capital base should allow it to withstand crises in developing countries without impairing its ability to service its obligations," said William Foster, a Vice President and Senior Credit Officer at Moody's.

The IBRD's assets continue to perform very well, with only one country, Zimbabwe (unrated), in so-called nonaccrual status as of the end of the fiscal year (FY) 2016. Unlike some other multilaterals, the IBRD does not reschedule or write off its problem loans. Instead, it continues to seek full recovery of all arrears.

Problem loans at the bank have steadily decreased since FY 2005 when the ratio of non-performing loans to total loans outstanding reached 3.4%.

As a result of its development mandate and global scope, the bank lends to riskier sovereigns, some of which have no, or very limited access, to capital markets. The potential challenges arising from its lending activity partially offset its strengths.

There is a low probability that the IBRD could experience a material rise in non-performing loans should there be simultaneous financial crises that impact several large borrowers at once, or a regional crisis in one of its largest borrowing regions.