IBRD (World Bank) - Aaa Stablepubdocs.worldbank.org/en/971001506612942462/ratings... · MOODY'S INVESTORS SERVICE SOVEREIGN AND SUPRANATIONAL Organizational Structure and Strategy

SOVEREIGN AND SUPRANATIONAL

ISSUER IN-DEPTH17 February 2017

RATINGS

IBRD (World Bank)Rating

SeniorUnsecured

Aaa

Long-termIssuer Rating

Aaa

Other ShortTerm

(P)P-1

TABLE OF CONTENTSOVERVIEW AND OUTLOOK 1Organizational Structure andStrategy 2RATING RATIONALE 3Capital Adequacy: Very High 3Liquidity: Very High 8Strength of Member Support: VeryHigh 10Rating Range 12Comparatives 13Rating History 14Annual Statistics 15Moody’s Related Research 18Related Websites and InformationSources 18

Contacts

William Foster 212-553-4741VP-Sr Credit [email protected]

Matt Kulakovskyi 212-553-2755Associate [email protected]

Marie Diron 65-6398-8310Associate [email protected]

IBRD (World Bank) - Aaa StableAnnual Credit Analysis

OVERVIEW AND OUTLOOKThe International Bank for Reconstruction and Development (IBRD) is the original WorldBank institution and key member of the World Bank Group (WBG). The institution providesa combination of financial and technical resources to developing countries, and is oneof the most active Multilateral Development Bank (MDB) issuers in the capital market.Despite increased volatility in its financial performance, the IBRD's financial position and riskmanagement framework is robust, which supports its Aaa rating and stable outlook.

The IBRD’s credit fundamentals reflect its reasonably conservative financial policies andeffective risk management strategy, which result in predictable capital adequacy and liquiditymetrics. The bank's key credit strengths include: (1) strong capital adequacy and liquidity,supported by strict lending limitations, diversified portfolio composition and stable assetquality; (2) preferred creditor status; (3) a large cushion of callable capital, which providessubstantial credit protection to the bank's bondholders; and (4) high creditworthiness andcommitment from global members, underpinning very strong willingness and ability toprovide extraordinary support.

The IBRD's credit challenges stem from its development mandate and global scope, whichrequire it to lend to riskier sovereigns, some of which have no or very limited access tocapital markets. As a result, the bank could, albeit with low probability, experience anincrease in non-performing loans should there be simultaneous financial crises in severallarge borrowers, or a regional crisis in one of the largest borrowing regions.

The outlook on the IBRD's Aaa credit rating remains stable. Despite a recent increase inleverage, the bank maintains a strong capital base that will continue to allow it to withstandcrises in developing countries without impairing its ability to service its obligations. Thebank's credit rating could face downward pressure in the unlikely event of several of itslargest borrowers defaulting on their obligations to the bank.

This Credit Analysis elaborates on the IBRD's credit profile in terms of Capital Adequacy,Liquidity and Strength of Member Support, which are the three main analytical factors inMoody’s Supranational Rating Methodology.

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

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MOODY'S INVESTORS SERVICE SOVEREIGN AND SUPRANATIONAL

Organizational Structure and Strategy

The World Bank Group’s Public Sector Lender

The IBRD is part of the larger World Bank Group, which also includes: the International Development Association (IDA, Aaa stable), thegroup’s concessional window; the International Finance Corporation (IFC, Aaa stable), a vehicle for lending to or investing in privatecompanies in emerging markets, without the benefit of host country government guarantees; the Multilateral Investment GuaranteeAgency (MIGA, unrated), which insures certain investments against political risks in emerging markets; and the International Centre forSettlement of Investment Disputes (ICSID, unrated).

The IBRD and IFC have long maintained continuous presence in capital markets, and IDA recently received formal authorization to raisemarket funding. With 189 members, all of which are sovereigns, the IBRD’s member base is the largest in the MDB universe. While theIBRD does not lend to all of its members, it does have a significantly larger number of borrowing members than do other MDBs. As of30 June 2016, there were 79 members with outstanding IBRD loans or guarantees.

Exhibit 1

IBRD Members

Source: IBRD, Moody's Investors Service

The IBRD was established in 1945 to help Europe rebuild after World War II. Today, its main goal is to promote sustainable economicdevelopment and reduce poverty in developing member countries. It does so by providing loans and guarantees, and serving asa catalyst for additional external financial flows to those countries through co-financing arrangements. The bank finances bothinvestment projects and development policy programs, in support of policy reforms, alongside borrowing governments, official aidagencies, other MDBs, and private sector financial institutions. The IBRD lends exclusively to member countries that meet eligibilityrequirements, or to borrowers in those jurisdictions under the guarantee of the member states. The bank does not aim to maximizeprofits, although it earns a significant net income if discretionary transfers to IDA are excluded.

2 17 February 2017 IBRD (World Bank) - Aaa Stable: Annual Credit Analysis


RATING RATIONALEOur determination of a supranational’s rating is based on three rating factors: Capital Adequacy, Liquidity and Strength of MemberSupport. For MDBs, the first two factors combine to form the assessment of Intrinsic Financial Strength, which provides a preliminaryrating range. The Strength of Member Support can provide uplift to the preliminary rating range. For more information, please see ourSupranational Rating Methodology.

Capital Adequacy: Very HighRisk Management Mitigates Challenges Arising from Mandate

The resources that an MDB has available to absorb credit or market losses stemming from its operations, and preserve its ability torepay debt holders, are an important element of its financial fundamentals and overall creditworthiness. MDBs hold capital becausethey face potential credit losses as a consequence of their lending and investment operations in sectors or regions that are relativelyrisky, in line with their mandates.

Capital Position has Moderated, Driven by Rising Leverage and Mixed Financial Results

Despite a plateauing capital base and increasing leverage, the IBRD’s strict lending limitations, diversified portfolio composition, andstable asset quality ensure that the bank has sufficient capital to cope with its business risk. The bank views its capital adequacy as thedegree to which its equity is sufficient to withstand unexpected shocks and uses the equity-to-loans ratio as its key metric, similar tothe asset coverage ratio used in our analysis.

As of the end of fiscal year 2016 (FY 2016, July 2015 to June 2016) total subscriptions received as part of the FY 2011 general capitalincrease and subsequent special capital increase amounted to $73 billion, with the paid-in portion amounting to $4.3 billion. Ofthe paid-in capital, $0.6 billion was contributed during FY 2016. The remaining amounts, including $0.8 billion in additional paid-incapital, are expected to arrive over the next two years. Thus far, the capital increase has served to maintain the bank’s total equity in arelatively narrow corridor amid generally negative financial results. Since recent losses are partially attributed to shareholder-mandatedtransfers and grants, the capital increase has effectively compensated the bank for its transfers to IDA and special programs.

Over FY 2012-2016, the IBRD distributed $4.0 billion in grants and transfers, primarily to IDA. Transfers to IDA, which are subject toIBRD Board's approval, are expected to decline to approximately $430 million over the duration of the IDA18 regular replenishmentcycle (FY 2018-2020). Moving forward, this should allow the IBRD to slowly grow its balance sheet through higher retained earnings.This development is credit positive for the IBRD, as it further strengthens its financial sustainability.

The bank uses various safeguards, including statutory lending limits, to protect capital adequacy. The statutory lending limit is definedin the IBRD charter and stipulates that the total amount of outstanding disbursed loans, participations in loans, and callable guaranteesmay not exceed the total value of subscribed capital (which includes callable capital), reserves, and surplus. As of June 30, 2016, thebank’s total exposure to borrowing countries was 58%, well below the 100% statutory limit, up marginally from 56% at the end of theprevious financial year.

We measure the strength of an MDB’s capital position using a narrower definition of capital. Our asset coverage ratio assesses usableequity against total loans outstanding and risk-weighted liquid assets, where usable equity excludes callable capital. For the bank,this ratio steadily trended downward from 41.9% in FY 2008 to 26.9% in FY 2012. Following the general capital increase, the ratio



increased temporarily to 27.5% in FY 2013. The downward trend resumed in FY 2014 and continued through FY 2016, as the ratiodeclined to 21.8%. The IBRD currently has the third lowest capital adequacy ratio score in the Aaa MDB peer group, behind theEuropean Investment Bank (Aaa stable) and the Nordic Investment Bank (Aaa stable).

Exposure Exchange Agreement Has Net Neutral Impact on Capital Adequacy and Concentration Ratios

During FY 2016, the IBRD entered an Exposure Exchange Agreement (EEA) with two regional MDBs, the Inter-American DevelopmentBank (IADB, Aaa stable) and the African Development Bank (AfDB, Aaa stable). The EEA allows participating MDBs to syntheticallyexchange credit risk exposures to a group of borrowers, thereby easing their concentration constraints. Since the agreement is of purelysynthetic nature, the lender of record does not change and any preferred creditor claims remain unimpaired.

Every transaction under the EEA involves a swap of exposures equal in size and equivalent in credit quality (the equivalence isdetermined on the basis of publicly available sovereign ratings by the three major rating agencies). In the event of a non-accrual by aborrower where exposure was partially transferred, the lender of record will be entitled to a pro rata compensation for forgone interestand, if the exposure is written off, a pro rata principal payment. Absent a non-accrual, no payments are to be made between thecounterparties as part of the agreement. No more than 50% of any country exposure can be transferred under the EEA.

Since FY 2014, the IBRD already had a similar agreement with MIGA, in which it exchanged $120 million in notional exposures.The new agreement with IADB and AfDB expanded this mechanism beyond the WBG and vastly increased the volume of exposuretransfers. As of year-end FY 2016, the IBRD's exposure under the EEA stood at $3.7 billion.

In our assessment, the transaction has no immediate impact on capital adequacy. Although the IBRD exposes itself to counterpartyrisk by transferring exposures to other MDBs, all non-World Bank counterparties in this transaction are Aaa-rated. Therefore, anyimmediate net increase in credit risk is immaterial. Portfolio quality is also not immediately affected, as the exposures that havebeen exchanged are of broadly equivalent credit quality. However, if credit quality of the exposures transferred and received divergesovertime, the EEA may have an impact on overall portfolio quality in the long run. Given the significant global diversification of theIBRD's loan portfolio, we expect that any positive impact of the EEA on concentration ratios will be negligible.

Portfolio Asset Quality Remains High, Despite Recent Sovereign Ratings Downgrades

In addition to the gradually declining asset coverage ratio, the bank’s capital adequacy has come under some pressure from recentasset quality deterioration in emerging markets.

Exhibit 2

Asset Quality Deteriorates Marginally as Downgrades offset Upgrades(% of overall portfolio)

[1] Based on ratings as of June 30Source: IBRD (World Bank), Moody’s

While the creditworthiness of many of the bank’s largest borrowers improved between 2008 and 2013, with the loan portfolioweighted average borrower rating rising to Ba1 from Ba2, this began to reverse in 2013 and 2014. This shift was driven by credit quality



deterioration in Ukraine (Caa3 stable) and Argentina (B3 stable). Rising credit risk at the bottom of the rating scale in FY 2014-2015began to outweigh the improving credit quality of the bank’s then-largest borrower, Mexico (A3 negative).

In FY 2016, credit quality of Argentina and Ukraine, the bank's 9th and 10th largest exposures, improved following ratings upgrades.However, this was offset by negative developments in Brazil, the bank's largest exposure. Moody's downgraded Brazil from Baa2 to Ba2over FY 2016, reflecting prospects of material fiscal deterioration and challenging political dynamics. The weighted average borrowerrating is anchored firmly in the Ba2 territory following the downgrade. Overall, four of the bank's 10 largest exposures are currently ona negative outlook - Brazil, Mexico, China (Aa3 negative) and Poland (A2 negative) - and only one has a positive outlook (India, Baa3positive). This has shifted the short-term outlook for IBRD's portfolio quality to the downside. However, in the long run, we do notexpect the current global macroeconomic environment to pose a serious threat to the IBRD's asset quality, as probability of defaultremains remote and portfolio diversification mitigates concentration risk.

Exhibit 3

Reversal to Ba1 Average Borrower Rating Is Unlikely in the Near Term due to a String of Downgrades(weighted average rating-implied probability of default at 5 years)

[1] Based on ratings as of June 30Source: IBRD (World Bank), Moody’s

As of reporting year-end 2016, the bank maintained a $7.1 billion exposure to sovereigns rated Caa1 or lower, which corresponded to4.1% of total loans outstanding, and an additional $3.6 billion in exposure to countries not rated by Moody’s.

The bank's preferred creditor status and global scope helps to mitigate the risks associated with exposures to such distressed borrowers,through low financial and economic linkages, which limits contagion risk among members.

Diversified Portfolio Minimizes Performance Volatility

Overall, portfolio concentration is not a credit concern. The IBRD's 10 largest exposures, including guarantees, represent 64.3% of itstotal portfolio, which we consider to be a moderate level of concentration.

Due to its lending to the public sector, the bank has fewer borrowers than MDBs that lend to the private sector. However, as the onlyglobal public sector MDB, the IBRD has very low country and regional concentration risk. Its regional concentration is the second lowestin the MDB universe, following the IFC. The balance of moderate concentration of top 10 exposures and low regional concentrationresults in a net positive impact of concentration risk on our assessment of the bank’s capital adequacy.



Exhibit 4

Geographic Concentration in the Development Portfolio(% of total)

Source: IBRD (World Bank), Moody's

The IBRD limits its exposure concentration risk (both development-related lending and treasury investments) to individual borrowersbased on its risk-bearing capacity. The Single Borrower Limit (SBL) limit is currently set at $20.0 billion for India and $19.0 billion forthe other large borrowing countries deemed to be the most creditworthy by the IBRD (China, Indonesia (Baa3 positive), Brazil andMexico).

In India’s case, a 50 basis-point surcharge is applied to loans in excess of $17.5 billion, while for the other four the surcharge thresholdis set at $16.5 billion. In addition, there is an equitable access limit of 10% of the IBRD’s subscribed capital, reserves and unallocatedsurplus, which currently amounts to $29 billion. The overall country limit for the largest and most creditworthy borrowing countriesis the lower of the SBL and the equitable access limit. The bank can continue to lend to a country that has reached its limit, providedarrangements are made so that the bank’s net exposure to the country will not increase. As of 30 June 2016, China was the onlycountry with which the IBRD had such an arrangement, and since it was below the limit, the arrangement was not activated.

Rise in Leverage Influenced by Increased Demand for IBRD Loans

The bank’s leverage has increased substantially in recent years, reaching an all-time high in FY 2016. The overall leverage ratio, grossdebt-to-usable equity, increased from 378.1% in FY 2013 to 494.9% in FY 2016. The releveraging followed the World Bank ExecutiveDirectors’ decision to lower the IBRD's minimum equity-to-loans ratio from 23% to 20%. The ratio currently stands at 22.7%, abovethe minimum threshold.

The increase in the leverage ratio has been driven by both numerator and denominator effects. Despite the positive impact of theongoing capital increase on paid-in capital, usable equity has declined for three consecutive years, due primarily to unfunded status ofbenefit plans and currency translation adjustments. Meanwhile, in FY 2016, the bank raised a record $63 billion in medium- and long-term debt, up from $57 billion last year, resulting in a $19 billion increase in total outstanding borrowing.

IBRD’s borrowing needs have been evolving in proportion to rising demand for its loans. In the run-up to the global crisis, IBRD’sborrowing needs decreased because it was experiencing negative net loan disbursements, as annual loan repayments from borrowers



exceeded loan disbursements to borrowers. Since then, the bank has consistently reported positive net disbursements, which reached$13.2 billion in FY 2016, the highest level since FY 2010.

Problem Loans Remain Very Small

The IBRD’s assets continue to perform very well, with only one country, Zimbabwe (unrated), in nonaccrual status as of the end ofFY 2016. The bank placed all loans outstanding from Iran (unrated), a total of $697 million in gross terms, on nonaccrual status in FY2013. However, the situation was resolved within three months and all overdue amounts were cleared. No new nonaccruals have beenreported since that episode.

The bank does not reschedule its loans and it has never written off a loan. Instead, it continues to seek full recovery of all arrears.Zimbabwe has been in nonaccrual status since FY 2001, and as of FY 2016 the principal in nonaccrual status amounted toapproximately $444 million, or 0.3% of total gross loans and guarantees outstanding. This was amply covered by the bank'saccumulated loan loss provisions of $1,571 million, 0.9% of gross loans and guarantees. 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 one applies a moreconservative period of 90 days.

Problem loans have steadily decreased since FY 2005 when the ratio of non-performing loans (NPLs) to total loans outstandingreached 3.4%. This is notable given the bank’s counter-cyclical lending during the global crisis. IBRD has historically experienced higherNPL levels than other Aaa-rated MDBs, such as the Asian Development Bank, European Investment Bank, Inter-American DevelopmentBank and Nordic Investment Bank, all of which have long-term histories of zero or near-zero NPL ratios. Similar to its MDB peers,IBRD’s asset performance remains well-anchored by its preferred creditor status, in which borrowing members pledge to prioritize debtservice to the IBRD over debt service to market and official bilateral creditors.

Notably, despite its preferred creditor status, the IBRD has had periods of higher NPLs, due to its development mandate and broadlending scope which results in lending to financially weaker sovereigns, often with limited access to market-based funding, and acrossall regions. In situations where countries only borrow from MDBs, there are no market creditors to subordinate to the IBRD, onlybilateral creditors. Given the bank’s lending distribution, with 6% of loans outstanding to sovereigns rated Caa1 or lower, or not rated,its NPL ratio would likely be much higher without the benefit of preferred creditor status.



Liquidity: Very HighStrong Debt Service Coverage and Very Strong Market Access

Illiquidity is most often the proximate cause of a financial institution’s failure. Liquidity assumes particular importance for MDBsbecause these entities rely on their own resources in the face of shocks, before shareholder support materializes. Moreover, most MDBsdo not have access to the liquidity facilities that central banks provide to commercial banks. The primary aim of holding liquid assets isto meet financial obligations, in particular debt service, by investing in assets that can be quickly converted to cash. In this respect, welook at the extent to which liquid assets cover debt service requirements. We also evaluate the stability of access to funding, which isan essential element of maintaining liquidity.

Liquidity Management Strategy Supports Strong Liquidity Position

The IBRD has a strong liquidity position when measured by our debt service coverage ratio. This ratio measures the stock of short-termand currently maturing long-term debt against the stock of liquid assets. Exhibit 5 shows the evolution of the ratio since 2008. Despiteannual fluctuations, the ratio consistently falls in the 60%-90% range.

Exhibit 5 Exhibit 6

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

…Supported by Debt Composition(maturity of outstanding borrowings, % of total)

ST=Short term; CMLTD=Currently maturing long-term debtLiquid assets used for the calculation displayed here are not discountedSource: IBRD (World Bank), Moody’s

Source: IBRD (World Bank), Moody’s

The IBRD’s liquidity management strategy influences the debt service coverage ratio. The bank's goal is to ensure that cash flowsare available to meet all financial commitments. The liquidity policy stipulates that liquid assets must equal at least the highestconsecutive six months of anticipated debt service, plus one-half of the anticipated net loan disbursements over the relevant fiscalyear, if positive. As such, it is possible for the debt service coverage ratio to exceed 100%, although that has not occurred in recent



years. As a result of this policy, and management's even more conservative internal target of 12 months of projected debt service andnet loan disbursement needs, we expect the bank’s debt service coverage ratio to remain strong and within our ‘High’ assessment.

Both the maturity profile of the bank’s borrowings and historical precedence of over-compliance with its liquidity policy support ourassessment of expected stability in the bank’s liquidity position. Exhibit 6 illustrates the evolution of the remaining residual time tomaturity of the bank’s debt. Despite annual fluctuations, the “one year or less” time bucket generally remains the smallest, averagingaround 20-25% of the total debt portfolio. Average contractual maturity of the bank's medium- and long-term borrowings stood at 5.5years, as of FY 2016, up from 5.1 years in FY 2015 and within the 4-7 year range observed across its peer group.

The IBRD’s actual liquidity has tended to be comfortably above the minimum set by its own policy and is conservatively managed toprotect the principal amount of the investments while generating a reasonable return. For FY 2016, the prudential minimum was setat $27.5 billion and has been maintained for FY 2017. The bank’s policies also establish a soft corridor for the size of its liquid portfolio,which generally should fluctuate between 140% and 175% of the policy minimum. As of FY 2016, liquid assets amounted to 184% ofthe prudential minimum.

Asset/Liability Management Minimizes Liquidity Risk

The objective of the IBRD’s asset/liability management framework is to provide adequate funding for each loan and liquid asset atthe lowest available cost, and to manage the portfolio of liabilities supporting each loan and liquid asset within the prescribed riskmanagement guidelines. The bank uses derivatives to manage its exposure to interest and currency risks; manage repricing betweenloans and borrowing; manage the duration of equity; and assist borrowing member countries in managing their interest and currencyrisks. The bank does not enter into derivatives for speculative purposes, and is mandated to match borrowings in any one currency withassets in the same currency.

Strong Brand Underpins Exceptional Market Access

The IBRD scores very highly in our assessment of funding and market access. The bank fulfils its borrowing needs via bond issuance inthe international capital markets, where it has a proven track record of very strong market access. This is supported by its long historyof market debt issuance, brand recognition as a premier MDB, and global presence. The strength of its market access has been testedand proven in numerous episodes of market stress. For example, when developed nations were hit hard by the global financial crisis andseveral of the IBRD’s largest members experienced a deterioration in creditworthiness, the bank did not experience market dislocationand benefitted from the market’s risk aversion as investors sought its bonds as safe investments during the sovereign turmoil. Weexpect 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. As mentioned in the previous section, itsFY 2016 funding program totaled $63.1 billion. Over the years, the bank has issued bonds in 56 different currencies, including 22currencies in FY 2016, and most borrowings are swapped into short-term variable rates in US dollars. After accounting for the effects ofsuch swaps, the IBRD’s weighted average cost of borrowing increased slightly to 0.8% in FY 2016 from 0.3% in FY 2015. This reflectshigher LIBOR rates and an inversion in the dollar swap curve relative to LIBOR, which resulted in IBRD's spreads relative to LIBORshifting into positive territory. The IBRD’s spreads have remained relatively tight in a broader market context and fluctuations havebeen closely correlated with U.S. Treasury securities, primarily reflecting general market conditions rather than reaction to IBRD-specific factors. Higher borrowing costs were largely passed on to the bank's borrowers via variable-rate loans, albeit with a 6-monthlag.



Strength of Member Support: Very HighCommitted Global Member Base Supports Intrinsic Financial Strength

Contractual support mechanisms, which for MDBs often involve callable capital (CC) pledges, support an institution's ability toservice its debt in times of particular financial stress. Presence of a substantial callable capital buffer is often among the key strengthssupporting MDB credit ratings at the top end of the rating spectrum.

Members’ Callable Capital Complements IBRD’s Own Resources

If the IBRD 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 proportionto their subscribed shares. Although the bank has never called capital, we believe it is very likely that members would fully meet anycall on capital.

We assess the strength of contractual support in light of the CC coverage of the debt stock, whereby we measure the bank’s grossoutstanding debt against the CC pledged by members rated Aaa through Baa3, discounted for the expected loss associated witheach rating category. The IBRD scores ‘Very High’ on the measure, with an FY 2016 ratio of 96%. The high portion of CC pledged bymembers rated Aaa through Baa3, at 81% of total CC, supports the stability of the contractual support assessment. Exhibit 7 illustratesthe capital breakdown of the bank’s 10 largest members, most of whom are rated Baa3 or higher.

In particular, the United States (Aaa stable) has in place legislation (including the Bretton Woods Agreements Act) that allows theSecretary of Treasury to pay up to $7.7 billion, of the $43.4 billion in CC pledged to the IBRD, without need for further congressionalapproval.

CC is an unconditional and full faith obligation of each member country, the fulfilment of which is independent of the action of othershareholders. Should one or more of the member countries fail to meet this obligation, successive calls on the other members wouldbe made until the full amount needed was obtained. However, no country would be required to pay more than its total callablesubscription. As a result, we do not consider the IBRD to have support pledged on a joint-and-several basis.



Exhibit 7

Largest Members Exemplify Strength of Contractual SupportCapital Subscriptions (2016, $ Million)

[1] Foreign currency government bond rating as of 30 June 2016Source: IBRD (World Bank), Moody's

Members’ Willingness Complements Strong Ability to Provide Extraordinary Support

We assess members’ extraordinary support of the IBRD to be ‘Very High.’ As Exhibit 7 shows, the creditworthiness of the bank’s largestmembers is very high. Overall, the weighted median shareholder rating of its 189 members was Aa3 at the end of FY 2016, unchangedsince FY 2012. This figure, while remaining strong, has trended downward over the past 10 years from Aaa in 2008. Although we expectstability in this indicator, it would decline if China's rating, currently on a negative outlook, were to be downgraded

Members’ willingness to provide extraordinary support to the IBRD 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 that would createsignificant reputational risk for members who did not support the bank during periods of financial duress. Furthermore, the recentcapital increase demonstrate that members remain supportive of the bank’s mandate and ability to fulfil that mandate. Theseattributes underscore that when resources are scarce, members will likely prioritize supporting the IBRD over other MDBs that mayrequire support at the same time. Although the IBRD will not directly benefit from the IDA18 replenishment, our assessment is thatits close relationship with IDA suggests that WBG members would also extend support to the IBRD should it ever require a capitalinjection.

Global Status and Separation of Credit Risk Ensures Materialization of Support

Favorable characteristics of the bank’s member base support our ‘Very High’ assessment of the strength of member support. In viewof the IBRD's largest shareholders (see Exhibit 7) and global membership base of 189 sovereigns, we consider the concentration ofmembers and financial/economic linkages among members to be low. Regional MDBs with smaller membership bases and narrowergeographic mandates tend to have higher concentration of capital. As a global MDB, with broad geographic distribution of members,the IBRD does not face the risk that isolated regional crises would materially impair its members' ability to provide support.

In addition, the bank's membership base has the added diversity of both borrowing and non-borrowing members. Only three of thetop 10 shareholders (see Exhibit 7) – China, India, and Russia – are borrowers; the remainder have never borrowed, or no longer borrowfrom the bank. Meanwhile, the bank's membership includes highly rated non-borrowers outside of the top 10 largest shareholders.As the bank's largest risk is credit risk from lending activities, diversification of borrowing and non-borrowing members ensures a highnumber of large shareholding members who can be called upon to provide financial assistance that are not the sources of the financialstress at hand.



Rating RangeCombining the scores for individual factors provides an indicative rating range. While the information used to determine the grid mapping is mainly historical, our ratings incorporateexpectations 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 indicativerating range. For more information please see our Supranational Rating Methodology.

Exhibit 8

Supranational Rating Metrics: International Bank for Reconstruction and Development

Source: Moody's



ComparativesThis section compares credit relevant information regarding [MDB] with other supranational entities rated by Moody’s Investors Service. It focuses on a comparison withsupranationals within the same rating range and shows the relevant credit metrics and factor scores.

Second largest institution in our rated universe, IBRD ranks towards the upper end of its peer group in terms of asset base. Meanwhile, the bank’s capital adequacy, liquidity andmember support indicators are in line with its comparables, consistent with its ‘Very High’ assessment across the three rating factors.

Exhibit 9

IBRD's (World Bank) Key Peers

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 pledge by members rated Baa3 or higher, discounted by Moody's 30-year expected loss rates associated with ratings[5] IBRD data are as of its most recent FY-end, 30 June 2016Source: Moody’s, respective MDB financial statements



Rating History

Exhibit 10

IBRD (World Bank)

Source: Moody's



Annual Statistics

Exhibit 11

IBRD (World Bank)

Sources: IBRD, Moody's Investors Service



Exhibit 12

IBRD (World Bank)




Exhibit 13

IBRD (World Bank)




Moody’s Related Research

» Credit Opinion: IBRD (World Bank) – Aaa/Stable: Regular Update, 16 February 2016

» Rating Methodology: Multilateral Development Banks and Other Supranational Entities, December 2013

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

Related Websites and Information Sources

» The IBRD (World Bank) website

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


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CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. AND ITS RATINGS AFFILIATES (“MIS”) ARE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURECREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MOODY’S PUBLICATIONS MAY INCLUDE MOODY’S CURRENT OPINIONSOF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT ANENTITY MAY NOT MEET ITS CONTRACTUAL, FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT. CREDITRATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS ANDMOODY’S OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDEQUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. CREDIT RATINGS ANDMOODY’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND MOODY’S PUBLICATIONS ARE NOT ANDDO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. NEITHER CREDIT RATINGS NOR MOODY’S PUBLICATIONS COMMENTON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS AND PUBLISHES MOODY’S PUBLICATIONS WITHTHE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDERCONSIDERATION 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 AND INAPPROPRIATE FORRETAIL INVESTORS TO USE MOODY’S CREDIT RATINGS OR MOODY’S PUBLICATIONS WHEN MAKING AN INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACTYOUR 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, REDISTRIBUTEDOR 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 ANYPERSON 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 wellas 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 ituses 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 anyindirect, 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 anysuch 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 ordamages, 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 aparticular 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 compensatorylosses 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 theavoidance 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 SUCHRATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER.

Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (includingcorporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any rating,agreed to pay to Moody’s Investors Service, Inc. for appraisal and rating services rendered by it fees ranging from $1,500 to approximately $2,500,000. MCO and MIS also maintainpolicies and procedures to address the independence of MIS’s ratings and rating processes. Information regarding certain affiliations that may exist between directors of MCO andrated 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 atwww.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”

Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s InvestorsService 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 intendedto 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, yourepresent 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 orindirectly 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 asto 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 investors. It would be recklessand inappropriate for retail investors to use MOODY’S credit ratings or publications when making an investment decision. If in doubt you should contact your financial or otherprofessional adviser.

Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’sOverseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a NationallyRecognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by anentity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registeredwith the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.

MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferredstock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any rating, agreed to pay to MJKK or MSFJ (as applicable) for appraisal and rating services rendered by it feesranging from JPY200,000 to approximately JPY350,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page onwww.moodys.com for the most updated credit rating action information and rating history.

REPORT NUMBER 1059309


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