Rating Action: Moody's affirms the Inter-American Investment Corporation's Aa1 ratings; maintains stable outlookGlobal Credit Research - 24 Mar 2022New York, March 24, 2022 -- Moody's Investors Service ("Moody's") has today affirmed the Aa1 issuer and senior unsecured ratings of the Inter-American Investment Corporation (IDB Invest) and maintained the stable outlook. The short-term issuer rating of the IDB Invest and commercial paper rating were affirmed at Prime-1 (P-1). The senior unsecured MTN program's rating was also affirmed at (P)Aa1.The affirmation of the ratings is supported by: IDB Invest's robust capital adequacy, with a leverage ratio that remains at comparatively strong levels relative to Aa-rated multilateral development banks (MDBs) and very high asset performance in the context of continued expansion of operations and the pandemic response; a strengthened liquidity and funding profile, including the diversification of markets and its investor base, with a particular focus on ESG-linked bonds; and a bolstering of governance that supports IDB Invest's strong credit metrics and developmental impact, which is reflected in a positive assessment of financial strategy and risk management, a Governance consideration under Moody's ESG framework.The stable outlook reflects Moody's view that IDB Invest will continue to effectively manage credit risks emerging from a sometimes challenging operating environment in the countries where it carries out its lending and investment activities. The outlook also incorporates the expectation that as IDB Invest reaches a new steady state at its higher lending capacity, leverage will tend to stabilize over the coming years well within its own policy limits. Moody's also expects members to continue to demonstrate their support for IDB Invest, given the Inter-American Development Bank (IADB) Group's focus on private sector development in the Latin America and Caribbean region.RATINGS RATIONALERATIONALE FOR THE RATING AFFIRMATION OF Aa1 RATINGROBUST CAPITAL ADEQUACY METRICS IN THE CONTEXT OF LENDING EXPANSION AND PANDEMIC RESPONSESince the start of the IADB Group's Renewed Vision process for the private sector in Latin America and the Caribbean in 2016, IDB Invest has expanded its developmental operations in the region. This, in turn, has led to an increase in the leverage ratio, which Moody's calculates as development-related assets (DRA) to equity, to 227% in 2021 from below 100% in 2018. The significant response provided by IDB Invest during the pandemic in 2020-21 was also an important driver of the rise in leverage. Moreover, at this level, IDB Invest's capital position is still stronger than most Aa-rated MDBs and consistent with its robust capital adequacy, which has historically been a key strength of IDB Invest's credit profile.Additionally, the credit quality of its DRA has continued to benefit from prudent lending policies that contribute to a geographical diversification, the use of insurance as a credit enhancement, and a still-low level of equity investments. And while IDB Invest's DRAs have increased rapidly in recent years, its conservative lending practices have contributed to keeping non-performing loans relatively low even during the pandemic. The non-performing asset ratio fell to 0.3% in 2021, having averaged 0.6% in 2017-21. Consequently, IDB Invest has maintained very strong and stable asset performance, particularly when compared with other entities that focus on the private sector.MARKET DIVERSIFICATION AND ESG FOCUS STRENGTHENED LIQUIDITY AND FUNDING PROFILEAs part of the expansion of its developmental operations, IDB Invest has also enhanced its borrowing practices. Since 2016, it has increased the number of regional and global markets in which it issues leading to a higher diversification in terms of currencies and investor base, larger issuance sizes and extending its maturity profile. The development of its sustainable debt framework has allowed IDB Invest to also enhance its presence in the ESG-focused market. In 2021, all of IDB Invest's issuances had social and environmental features, including gender bonds, transition and decarbonization bonds, and a blue bond. This, in turn, has allowed IDB Invest to lower its borrowing costs to rates closer to those seen by Aaa-rated MDBs.Importantly, IDB Invest's liquidity remains strong, guided by its conservative liquidity policy. Moody's considers that in a severe stress scenario where IDB Invest is unable to issue debt or receive any additional capital contribution from its shareholders, its liquid assets would cover more than 18 months of debt service, planned disbursements and operational costs. These factors support the IDB Invest's high quality of funding, a key credit feature it shares with Aa1-rated peers.BOLSTERING OF GOVERNANCE SUPPORTS IDB INVEST'S STRONG CREDIT METRICS AND DEVELOPMENTAL IMPACTDuring the expansion of its developmental activities, IDB Invest has continued to bolster its risk management policies, which support its strong capital adequacy and liquidity metrics. These measures include an updated risk appetite policy and the addition of a capital buffer to ensure the preservation of equity under stress scenarios, among other measures, which Moody's considers will continue to help IDB Invest manage the risks posed by its regional and private sector-focused mandate as it reaches its new lending capacity.IDB Invest has also made progress in incorporating ESG aspects to its policies and practices. IDB Invest was one of the first MDBs to adopt the Task Force on Climate-Related Financial Disclosures (TCFD) reporting standards to ensure transparency in its operations related to environmental issues. IDB Invest now has specific ESG functions for both its risk and strategy departments that allows it to develop programs and projects that seek to meet the IADB Group's climate and social development goals, while also monitoring the performance of projects and private sector entities it funds in terms of their adherence to ESG-related targets or criteria. In addition to supporting its developmental impact, these practices have benefited IDB Invest in terms of its appeal to investors as denoted by its comparatively favorable borrowing costs.RATIONALE FOR THE STABLE OUTLOOKThe stable outlook incorporates Moody's view that IDB Invest will continue to effectively manage credit risks from its private sector and regional mandate, which will continue to be reflected in the moderate credit quality of it DRAs, including maintaining good country and sector diversification, and strong asset performance. The stable outlook also reflects Moody's expectation that as IDB Invest reaches a new steady state at its higher lending capacity, leverage will tend to stabilize over the coming years well within its own policy limits (max leverage of 300%). Moody's also expects that shareholders will continue to display strong support to IDB Invest, given the IADB Group's focus on private sector development in the Latin America and Caribbean region, which has been reflected in recent years through the second general capital increase process and the expanded mandate.ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONSIDB Invest's neutral-to-low credit impact score (CIS-2) reflects neutral-to-low exposures to environmental, social and governance risks.IDB Invest's neutral-to-low environmental issuer profile score (E-2) balances the overall exposure to environmental risks of its borrowers in Latin America and the Caribbean and its development operations related to renewable energy and climate risk mitigation projects supporting carbon transition goals in the region.IDB Invest has a neutral-to-low social issuer profile score (S-2), with strong customer relations delivering important financing products for private sector development in Latin America and the Caribbean. Additionally, it demonstrates a high degree of responsible production by providing instruments to its clients that enhance its impact on socioeconomic development, including the issuance of social bonds in domestic markets to serve as benchmarks for local issuers.IDB Invest's neutral-to-low exposure governance issuer profile score (G-2) reflects its prudent risk management practices that translate into strong credit metrics, in particular asset performance, given its exposure to private sector operations in Latin America.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSUpward rating pressure is limited by the difficult operating environment in which IDB Invest carries out its lending and investment activities, in addition to potential risks from its private sector-focused operations. Although unlikely, the introduction of callable capital as an additional backstop for investors would enhance IDB Invest's credit profile and could exert upward pressure on the credit profile.Downward rating pressure would emerge if there were significant credit losses, for instance, from a more acutely difficult operating environment, which substantially limits IDB Invest's financial performance, or a weakening of the support from IADB or its highly rated shareholders. A sharp deterioration in capital adequacy as a result of an excessive increase in leverage would weigh on IDB Invest's credit profile.The principal methodology used in these ratings was Multilateral Development Banks and Other Supranational Entities Methodology published in October 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1232238. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.At least one ESG consideration was material to the credit rating action(s) announced and described above.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Renzo Merino Vice President - Senior Analyst Sovereign Risk Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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