Fitch flags persistent recovery risks across OIC sovereigns

February 25, 2026 (MLN): Fitch Ratings has placed 68% of the 22 rated Organisation of Islamic Cooperation (OIC) countries in Group D  its lowest recovery category where post-default recoveries are assessed as average to poor, emphasizing continued constraints on creditor recoveries across much of the bloc.

The latest assessment follows Fitch’s update of its Country-Specific Treatment of Recovery Ratings Criteria and the expansion of its monitor in May to include Mauritania and Senegal, both assigned to Group D, and Kuwait, which was placed in Group C.

The changes have only marginally improved the overall OIC recovery profile compared with a year earlier, when about 70% of countries were in Group D.

Under the Corporate Country Group Scoring Summary, Group D countries face strict limitations: ratings of secured or enhanced debt are capped at the level of the Issuer Default Rating (IDR) in both investment-grade and speculative-grade categories.

This means no additional uplift is granted for security packages, creditor-friendly balance sheet structures or asset quality.

The UAE and Qatar are the highest-ranked OIC members, classified in Group B, where recoveries range from superior to poor.

In this group, secured or enhanced debt can be rated up to one notch above the IDR for investment-grade sovereigns and up to two notches above for speculative-grade issuers.

Group C includes Saudi Arabia, Malaysia, Bahrain, Kuwait and Oman, where recoveries range from good to poor and secured debt may be rated one notch above the IDR across rating categories.

No OIC country is currently in Group A, Fitch’s highest recovery classification.

Fitch’s updated Sukuk Rating Criteria, published in October, now incorporate loss severity assessments into long-term sovereign debt ratings.

Under the revised Sovereign Rating Criteria, senior unsecured debt of sovereigns rated from ‘AAA’ to ‘BB’ is generally aligned with the IDR, while sovereigns rated ‘B+’ or below receive a Recovery Rating that may result in notching up or down depending on expected loss severity.

However, no sovereign sukuk were upgraded or downgraded following the September 2025 criteria update.

Sukuk defaults remain rare. There have been no rated defaults in the past four years, and no sovereign sukuk has ever defaulted.

In core issuing markets including the GCC, Malaysia, Indonesia, Turkiye and Pakistan about 0.5% of US dollar sukuk had defaulted by end-2025, compared with 1% for US dollar bonds.

Fitch is also monitoring the Maldives (rated ‘CC’) due to uncertainty surrounding repayment of an unrated sukuk maturing in April 2026.

Less than 1% of Fitch-rated secured and unsecured sukuk are notched above their applicable IDRs.

Although many GCC issuers have introduced provisions allowing trustees to register sukuk assets in their name following an obligor default, Fitch does not consider these features sufficient to treat unsecured sukuk as secured or to rank them above existing debt, citing legal and regulatory uncertainties and a lack of precedent.

Copyright Mettis Link News