Baku, Azerbaijan, Nov. 6
By Azad Hasanli - Trend:
Fitch Ratings international rating agency has affirmed the long-term foreign currency issuer default ratings (IDRs) of Expressbank (EB), Unibank's (Uni) and Demirbank's (Demir) at 'B', and Atabank (AB) at 'B-', said the message of the agency.
The outlooks on all four banks are stable, according to the message.
At the same time Fitch has downgraded the IDR of Azerbaijan-based AGBank (AGB) to 'CCC' from 'B-' and removed it from Rating Watch Negative (RWN).
Fitch placed AGB's ratings on RWN in March 2015 due to a breach of regulatory capital adequacy as a result of a sharp 34 percent Azerbaijani manat devaluation against foreign currencies.
"The affirmation of Uni, Demir, EB and AB's ratings with stable outlooks reflects the only moderate deterioration of their financial profiles amid weaker commodity-driven economic environment suffering from an oil price shock," said the message.
The agency expects asset quality deterioration in the banking sector, with further downside risks stemming from an anticipated reduction in government spending; the significant dollarization of loans (Uni - 48 percent of end of the first half of 2015 loans; Demir - 34 percent, more moderate at the other two banks), and expected seasoning of retail and micro-loan portfolios rapidly originated in 2013-2014.
However, in the agency's view, these four bank's solid pre-impairment profits and capital buffers would be sufficient to cover heightened asset quality risks in the near term.
The downgrade of AGB's ratings reflects further aggravation of deep asset quality problems, negative pre-impairment profitability on a cash basis, and a significant weakening of the capital position (the bank uses forbearance for being incompliant with minimal regulatory capital requirements) as a result of manat devaluation, which in the currently difficult operating environment threatens the viability of the bank's business model.
Negative rating action could be triggered by significant asset quality deterioration at any of the banks resulting in considerable impairment losses should these exceed the pre-impairment profit and erode capital.
"Potential further currency devaluation could also lead to selective downgrades if it results in the capital base erosion and/or significant funding outflows," said the message.
The rating actions are as follows:
Unibank, Demirbank and Expressbank:
Long-term foreign currency IDR: affirmed at 'B', Outlook Stable
Short-term foreign currency IDR: affirmed at 'B'
Viability Rating: affirmed at 'b'
Support Rating: affirmed at '5'
Support Rating Floor: affirmed at No Floor
Atabank:
Long-term foreign currency IDR: affirmed at 'B-', Outlook Stable
Short-term foreign currency IDR: affirmed at 'B'
Viability Rating: affirmed at 'b-'
Support Rating: affirmed at '5'
Support Rating Floor: affirmed at No Floor
AGBank:
Long-term foreign currency IDR: downgraded to 'CCC' from 'B-'; Off RWN
Short-term foreign currency IDR: downgraded to 'C' from 'B'; Off RWN
Viability Rating: downgraded to 'ccc' from 'b-'; Off RWN
Support Rating: affirmed at '5'
Support Rating Floor: affirmed at 'No Floor'
