Baku, Azerbaijan, June 21
By Azad Hasanli - Trend:
Azerbaijan’s Muganbank OJSC may raise its authorized capital by 10-15 million manats in 2018, says a report by S&P Global Ratings agency.
“In our view, the bank’s capitalization remains modest, as reflected in a risk-adjusted capital (RAC) ratio of 5 percent at year-end 2017,” reads the report. “We expect that the bank’s capitalization will deteriorate, with the RAC ratio declining to 3.5-3.9 percent in the next 12-18 months. This is mainly because we expect that the bank will continue to generate net losses until year-end 2019, although much lower than over the past two years.”
“The weaknesses of the bank’s business model are somewhat counterbalanced by the supportiveness of the owner, who injected 35 million manats (about $21 million) into the bank over the past two years,” the ratings agency said.
“Muganbank’s profitability is recovering less quickly than that of peers in Azerbaijan after the economic slowdown of 2015-2016, and we don't expect the bank will be able to generate capital internally to support growth,” reads the report. “Moreover, we think the bank’s customer base remains volatile and its customer franchise is relatively weak, which is one of the reasons for significant customer outflows in 2016. We therefore think the bank’s business position has weakened overall over the past two years and this continues to weigh on the ratings.”
At the same time, the ratings agency raised its long- and short-term issuer credit ratings on Muganbank to 'B-/B' from 'CCC+/C'. The outlook is stable.
The upgrade follows the improvement in Muganbank’s liquidity position over the past year, by attracting corporate funds on current and settlement accounts, and generating additional liquidity from the sale of and amortization on its retail loan portfolio.
The bank’s broad liquid assets (net of restricted cash) increased to 63 million manats (about $37 million) at year end 2017, from 11 million manats a year ago, and now cover around 25 percent of total customer deposits, according to the report.
“Consequently, almost all the bank’s funding and liquidity ratios have improved and now compare with those of regional peers that we consider to have adequate liquidity,” reads the report.
In addition, Muganbank’s dependence on funding from the Central Bank of Azerbaijan has declined to 5 percent of total liabilities from 15 percent a year ago, says the report.
“We project that the bank’s credit losses will stabilize at 2.3-2.5 percent,” reads the report. “However, we expect the net interest margin will continue declining, with a negative impact on revenues and profitability, due to the growing share of low-margin products, such as corporate and mortgage lending, and continuing competition from larger banks in Azerbaijan.”
Muganbank OJSC was established in Azerbaijan in 1992.
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