Fitch says Azerbaijan’s top bank to avoid losses from CBA policy shift
By Gulgiz Dadashova
Fitch Ratings believes the International Bank of Azerbaijan, the largest lender and the only state-owned bank in Azerbaijan, will be able to stand strong in face of the manat rate depression.
The Central Bank of Azerbaijan set the manat at 1.05 against the USD, compared to 0.78 earlier. The move aims to strengthen “international competitiveness,” amid pressure on the countries finances from falling oil prices, according to the CBA statement.
“IBA will probably need further support, in addition to that already received, to offset the impact of the depreciation of the manat and restore its capital ratios,” according to Fitch Ratings. “However, we expect capital contributions and/or continued regulatory forbearance to be forthcoming, and hence do not anticipate negative rating action as a result of the weakening of the bank's solvency.”
Fitch says an increase in risk-weighted assets would also mean that the regulatory total capital ratio could have fallen below the 12% minimum level (from 12.02% at end-2014); this was partially offset by capital support in the form of 250 million manats of subordinated debt received on 27 February from the CBA. In addition, the bank obtained a one-year waiver from the CBA, allowing its regulatory capital adequacy ratio (CAR) to fall to 10%.
The IBA will also reportedly accelerate a new 100 million manats equity issue, with 50 million manats of this expected to be contributed by the Finance Ministry in March.
This issue will be made within the framework of the bank's 500 million manats recapitalization programme, adopted in 2013, under which 200 m million manats had been received by end-2014. Also, the upcoming shareholders meeting will discuss a potential further common share issue. In case of any delay with the contribution of new capital, Fitch would expect that regulatory forbearance to support IBA's compliance with local capital requirements would be extended, the statement says.
Fitch does not expect the IBA to record any significant losses as a direct result of depreciation as the bank reportedly closed out its short open currency position (which was a large USD1.4bn, equal to 1.3x equity, at end-2014) in January and February. However, the position was closed by the conversion of about 17% of the bank's loan book from AZN to USD, which has resulted in significantly higher portfolio dollarisation.
IBA's 'BB' Long-term Issuer Default Rating and senior debt rating reflect the moderate probability of support from the Azerbaijani authorities, in case of need, given IBA's high systemic importance.
At the same time, failure to provide timely assistance to the bank could put downward pressure on the ratings.
Fitch does not anticipate that the additional capital pressure resulting from AZN depreciation and the higher proportion of foreign currency lending will by themselves be sufficient to warrant a downgrade of the VR.
The Baku-based IBA is a universal bank with subsidiary banks in Russia, Georgia and Qatar, as well as representative offices in London, Frankfurt, Luxembourg, Dubai and New York. The bank, 50.2-percent owned by the Azerbaijani Ministry of Finance, holds over 40 percent of banking assets in the country.
The IBA‘s reported consolidated total assets of 8.8 billion manats, aggregate capital of 1.008 billion manats and net profit of 64.5 million under audited IFRS as at year-end 2014.
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