Azernews.Az

BAKU – Moody's Investors Service on Monday changed the outlook on the Ba2 long-term foreign currency deposit rating of the International Bank of Azerbaijan (IBA), the country’s leading bank, to positive from stable, The Financial reported.

This follows the recent change in outlook on Azerbaijan's Ba2 foreign currency deposit ceiling to positive.

Moody's notes that IBA's long-term foreign currency deposit rating remains constrained by the country ceiling. The bank's other ratings -- short-term foreign currency deposit rating of Not Prime, long-term global local currency (GLC) deposit ratings of Baa3/Prime-3, long-term foreign currency senior unsecured and subordinated debt ratings of Baa3/Ba1, and bank financial strength rating (BFSR) of E+ -- are not affected by this action and are therefore affirmed.

On March 8, Moody's changed to positive from stable the outlook on the Republic of Azerbaijan's sovereign ratings including Ba2 country ceiling for foreign currency bank deposits. International Bank of Azerbaijan is the only bank in Azerbaijan affected by this change as it is the only bank in which the foreign currency deposit rating is constrained by the relevant country ceiling.

IBA's local and foreign currency deposit ratings of Baa3/Ba2 incorporate Moody's assessment of a very high probability of systemic support in case of need, which is based on the bank's dominant market share in Azerbaijan and its vital importance to the country's payments system.

Moody's noted that IBA is 50.2% owned by the government, and is the largest and the only state-controlled bank in the country; the bank holds a dominant position in the banking sector, as evidenced by its large market shares in total assets, loans and deposits (42%, 43% and 36%, respectively, as at YE 2010). Moody's observes that IBA enjoys a strategic role, as it has historically been instrumental in implementing state investment and economic policies, acting as an agent of the government in financing large-scale projects of national importance to Azerbaijan.

According to IBA, the bank's level of non-performing loans (loans 90+ days overdue) peaked at around 14.4% of gross loans in 2010 (according to its local unaudited GAAP), and is expected to decline during 2011. Moody's observes that IBA's capitalisation remained low, with a total capital adequacy ratio (CAR) of 10.7% at