Azerbaijan, Baku, May 27 / Trend /
Fitch Ratings has upgraded International Bank of Azerbaijan's (IBA) Long-term foreign currency Issuer Default Rating (IDR) to 'BBB-' from 'BB+'. The Outlooks on the bank is Stable, the agency reported.
The rating action follows the 20 May 2010 upgrade of Azerbaijan's Long-term IDR to 'BBB-' from 'BB+', with a Stable Outlook. For further information on Fitch's sovereign rating action, please see the 20 May comment, entitled 'Fitch Upgrades Azerbaijan to Investment Grade; IDRs to 'BBB-', which is available on www.fitchratings.com.
The upgrade of IBA's ratings reflects Fitch's view of the high probability of support from the Azerbaijani authorities, in case of need, based on IBA's systemic importance to the country's banking system and overall economy, as well as its majority ownership (50.2%) by the Ministry of Finance.
The rating action also considers the moderate size of IBA relative to the sovereign's available resources to support the bank, with IBA's total liabilities of AZN4.7bn at end-Q110 equal to 14% of 2009 GDP, or 46% of 2009 central government budget revenues. The bank's foreign currency liabilities at the same date (USD3.7bn equivalent) amounted to 17% of the combined sovereign wealth fund and official FX reserves, while the external portion of these liabilities (USD1.3bn equivalent; 53% of this owed to a Middle East bank) was a still more moderate 6% of the wealth fund and FX reserves.
At the same time, Fitch notes that downward pressure on IBA's ratings could arise over the medium term should the bank expand rapidly, resulting in its foreign debt and balance sheet size becoming more substantial relative to those of the sovereign. The ratings could also be downgraded should the Ministry of Finance reduce its stake in the bank (which in Fitch's view is unlikely in the near-term), or should the bank's systemic importance, part-policy role and close links with government weaken considerably. IBA dominates all segments of the Azerbaijani banking system with market shares at end-Q110 of 44% of assets, 46% of loans, 43% of customer deposits and 23% of retail deposits.
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