Azerbaijan, Baku, Feb. 28 / Trend /
Fitch Ratings has maintained International Bank of Azerbaijan's (IBA) Long-term Issuer Default Rating (IDR) of 'BB+', Support Rating of '3' and Support Rating Floor of 'BB+', on Rating Watch Negative (RWN). At the same time, the agency has downgraded IBA's Viability Rating (VR) to 'f' from 'cc', the agency said today.
The rating actions follow the steps taken by the Azerbaijan authorities to recapitalise IBA with equity and subordinated debt," the message said.
Fitch views these actions positively, and they increase the probability of the bank's Long-term IDR ultimately being affirmed at its current level.
At the same time, the agency believes that the recapitalisation measures currently envisaged are likely to be insufficient, and has therefore maintained IBA's ratings on RWN, reflecting the continued risk of a downgrade.
IBA's Long-term IDR is driven by potential support from the Azerbaijan authorities, given the bank's majority state ownership, high systemic importance, its part policy role and its moderate size relative to the sovereign's resources.
Fitch has been informed that on 21 February the Central Bank of Azerbaijan (CBA) converted AZN150m of short-term senior facilities extended to IBA into five-year subordinated debt. For regulatory purposes, this instrument will be classified as Tier 1 capital, and should therefore just be sufficient to bring the bank's regulatory capital adequacy ratio back above the minimum 12% level, for the first time since January 2010.
In addition, the bank has announced a proposed AZN100m equity issue, which is subject to approval at the shareholders meeting scheduled for end-March 2012. In anticipation of this, the Ministry of Finance (IBA's main shareholder with a 50.2% stake) has already transferred AZN50m to the bank. However, minority shareholders will have up to one year after the shareholder meeting to purchase shares, which in Fitch's view is likely to considerably delay completion of the issue.
The downgrade of IBA's VR to 'f' reflects Fitch's view that the recapitalisation of the bank represents extraordinary and necessary support. In accordance with the agency's criteria, a bank's VR may be downgraded to 'f', indicating that the bank has failed, after either a default or the provision of external support which was necessary to avert a default.
Fitch expects to next review IBA's ratings after the publication of the bank's 2011 IFRS accounts, expected by end-H112, and a full review of the bank's financial position, in particular including its asset quality. If Fitch believes that the current recapitalisation measures are sufficient, then the Long-term IDR is likely to be affirmed at 'BB+', and the VR will be upgraded to reflect the bank's current standalone profile. However, if the agency believes that the recapitalisation is clearly insufficient, then the Long-term IDR may remain on RWN, and the VR could be affirmed at 'f', or only upgraded to a still low level. Fitch is only likely to review IBA's ratings prior to the publication of the IFRS accounts if there is a sharp tightening of liquidity, or the bank's recapitalisation programme is materially strengthened, the message said.