...

Standard & Poor's lowered Azeri AGBank long-term rating to 'B-'

Business Materials 5 August 2014 22:03 (UTC +04:00)
Standard & Poor's Ratings Services said today that it had lowered its long-term counterparty credit rating on Azerbaijan-based AGBank to 'B-' from 'B'. The outlook is stable. At the same time, the 'C' short-term counterparty credit rating was affirmed.
Standard & Poor's  lowered  Azeri AGBank long-term rating to 'B-'

Baku, Azerbaijan, Aug. 5

Trend:

Standard & Poor's Ratings Services said today that it had lowered its long-term counterparty credit rating on Azerbaijan-based AGBank to 'B-' from 'B'. The outlook is stable. At the same time, the 'C' short-term counterparty credit rating was affirmed.

We downgraded AGBank because we think that AGBank's capital and earnings metrics are substantially deteriorating on the back of rapid asset growth, increased credit costs, and the absence of new capital inflow. We now believe our assessment of the bank's capital position is a negative rating factor in comparison with last year's assessment, and we think it will remain so in 2014-2015.

In our opinion, delays in working out existing high levels of problem loans negatively affected the bank's overall profitability and capital buildup in 2013, contrary to our expectations.

The ratings on AGBank reflect our 'bb-' anchor, our baseline assessment for a commercial bank operating in Azerbaijan. Our view also incorporates our opinion of the bank's "moderate" business position, "weak" capital and earnings, "moderate" risk position, "average" funding, and "adequate" liquidity, as our criteria define these terms. The stand-alone credit profile is 'b-'.

The stable outlook on AGBank reflects our view that the bank will gradually stabilize its level of problem loans, increase provisioning levels, and maintain at least the current capitalization ratios.

We could take a negative rating action if we don't see a pronounced reversal of current negative asset quality trends within the next 12-18 months. Another scenario for a downgrade would be if the bank's capital position further deteriorated drastically, notably if retained-earnings growth is not able to match assets growth, with Standard & Poor's projected risk-adjusted capital (RAC) ratio falling below 3%.

The possibility of a positive rating action is remote at this time. We could raise the ratings if AGBank sharply reduced its nonperforming loan (loans overdue more than 90 days and restructured loans) ratios to single-digit numbers while recovering its profitability and improving capitalization so that projected RAC ratio sustainably exceeds 5%.

Tags:
Latest

Latest