Baku, Azerbaijan, Aug. 8
By Azad Hasanli - Trend:
The preparation period for the privatization of International Bank of Azerbaijan (IBA) may be as long as five years, Fitch Ratings international rating agency said with the reference to the bank.
It means that the bank is likely to remain state-owned for at least the medium term (51.07 percent), according to the message published on the website of the agency.
Azerbaijani President Ilham Aliyev signed a decree on July 15 on measures to restore the financial position of IBA for the preparation of the bank's privatization.
The state non-bank financial institution "Agrarkredit" JSC will release government-guaranteed bonds and use the proceeds of the issue for the acquisition of a number of impaired and/or high-risk assets from IBA, according to the decree.
Furthermore, Fitch believes that even if privatisation takes place, IBA will remain systemically important as the largest bank in the country and will retain significant business with state-controlled entities.
Subsequent clarifications were made by the bank's management to Fitch that this will involve a substantial buy-out of problem assets at book value by the end of 2015.
Fitch believes that IBA's problem assets are substantial, despite reported NPLs (non-performing loans, 90 days overdue) and rolled-over loans being equal to only a moderate 7.2 percent and 6.6 percent of the end of 2014 gross loans, respectively.
Fitch estimates that other high risk loans among IBA's largest exposures, including project finance lending to start-up businesses and construction loans with sizeable grace periods, were approximately 1 billion manats (11 percent of gross loans) at the end of the first quarter of 2015.
Additional asset quality and corporate governance issues stem from the legacy promissory notes portfolio (around 700 million manats, net of impairment reserves), which is largely exposed to construction projects in Russia with high non-completion risks.
Reserve coverage of NPLs was a reasonable 135 percent at the end of 2014, but rolled-over loans, large high-risk exposures and the promissory note portfolio combined exceeded 3 times Fitch Core Capital (FCC) at the end of 2014.
However, the anticipated clean-up should result in a tangible improvement in the quality of IBA's assets and IBA's capital.
The International Bank of Azerbaijan was established in January 1992.
The bank's main shareholder is the Azerbaijani government, which holds 51.07 percent of shares, while private individuals and legal entities hold the remaining shares.