Fitch upgrades ratings of two Azerbaijani banks

Fitch upgrades ratings of two Azerbaijani banks

Baku, Azerbaijan, Sept. 22

By Azad Hasanli - Trend:

Fitch Ratings international rating agency has upgraded Kapital Bank and Pasha Bank's long-term issuer default ratings to 'BB-' from 'B+', said the message posted on the website of the agency.

The upgrades of these banks have been driven by upgrades of the banks' support ratings and upward revisions of their support rating floors, and reflect a reassessment of the potential support available to the banks from the Azerbaijan authorities, in case of need, according to the message.

This reassessment has been driven by the improved track record of sovereign support for the banking sector in light of the announced financial rehabilitation of International Bank of Azerbaijan (IBAR).

Kapital Bank and Pasha Bank, which are both owned by Pasha Holding, at the end of the first half of 2015 had combined market shares of 14.1 percent in deposits (6 percent at Kapital Bank; 8.1 percent at Pasha Bank) and 8.8 percent of loans (5.6 percent at Kapital Bank, 3.2 percent at Pasha Bank), making them comfortably the second-largest banking group in Azerbaijan after IBAR, said the message.

The upgrade of Kapital Bank's viability rating reflects the bank's extended track record of reasonable asset quality and profitability.

Kapital Bank's retail loan book has performed reasonably well to date, with origination of NPLs (non-performing loans, 90 days overdue) at a modest 0.5 percent in the first half of 2015. Asset quality is somewhat weaker in the corporate book, resulting in an aggregate NPL ratio of 9 percent at the end of the first half of 2015.

However, Kapital Bank remains well-capitalised, and the total regulatory capital adequacy ratio stood at 19.2 percent at the end of the first half of 2015.

Kapital Bank's liquidity position is healthy, supported by the absence of material non-government wholesale borrowings and decent deposit collection capacity. Kapital Bank is primarily deposit funded and its liquidity cushion was sufficient to withstand a 34 percent customer funding outflow at late August, 2015.

Pasha Bank's viability rating reflects its solid capitalisation, comfortable liquidity and manageable (although somewhat deteriorated) asset quality metrics. At the same time, the rating remains constrained by the weak operating environment, the bank's still limited franchise and so far quite high credit losses.

Pasha Bank's capital adequacy ratio stood at 20.4 percent at the end of the first half of 2015, sufficient to increase its LIR to around 21.3 percent of gross loans without breaching the 12 percent minimum requirement.

Pasha Bank's NPLs increased to 13.6 percent of gross loans at end of the first half of 2015 from 4 percent at end of the first half of 2014.

Pasha Bank and Kapital Bank's support-driven ratings could be upgraded in case of a further marked increase in the group's systemic importance, said the message. The ratings could also be upgraded or downgraded in case of changes in the sovereign rating (BBB-/Stable).

Pasha Bank is one of Azerbaijan's leading corporate banks. Established in 2007, it offers all major financial services, including investment banking, trade financing and asset management to a range of clients, from large corporates to small and medium enterprises. Today, Pasha Bank is an international team of about 300 people.

The bank was named 'The Best Investment Bank of Azerbaijan' in 2011, 2012 and 2013 by EMEA Finance Magazine. At EMEA Finance Magazine's Europe Banking Awards 2013, Pasha Bank also won the award for 'Best Corporate Social Responsibility (CSR) Programme'. In addition, its private banking division PASHA Private Banking was named the 'Best Private Bank in Azerbaijan 2013' by World Finance magazine.

Pasha Bank is the part of PASHA Group, a large investment holding based in Azerbaijan, which has assets across a wide variety of sectors, including retail banking, insurance, construction, construction materials and tourism.

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