Baku, Azerbaijan, Feb. 5
Fitch Ratings has revised the Rating Watch on AGBank's (AGB) 'CCC' Issuer Default Rating (IDR) to Evolving from Negative. The agency has also downgraded AGB's Viability Rating (VR) to 'f' from 'ccc' and removed it from Rating Watch Negative (RWN). Fitch has also maintained Demirbank's (Demir) 'B' Long-term IDR on RWN.
"The rating actions follow the recent announcements of the anticipated merger between Demir and AGB," the statement said. "We placed both banks' IDRs on RWN on 24 December 2015 shortly after the sharp manat devaluation, which caused a significant weakening of both banks' capital positions."
The agency believes the bank has become non-viable as a result of a material capital shortfall, and requires extraordinary support. At end-2015, AGB's regulatory total capital ratio fell to 0.9%, from 9.7% at end-November 2015, as a result of the manat devaluation.
In addition, AGB has sizable unreserved non-performing loans (NPLs, 90 days overdue) and uncollected accrued interest on them, the statement said.
The revision of the Rating Watch to Evolving from Negative reflects significant uncertainty about the near-term risks facing AGB's creditors, the statement said.
"The RWN on Demir's ratings reflects the potential for them to be downgraded as a result of the weakening of its capital position and asset quality following the devaluation," the statement said. "In addition, it now also reflects risks related to the potential merger with the more weakly-capitalised AGB, which could put additional pressure on Demir's credit profile and ratings."
Both banks' management has informed Fitch that the banks will only merge if the merged bank receives sufficient capital support from its shareholders or the Central Bank and will have a regulatory capital adequacy ratio comfortably above the current minimum requirement.
AGBank has been operating in Azerbaijan since 1992. Among the shareholders are the International Finance Corporation, Kazimir Partners company, as well as physical entities Chingiz Asadullayev and Farzulla Yusifov.
DemirBank, the first commercial bank of Azerbaijan, has started working in 1989. Among its shareholders are large international financial institutions, including the European Bank for Reconstruction and Development and Netherlands Development Finance Company (FMO).