Fitch affirms ratings of Azerbaijan’s AFB Bank at “B”

Economy Materials 13 July 2019 16:14 (UTC +04:00)

Baku, Azerbaijan, July 13

By Eldar Janashvili - Trend:

Fitch Ratings has assigned Azerbaijan’s AFB Bank OJSC (AFB) a Long-Term Issuer Default Rating (IDR) of 'B' with Stable Outlook, Trend reports with reference to the agency.

AFB's 'B' Long-Term IDR is driven by its 'b' VR, which in turn, captures Fitch's view of the bank's standalone credit profile. It balances AFB's weak asset quality and profitability against solid capital and liquidity buffers, the report said.

The rating also takes into account the bank's limited franchise and high level of related-party lending in Azerbaijan's challenging operating environment.

Fitch's views AFB's franchise as weak based on the bank's limited 2 percent share in the system loans and its historical focus on servicing companies connected to Gilan Holding (GH), a large diversified group with assets in construction, tourism, agriculture, logistics and FMCG.

GH was the bank's majority shareholder prior to February 2019 when the bank was acquired by Hikmet Ismayilov, according to the report.

Despite the change in shareholder, we believe that AFB is still closely connected with the holding based on the fact that Ismayilov is a shareholder in some companies connected to GH.

Market risk is adequately controlled with foreign currency position being negligible at few latest reporting dates. The bank closes it on the balance sheet without using derivative instruments. AFB did not book foreign exchange losses in 2015-2018 and the moderate respective profit is largely driven by conversion commissions.

The IFRS-reported related party loans stood at a moderate 9 percent of total loans at end-2018.

Impaired loans (Stage 3 under IFRS 9) stood at a high 34 percent of gross loans at end-2018, but this is tempered by adequate 73 percent coverage by specific reserves.

“Fitch rating is the result of the successful financial policy of AFB Bank, which allows our clients to provide more diversified products and high-quality services,” said Aydin Huseynov, chairman of the Board of Directors of the bank.

“The rating reflects the bank’s strong position in the current market conditions, putting the bank on a par with financial institutions with the highest rating among banks with 100 percent local capital,” he added.

AFB Bank started operation in 2008 under the name Azfinansbank, in 2009 it carried out a rebranding.

The authorized capital of the bank is 70.394 million manats. 99.64 percent of the bank’s shares belong to Hikmet Ismayilov (owner of 100 percent of Azsigorta OJSC shares, owner of 31.11 percent of Bank of Baku OJSC shares), 0.18 percent to Jamil Muradov (chairman of the board of Gilan Holding LLC) 0.18 percent - to Akbar Abdullayev.