Fitch Ratings affirms rating of International Bank of Azerbaijan

Business Materials 12 June 2009 18:10 (UTC +04:00)

Azerbaijan, Baku, June 12 / Trend , N. Ismayilova/  

Fitch Ratings has today affirmed International Bank of Azerbaijan's (IBA) Long-term Issuer Default Rating (IDR) at 'BB+' with a Stable Outlook and the Individual Rating at 'D/E', the agency said.

The IDRs of IBA reflect a moderate probability of support from the Azerbaijani authorities if needed. In Fitch's opinion, the Azerbaijani authorities would have a very high propensity to support the bank based on IBA's systemic importance for the country's banking system and overall economy, as well as the majority ownership (50.2%) by the Ministry of Finance.

The Individual Rating reflects risks arising from IBA's weakening asset quality (rising NPLs and high portion of overdue loans), its thin capital, some mid-term foreign refinancing risk, substantial balance sheet concentrations and regular waivers granted by the Central Bank of Azerbaijan. At the same time, Fitch notes the breadth of IBA's local franchise, its long-standing expertise in servicing large local corporates and good profitability to date.

IBA's performance is susceptible to general macroeconomic trends given its position as the largest lender in the sector. The loan book is highly concentrated by borrower, and loans to state-related entities represent about half of the loan book (the regulator frequently allows the bank to breach limits on largest exposures to state-related companies). At end-April 2009, impaired loans, defined as loans in the lowest three regulatory categories, made up 6.1% of gross loans. However, according to management estimates, a further 5.5% of gross loans were over 90 days overdue but not classified as impaired, while loans one day overdue but not classified as impaired were a large 26.1%.

These loans are not considered by the bank as impaired due to a number of mitigating factors, including some form of state support being provided to the borrower and collateral coverage which is viewed as sufficient. The tier 1 and total regulatory capital ratios were 9.0% and 13.1%, respectively, at end-April 2009, while the reserves / loans ratio was 10%, providing no more than moderate loss absorption capacity.

On June 12, the official exchange rate is 0. 8038 manat to $1.

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