Azerbaijan, Baku, Dec.24 / Trend, N.Ismayilova /
Moody's Investors Service has today assigned the following global scale ratings to OJSC Xalq Bank (Xalq): an E+ bank financial strength rating (BFSR), and B3 long-term and Not-Prime short-term local and foreign currency deposit ratings. All long-term ratings carry a stable outlook on Friday, the Moody's Investors Service said.
According to Moody's, Xalq's ratings are constrained by (i) a very high single-name concentration in the loan book given that the top 20 loan exposures exceeded 400% of the bank's shareholder equity as at 31 October 2010, with the largest single credit exposure accounting for more than 200% of equity; (ii) the bank's very high industry concentration, with loans granted to the telecommunication and transportation sectors accounting for 46% the bank's gross loans or 266% of equity; and (iii) very high funding concentration as the 20 largest depositors accounted for 70% of the bank's non-equity funding as at 31 October 2010, with large portion provided by related parties.
At the same time, Moody's notes that Xalq's ratings are supported by: (i) satisfactory financial fundamentals including asset quality, efficiency and profitability; and (ii) established relationships with a number of large corporate and individual clients, which, however, is largely based on a personal rather than an institutional relationship.
According to Moody's, a material reduction of Xalq's borrower concentration along with diversification of its funding base may have positive rating implications. However, Xalq's ratings could be negatively affected by (i) any mismanagement of the bank's growth strategy -- resulting in a significant deterioration of asset quality and financial fundamentals, and (ii) any weakening of relationships with its major clients, leading to a notable outflow of the bank's deposit base, which is currently highly concentrated, or loss of market franchise.
Headquartered in Baku, Azerbaijan, Xalq reported total assets of US$607 million, shareholders' equity of US$94 million and net income of US$21.5 million, according to its audited IFRS financial statements at year-end 2009.