Azerbaijan, Baku, May 6 / Trend N.Ismayilova /
Moody's Investors Service has affirmed the B2 long-term foreign and local currency deposit ratings of Azerbaijan's Unibank, Moody's reported. The E+ bank financial strength rating (BFSR) and Not-Prime short-term foreign currency deposit rating were affirmed.The B2 long-term deposit ratings carry a negative outlook, while the BFSR carries a stable outlook.
According to Moody's, Unibank's E+ BFSR, which maps to the long-term scale of B2, reflects (i) its established small/medium-sized enterprise (SME) and retail franchises; (ii) strong track record of ongoing capital and funding support from shareholders; and (iii) its adequate liquidity and capitalisation.The rating also reflects (i) its weak profitability; (ii) relatively high level of problem loans which remain under- provisioned; and (iii) high exposure to foreign currency lending.
Moody's decision to maintain a negative outlook on Unibank's B2 ratings reflects the ongoing weakness in the bank's financial performance, in particular its low profitability and a relatively high level of problem loans which remain under-provisioned.
In 2010, Unibank reported a net loss of 8 million manat under IFRS (audited), as its profitability materially deteriorated due to higher loan loss provisions, as well as lower core revenues related to the shrinkage of the loan book in recent years. Although Unibank reported a net profit for Q1 2011, its profitability in the medium term could remain challenged by the possibility of further provisioning and slower-than-expected credit growth coupled with increasing funding cost.
According to the Unibank's audited IFRS, the level of non-performing loans (loans 90+ days overdue) peaked at around 16% of gross loans in 2010 and remained under-provisioned as its loan loss reserves (LLR) stood at around 13% of gross loans, representing LLR coverage of only 82%.
Moody's also observes that Unibank's capitalisation is currently adequate, with Tier 1 and Total capital adequacy ratios of 12.3% and 16.9%, respectively, at 31 December 2010. The capital buffer is sufficient to absorb expected credit losses on the bank's loan book.
Moody's explained that Unibank's outlook could change to stable in the near to medium term if the bank demonstrates a sustained track record of improvement in profitability and asset quality. Conversely, downward pressure could be exerted on Unibank's ratings by any material adverse changes in the bank's risk profile, particularly any significant impairment of the bank's liquidity position, and failure to maintain control over its asset quality.
As of Dec.31, 2010, the bank's total assets hit $465 million, and shareholders' equity - $53 million and net loss - $10 million, according to audited IFRS.