Fitch is ready to upgrade Texnika Bank in case of substantial external support

Business Materials 17 May 2012 17:17 (UTC +04:00)

Azerbaijan, Baku, May 17 /Trend/

International rating agency Fitch Ratings has downgraded Azerbaijan-based Technikabank's (TB) Long-term Issuer Default Rating (IDR) to 'CC' from 'B-' and Viability Rating (VR) to 'f' from 'b-'.

"The downgrade of TB's Long-term IDR reflects further deterioration in the bank's liquidity position as a result of continued deposit outflows and a sharp reduction in the bank's capital ratio," the bank said.

As at May 11, 2012, individuals' deposits had dropped by 55 percent compared to mid-March 2012, and the cash buffer had thinned to just 12 million manat (equal to 2.5% of the bank's liabilities). In Fitch's view, TB's tight liquidity gives rise to considerable uncertainty about its current capacity to service its financial obligations.

The regulatory capital adequacy ratio fell to just 2.1 percent at the end of April 2012 (from 16% at the end of March 2012), driven by a large 60 million manat of new loan impairment provisions created following a change in the bank's management, instigated by the Central Bank of Azerbaijan (CBA).

The downgrade of TB's VR to 'f' reflects Fitch's view that the bank has failed, given its weak liquidity and capital positions, and the fact that these have already required some form of external support or regulatory forbearance.

TB's Long-term IDR could be downgraded to 'D' or 'RD' (Restricted Default) if liquidity tightens further and it becomes clear that the bank is no longer able to service its current obligations. The Long-term IDR and VR could be upgraded if TB receives substantial external support, to the extent that Fitch views the bank once more as a viable entity.