Moody's: Technikabank's liquidity profile stabilised after Azerbaijani biggest bank’s support

Moody's: Technikabank's liquidity profile stabilised after Azerbaijani biggest bank’s support

Azerbaijan, Baku, July 14 / Trend A. Akhundov /

Moody's Investors Service has today downgraded Technikabank's standalone bank financial strength rating (BFSR) to E, mapping to a standalone credit assessment of caa3, from E+ (formerly mapping to b3). The bank's long-term local and foreign currency deposit ratings were also downgraded to Caa2 from B3, Moody's Investors Service said today.

In addition, Technikabank's liquidity profile has materially deteriorated in March-May 2012 when negative publicity and uncertainty surrounding the bank triggered a substantial deposit run, resulting in a 60 percent contraction in retail deposits and a 23 percent contraction in total liabilities. To meet demand for cash, the bank discontinued its lending activity and decreased its liquid assets (cash and bank deposits) as a percentage of total assets to around 4 percent at end-June 2012, from 10 percent in February 2012. The bank's liquidity profile appears to have stabilised after receiving support from the state-controlled International Bank of Azerbaijan (IBA); however, Moody's views Technikabank's liquidity risk as high, considering the bank's limited ability to attract new funding and uncertainty regarding the quality of its loan portfolio.

The outlook on the BFSR, which is at the lowest rating level, is stable. The outlook on long-term deposit ratings is developing.

Today's rating action concludes the review initiated on 27 March 2012, when the bank's ratings were placed on review for downgrade.

Moody's rating action on Technikabank is based on the bank's unaudited results for the first six months of 2012 prepared under local GAAP.

According to Moody's, the downgrade of Technikabank's BFSR and deposit ratings reflects a material deterioration of the bank's financial fundamentals. The rating agency says that the bank's capital base has been virtually depleted and according to Technikabank's management, the bank's total capital adequacy ratio (CAR; unaudited, based on local GAAP) dropped well below the 12 percent regulatory minimum -- to 2.3 percent -- at end-April 2012.

The drop in capital resulted from a sharp asset quality deterioration and an increase in loan loss provisions. Moody's understands that Technikabank has not yet received formal waivers from the Central Bank of Azerbaijan (CBA) related to the breach of the minimum CAR requirement.
Due to Technikabank's asset quality challenges, high recapitalisation needs and funding constraints, Moody's expects Technikabank to further deleverage its balance sheet, which will weaken the bank's market franchise and revenue potential.

Moody's says that Technikabank's Caa2 ratings now incorporate a one notch uplift from its standalone credit strength of caa3, reflecting a low probability of systemic support.

Although direct systemic support from either the government or the CBA has so far not been provided to the bank, Technikabank has received liquidity support and guarantees from IBA, a state-controlled bank. In addition, Moody's understands that the bank currently enjoys regulatory forbearance. Following its large deposit outflow, the bank still retains around 3 percent market share on the retail deposit market, and Moody's does not rule out some systemic support going forward, the message said.

The developing outlook on the Caa2 deposit ratings reflects the uncertainty regarding Technikabank's ability to continue its operations. On the one hand, Moody's acknowledges that Technikabank's ratings could be positively affected by the successful outcome of its recapitalisation plan. On the other hand, negative pressure could be exerted on Technikabank's ratings if (1) capitalisation plans do not materialise, or the proposed capital injection is insufficient to address the bank's problems, and (2) its liquidity profile continues to deteriorate as a result of the bank's inability to roll over deposits and interbank loans, thereby increasing the probability of default on its obligations.

Domiciled in Baku, Azerbaijan, Technikabank reported -- as at end June 2012 -- total assets of 446 million manat and shareholders' equity of 15 million manat, according to unaudited local GAAP, the message said.

The official exchange rate is 0,7855 AZN/USD on July 14.

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