Azerbaijan, Baku, Sept. 28 / Trend A. Akhundov /
Moody's Investors Service has today changed the outlook on Xalq Bank's B3 long-term local and foreign currency deposit ratings to positive from stable. The standalone E+ bank financial strength rating (BFSR) and Not Prime short-term bank deposit ratings were affirmed. The outlook on the BFSR remains stable, the agency said today.
Moody's rating action is largely based on Xalq's audited financial statements for 2011 prepared under IFRS.
According to Moody's, the positive outlook reflects Xalq's progress in reducing its credit concentration risk and improvements in capitalisation.
Moody's notes that in 2011 Xalq materially reduced its credit concentration risk following the repayment of some large loans and a capital injection from its shareholders.
As a result , Xalq's exposure to the 20 largest borrowers decreased to 205 percent of Tier 1 capital at mid-2012, from around 480 percent at YE2010. The bank's industry concentration also decreased with loans granted to the telecommunication and transportation sectors accounting for 75 percent of the Tier 1 capital as at YE2011 (2010: 228 percent).
As a result of the large capital injection which almost doubled the bank's capital base, Xalq's Tier 1 ratio increased to 33 percent at YE2011, from 17 percent in 2010. This capital buffer is likely to be sufficient to absorb expected credit losses under Moody's scenario analysis.
In 2011, Xalq's profitability improved as its net income increased by 81 percent to 24.4 million manat, from 13.5 million manat in 2010, translating into a return on average assets of 3.65 percent (2010: 2.41 percent).
The official exchange rate is 0.7853 AZN/USD on Sept. 28.