Baku, Azerbaijan, May 17
Fitch Ratings has affirmed Azerbaijan Mortgage Fund under the Central Bank of Azerbaijan Republic's (AMF) Long-term foreign and local currency Issuer Default Ratings (IDR) at 'BBB-'. The Outlook is Stable.
AMF's ratings are equalised with Azerbaijan's sovereign ratings, reflecting the entity's public sector status, its tight control by the sovereign through the central bank and its important role in the government's housing finance policy. According to AMF the central bank has the duty to finance AMF (including repayment of the bonds issued), should this be needed. Fitch uses its public-sector entities rating criteria and applies a top-down approach in its analysis of AMF, according to the statement.
AMF was established in September 2005 as a public sector entity under the decree of the President of the Republic of Azerbaijan. AMF's main functions are to provide long-term financing of home ownership of Azerbaijani citizens, and to attract domestic and foreign investment into mortgage financing, according to Fitch.
Provision of affordable housing is a high priority for the state. This is underlined in Article 43 of the Constitution, which recognises the need to respond to the country's housing demand, particularly in light of increasing demand for higher standard urban housing within the country.
AMF reports directly to the central bank, whose management board is the fund's Board of Directors. The entity's accounts are audited by an independent auditor appointed by the central bank.
Although it has its own separate budget, AMF receives regular contributions from the state budget. At end-2013 the accumulated contribution from the state totalled AZN176m (2012: AZN136m). AMF also benefits from a buyback guarantee for its bonds from the central bank. Fitch expects that AMF will continue to benefit from the central bank support, according to the statement.
AMF started to borrow in 2009 through issuance of covered bonds and senior bonds. Outstanding bonds accounted for AZN300m at end-2013, including AZN9m held by AMF in its own portfolio. Their proceeds were solely used for mortgage portfolio expansion. Fitch expects AMF will continue to borrow on the market and receive capital injections from the state to fund its expansion in line with the strategic plan set by the state.
A rating change would be triggered by changes to the ratings of the sovereign. Changes to the legal status and public control that would lead to a dilution of control or likelihood of support by the sovereign could result in the ratings being notched down from the sovereign ratings.