Baku, Azerbaijan, March 3
By Aygun Badalova - Trend:
International Bank of Azerbaijan (IBA, BB/Stable/b-) will probably need further support, in addition to that already received, to offset the impact of the depreciation of the manat and restore its capital ratios, Fitch Ratings says.
"However, we expect capital contributions and/or continued regulatory forbearance to be forthcoming, and hence do not anticipate negative rating action as a result of the weakening of the bank's solvency," the agency said.
Such an increase in risk-weighted assets would also mean that the regulatory total capital ratio could have fallen below the 12% minimum level (from 12.02% at end-2014); this was partially offset by capital support in the form of AZN250m of subordinated debt received on 27 February from the Central Bank (CBA). In addition, the bank obtained a one-year waiver from the CBA, allowing its regulatory capital adequacy ratio (CAR) to fall to 10%.
Management has also informed Fitch that the bank will accelerate a new AZN100m equity issue, with AZN50m of this expected to be contributed by the Ministry of Finance in March. This issue will be made within the framework of the bank's AZN500m recapitalisation programme, adopted in 2013, under which AZN200m had been received by end-2014. In addition, a shareholders meeting on 2 April will discuss a potential further common share issue. In case of any delay with the contribution of new capital, Fitch would expect that regulatory forbearance to support IBA's compliance with local capital requirements would be extended, the statement says.
Fitch does not expect IBA to record any significant losses as a direct result of depreciation.
IBA's 'BB' Long-term Issuer Default Rating and senior debt rating reflect the moderate probability of support from the Azerbaijani authorities, in case of need, given IBA's high systemic importance.
At the same time, failure to provide timely assistance to the bank could put downward pressure on the ratings.
Fitch does not anticipate that the additional capital pressure resulting from AZN depreciation and the higher proportion of foreign currency lending will by themselves be sufficient to warrant a downgrade of the VR.