Fitch affirms 5 Azerbaijani banks’ ratings (UPDATE)

details added (first version posted at 11:09)

Baku, Azerbaijan, Dec. 25
By Azad Hasanli - Trend:

International ratings agency, Fitch has kept the "BB" long-term issuer default rating (IDR) of International Bank of Azerbaijan in the "Rating Watch Positive" list, said the agency on its website.

The IDRs of Demirbank, Atabank and AGBank were placed in the "Rating Watch Negative" list, with a possibility of upgrading the rating.

Forecast for Unibank's IDR ("B") was changed from "stable" to "negative."

Fitch said the rating actions are related to the devaluation of manat, and the transition to a floating exchange rate on December 21.

Fitch's decision to maintain IBA's 'BB' IDR on RWP reflects Azerbaijani authorities' improving propensity to provide support to IBA, due to ongoing asset clean-up programme, and also our expectation that the state will support to offset the impact from recent currency volatility.

Fitch estimates that the pressure on IBA's capital stemming from currency devaluation was largely offset by the release of RWAs following the buyout of AZN2bn problem loans by the authorities in November and early December.

The bank converted most sales proceeds into foreign currency, thus also reducing its short OPC, while hedging the remainder. The remaining AZN1bn problem loans buy-out is planned by end-2015 and management has informed Fitch that the authorities may consider other measures, if necessary, to support the bank's solvency, the statement said.

At end-11M15, IBA's total capital adequacy ratio (TCAR) equalled 16%. Fitch therefore estimates that TCAR could have reduced by about 350bps, but should still be above the current regulatory minimum of 12%.

The revision of the Outlook on Uni's IDRs to Negative from Stable reflects its weakened loss absorption capacity after devaluation, while risks stemming from the bank's highly dollarised and unsecured retail loan book have increased. However, Uni should remain compliant with regulatory capital adequacy rules after the devaluation, with an estimated TCAR of 13% by end-2015.

The RWN on AGBank, Demir and AB reflects the material erosion of their loss absorption capacity as a result of the currency devaluation.

According to management AB's OCP was largely hedged through derivative contracts, although Fitch believes that there is some uncertainty about the efficiency of these hedges. If the hedges are not effective, the bank could have lost around 60% of its capital, taking its regulatory TCAR down to 6% at end-2015, the statement said.

However, even if the hedges are effective, the devaluation would still lead to TCAR reducing to around 5% from current 9.7%.

The potential for support from banks' private shareholders is not factored into the ratings.
The rating actions are as follows:

IBA
Long-term foreign currency IDR: 'BB' maintained on RWP
Short-term foreign currency IDR: affirmed at 'B'
Viability Rating: 'b-', Rating Watch revised to Evolving from Positive
Support Rating: affirmed at '3'
Support Rating Floor: 'BB' maintained on RWP
Senior unsecured debt: 'BB', maintained on RWP

Unibank:
Long-term foreign currency IDR: affirmed at 'B', Outlook revised to Negative from Stable
Short-term foreign currency IDR: affirmed at 'B'
Viability Rating: affirmed at 'b'
Support Rating: affirmed at '5'
Support Rating Floor: affirmed at No Floor

Demirbank:
Long-term foreign currency IDR: 'B', placed on RWN
Short-term foreign currency IDR: 'B', placed on RWN
Viability Rating: 'b', placed on RWN
Support Rating: affirmed at '5'
Support Rating Floor: affirmed at No Floor

Atabank:
Long-term foreign currency IDR: 'B-', placed on RWN
Short-term foreign currency IDR: 'B', placed on RWN
Viability Rating: 'b-', placed on RWN
Support Rating: affirmed at '5'
Support Rating Floor: affirmed at No Floor

AGBank:
Long-term foreign currency IDR: 'CCC', placed on RWN
Short-term foreign currency IDR: affirmed at 'C'
Viability Rating: 'ccc', placed on RWN
Support Rating: affirmed at '5'
Support Rating Floor: affirmed at 'No Floor'

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