Baku, Azerbaijan, Feb. 18
By Anvar Mammadov - Trend:
Standard & Poor's Ratings Services said that it had revised its outlook on Azerbaijan-based Kapital Bank OJSC at ВВ-/В, PASHA Bank - ВВ-/В and Muganbank - В-/С.
The rating actions follow the lowering of the agency's ratings on Azerbaijan to 'BB+/B' from 'BBB-/A-3'.
"Nevertheless, in our view, the bank's solid capital position currently counterbalances this pressure, so we have affirmed the ratings," the statement said. "We think that if the economy weakens further, the bank might adjust its strategy, scaling back growth. Sustainable, high margins and one-time income from revaluation of foreign currency assets helped the bank achieve a net profit of Azerbaijan manat (AZN) 64 million (about $55 million using an average exchange rate in 2015) last year, under Azerbaijani generally accepted accounting principles."
The agency believes the NPL ratio could deteriorate to 13%-15% in the next 12 months.
"But we don't expect the share of NPLs will exceed that of the system during 2016," the statement said. "We note that about 20% of the bank's loan book is guaranteed by the Ministry of Finance of Azerbaijan, since the respective loans relate to certain government-related project finance agreements. These sovereign guarantees partly mitigate potential credit risks on the loan book."
The statement said that however, if the situation eases sustainably and the bank demonstrates resilience to the weaker environment, we could consider revising the outlook to stable.
"The affirmation reflects our view that PASHA Bank still has a sound market position and strong capital buffer, which could provide some protection against the tough market conditions," the agency said.
"We also consider that the bank has high importance in the domestic banking sector and therefore may receive extraordinary government support if needed," the statement said. "Rating weaknesses include a worsening loan loss track record and uncertainties regarding the bank's future NPL levels, highly concentrated loan book, and funding base."
"We might revise the outlook to stable if we see that the workout of NPLs is progressing faster than we expect and the bank has maintained its strong capital," the agency said.
The affirmation reflects the agency's view that Muganbank's business profile is somewhat more sustainable than that of many midsize banks in Azerbaijan, Russia, or Kazakhstan. Muganbank has a well-established position in most of Azerbaijan's regions, an adequate business mix, and a less aggressive growth strategy.
Because of its track record of sound core banking profitability, the agency considers Muganbank's business position to be moderate.
The agency may revise the outlook to stable if the bank were to demonstrate resilience to deteriorating market conditions and sustain asset quality throughout 2016.