Baku, Azerbaijan, Aug. 11
By Anvar Mammadov – Trend:
Fitch Ratings has affirmed Azerbaijani Expressbank (EB) OJSC’s long-term Issuer Default Rating (IDR) at 'B' with a stable outlook.
The affirmation of EB’s ratings reflects only limited changes to its credit profile over the last 12 months, according to a Fitch report.
“The ratings reflect EB’s solid capital buffer, still reasonable, albeit moderately deteriorating, asset quality, limited exposure to foreign currency lending and ample liquidity,” said the report. “The stable outlook reflects Fitch’s expectation that, despite the potential for some further asset quality deterioration, this should be covered by pre-impairment profits and additionally mitigated by the bank’s solid capital buffer.”
EB’s corporate loan book (55 percent of gross loans at the end of the first quarter of 2017) is reportedly performing with zero NPLs (non-performing loans), Fitch noted.
“It almost entirely consists of exposures to the bank’s main corporate shareholder and its subsidiaries (79 percent), including a large construction company,” said the report. “In addition, EB issued a 30 million manats uncovered guarantee in favor of these related companies.”
“Total related-party exposure decreased to 139 million manats at the end of the first quarter of 2017 from 192 million manats at the end of 2015, and may decrease further due to the gradual phasing-in (by mid-2018) of the regulatory deduction of related-party exposures from Tier 1 capital for capital adequacy purposes,” said the report. “These borrowers reportedly target repaying foreign currency loans first, thus also reducing EB’s foreign currency risks.”
“Retail NPLs decreased significantly to 6 percent of total retail loans at the end of the first quarter of 2017 from a high 20 percent at the end of the first half of 2016, due to large write-offs,” the report said. “However, NPL generation increased in the first quarter of 2017 to 17 percent from 11 percent in 2016.”
EB is funded by customer deposits (87 percent of total liabilities at the end of the first quarter of 2017), according to the report.
Positive rating action for EB would be contingent on substantial franchise development through growth of third-party business, a reduction in volumes of operations with affiliated parties and a moderation of asset quality risks, Fitch said.
The bank’s long-term IDR was affirmed at 'B', outlook stable, short-term IDR was affirmed at 'B', Viability Rating was affirmed at 'b', Support Rating was affirmed at '5' and Support Rating Floor was affirmed at 'No Floor', the report said.
Expressbank was founded in 1989. Besides Baku, the bank’s branches also operate in Sumgait, Ganja, Mingachevir, Barda, Gusar, Khachmaz and Shirvan. Expressbank has installed about 90 ATMs across the country, 7,500 POS-terminals and nearly 400 ExpressPay payment terminals.