Details added (first version posted on 15:00)
Baku, Azerbaijan, June 27
By Anvar Mammadov - Trend:
Moody's Investors Service, an international ratings agency, has assigned Counterparty Risk Ratings (CRR) to five Azerbaijani banks, the agency said in a message posted on its website.
The ratings have been assigned to Bank of Baku OJSC, International Bank of Azerbaijan, Joint Stock Commercial Bank Respublika, Kapital Bank OJSC and Xalq Bank OJSC, according to the message.
Thus, long-term CRR of the International Bank of Azerbaijan was assigned at B2, Kapital Bank - Ba2, Xalq Bank - B2, Bank Respublika - B3, while Bank of Baku - at Caa2.
Short-term CRRs of all banks were assigned at Not Prime.
Moody’s said that the CRRs assigned to Azerbaijani banks are in line with their Counterparty Risk Assessments (CR Assessment) already outstanding.
“In assigning CRRs to the Azerbaijani banks subject to this rating action, the rating agency starts with the banks' adjusted Baseline Credit Assessment (BCA) and uses the agency's existing basic Loss-Given-Failure (LGF) approach,” the ratings agency said.
“Moody’s basic LGF analysis provides one notch of uplift from the banks' adjusted BCAs. This reflects the rating agency's view that CRR liabilities are not likely to default at the same time as the bank fails and will more likely to be preserved in order to minimize banking system contagion, minimize losses and avoid disruption of critical functions.”
Furthermore, for three banks the CRRs incorporate some uplift from government support, given Moody's expectation of moderate or high probability of government support, according to the message.
“For two banks (Kapital Bank OJSC and Xalq Bank OJSC) the uplift on the CRRs is one notch owing to a moderate probability of government support,” reads the message. “For one bank (International Bank of Azerbaijan) the uplift on the CRR is two notches because of a high probability of government support.”
An upgrade of Azerbaijani banks' CRRs over the next 12-18 months could be driven by an upgrade of their standalone BCAs, according to the ratings agency.
“The banks' BCA may, in turn, be upgraded following improvements in their solvency metrics (particularly, if level of problem loans were to significantly decrease, and capitalization and profitability were to materially improve) and provided liquidity profiles of these banks does not deteriorate,” reads the message.
“Also, CRRs of those banks which benefit from government support may come under upward pressure following upgrade of the sovereign rating of Azerbaijan.”
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