Moody’s: Azerbaijan’s Xalq Bank improves asset quality, profitability metrics (UPDATE)
Details added (first version posted on 15:15)
Baku, Azerbaijan, July 6
By Anvar Mammadov - Trend:
Azerbaijan’s Xalq Bank OJSC improved its asset quality and profitability metrics, Moody's Investors Service, an international ratings agency, said in a report July 6.
Moody's Investors Service has changed to positive from negative the outlook on B3 long-term local- and foreign currency deposit ratings of Xalq Bank OJSC and affirmed these ratings.
Concurrently, the rating agency affirmed Xalq Bank's Baseline Credit Assessment (BCA) and adjusted BCA of caa1, the bank's long-term and short-term local and foreign currency Counterparty Risk Ratings of B2/Not Prime, as well as its Not Prime short-term local and foreign currency deposit ratings. Xalq Bank's long-term and short-term Counterparty Risk Assessments (CR Assessments) of B2(cr)/Not Prime(cr) were also affirmed.
According to Moody's, the change of Xalq Bank's ratings outlook to positive from negative reflects improving trends in the bank's asset quality and profitability metrics, coupled with the bank's relatively good capital buffer. The rating action is also underpinned by the bank's stable funding and liquidity profiles, the report noted.
In 2017, Xalq Bank's asset quality metrics continued to improve, according to the report.
“The problem loans decreased somewhat to 12.7 percent of the bank's gross loan book as of year-end 2017 from the 14.6 percent ratio reported a year earlier,” said the report. “Credit losses (defined as loan-loss provisions as a percentage of average gross loans) moderated to 1.9 percent in 2017, compared with 3.7 percent in 2016. The coverage of problem loans by loan loss reserves, although improved to 64 percent at the end of 2017 from 54 percent a year earlier, is still relatively low and Moody's therefore expects that the bank will continue to build up its provisioning coverage in 2018 with its credit losses to be at around 2 percent or slightly higher in 2018.”
Moody's also expects that Xalq Bank's capital buffer will be able to absorb any elevated credit losses, should these losses exceed the rating agency's central scenario.
“As of June 1, 2018, the bank reported regulatory Tier 1 and total capital adequacy ratios (CAR) of 15.7 percent and 17.3 percent, respectively, which remarkably exceed the regulatory minimum thresholds of 5 percent and 10 percent,” the ratings agency said. “The rating agency expects that the growth of Xalq Bank's risk-weighted assets will be low over the next 12 to 18 months, owing to Azerbaijani borrowers' limited demand for new lending.”
Xalq Bank displays relatively stable funding and liquidity profiles, with customer deposits remaining the bank's key funding source and accounting for 76 percent of total liabilities as of year-end 2017, whereas other funding sources are largely represented by stable and long-term financing from the National Fund for Support of Entrepreneurship, Azerbaijan Mortgage Fund and other similar state-related sources, according to the report.
Xalq Bank OJSC has been operating in Azerbaijan’s banking market since 2004.
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