Baku, Azerbaijan, March 28
By Fakhri Vakilov – Trend:
S&P Global Ratings confirmed the long-term and short-term credit ratings of the issuer Bank Turonbank at level “B/B” with a forecast of change in ratings “Stable”, Trend reports with reference to the rating agency.
The affirmation of Turonbank’s ratings reflects the agency’s view that its substantial amount of capital is sufficient to maintain business growth targets, as well as adequate capitalization ratios.
Moreover, S&P Global Ratings believes that although lending growth rates will remain high, they will gradually decline to a level close to the sector average in 2019–2020.
“We expect that in 2019-2020 the bank will provide new funds of about 1,100 billion soums ($130 million) to finance projects in the hydropower sector. We also believe that Turonbank will continue to actively increase the growth rates of lending to small and medium-sized agricultural companies: their number will increase and in the next two years the volume of new loans will be about 400-450 billion soums (about $53 million). These projects will be financed by attracting resources from international financial institutions by attracting resources from international financial institutions,” S&P Global Ratings emphasizes.
The agency expects Turonbank’s risk adjusted capital ratio (RAC) to decrease from 12.5 percent at the end of 2018 to 8.3–8.5 percent at the end of 2020, which will be mainly due to the forecasted high lending growth rates (average 45 percent in 2019-2020) and moderate rates of profitability.
“A negative impact on the ability of Turonbank to generate profits will have a low net interest margin for all projects in the hydropower industry and the agricultural sector. In our forecast for the RAC ratio, we do not take into account possible government support,” the agency notes.
S&P Global Ratings defines Turonbank as a state-related organization taking into account its very strong ties with the government.
The Stable outlook reflects the opinion of S&P Global Ratings that in the next 12-18 months Turonbank is likely to retain adequate capitalization indicators, despite high lending growth rates due to financing projects in the hydropower industry and agricultural sector.
“We can lower the bank’s ratings (although this scenario is unlikely), if its characteristics of its own solvency (stand-alone credit profile - SACP) deteriorate significantly – to “ccc +”or lower - and the uncertainty about the bank’s ability to service and repay debt commitments will intensify. This can occur, for example, in the event of a significant reduction in the bank’s liquidity reserves due to aggressive asset growth and an unexpected outflow of deposits,” S&P Global Ratings notes.
S&P claims that it can raise Turonbank's ratings in the next 12-18 months if the bank maintains the projected RAC ratio above 7.0 percent and good asset quality indicators, where the volume of problem loans and the cost of risk will not exceed the average indicators for the sector. A positive rating action will also depend on a decrease in the currently aggressive lending rates to a level close to the sector average.
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