Baku, Azerbaijan, April 17
By Kheyraddin Nasirzade - Trend:
The international rating agency Moody’s Investors Service forecasts a 25-percent decrease in the share of problem loans of Bank of Baku (BoB) OJSC in Azerbaijan, Trend reports with reference to the rating agency.
The rating agency estimates that upon full implementation of the Azerbaijani government’s program, BoB’s level of problem loans (a substantial 45 percent of total loans as of year-end 2017) might decrease by approximately one quarter, according to the report.
This, in turn, will trigger a significant release of loan loss reserves, which will boost BoB’s profitability metrics and capital.
The agency affirmed the bank’s long-term and short-term deposit ratings in local and foreign currencies, but changed the outlook for the long-term deposit ratings from negative to stable.
These expected positive developments are, however, counterbalanced by the gradual tightening of BoB’s liquidity position, because the bank’s customer deposit funding shrank by one quarter in 2018, whereas its liquidity cushion reduced, over the same period, to approximately 15 percent of total assets from the more than 20 percent ratio reported as of the beginning of 2018.
The change of the outlook on BoB’s Caa3 long-term deposit ratings to stable from negative reflects Moody’s expectation that the bank's solvency metrics will somewhat improve and then stabilize at more sustainable levels following the upcoming implementation by the government of its recently announced measures for support of a certain group of qualifying individual borrowers.
The rating agency believes that BoB will be among those local banks benefitting the most from the announced measures, because it has historically focused on retail lending and has accumulated large stock of distressed retail loans subject to resolution aided by the government's support measures.
The long-term deposit rating of the Azerbaijani bank could be upgraded if the bank posts improved standalone credit metrics that lead to higher Baseline Credit Assessments.
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