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Fitch approves Azerbaijan's AFB Bank’s rating

Finance Materials 9 July 2020 17:26
Fitch approves Azerbaijan's AFB Bank’s rating

BAKU, Azerbaijan, July 9

By Fidan Babayeva – Trend:

Fitch Ratings has approved Azerbaijan's AFB Bank Open Joint Stock Company's (AFB) Long-Term Issuer Default Rating (IDR) at 'B-'. The Outlook is Stable, Trend reports referring to Fitch Ratings.

Short-term rating has been determined at the same level.

“The downgrade of AFB's Long-Term IDR and Viability Rating (VR) reflects AFB's asset quality weakening and an increase in connected-party lending,” the message said. “Lower oil prices and the ongoing economic downturn in Azerbaijan caused by the COVID-19 pandemic put additional pressure on AFB's creditworthiness.”

“The IFRS-reported related party loans stood at a low two percent of total loans at end-2019,” the report said. “However, based on our review of the largest exposures, we believe that about 60 percent of gross loans (up from 50 percent at end-2018) are exposed to companies connected with Gilan Holding (GH), but not classified as related parties under IFRS.”

“Gilan Holding was the bank's majority shareholder prior to February 2019 when the bank was acquired by Hikmet Ismayilov,” the message said. “Despite the change of the shareholder, we believe that AFB is still closely connected with GH based on the fact that Ismayilov is a shareholder in some of GH's companies.”

“However, the amount of net impaired loans was equal to a high 28 percent of Fitch Core Capital at end-2019,” the message said.

“AFB is mainly customer funded, with 83 percent of total liabilities represented by customer accounts at end-2019,” the message said. “Of these, 86 percent were interest-free current accounts sourced from corporate clients and wealthy individuals. IFRS-reported related party deposits were a low 2 percent of total customer at end-2019. However, in Fitch's view over 70 percent of deposits come from companies connected to GH.”

AFB Bank launched its activity in 2008 under the name Azfinansbank. It rebranded in 2009.

The authorized capital of the bank is 70.4 million manat ($41.4 million). Some 99.64 percent of the bank’s shares belong to Hikmet Ismayilov (100 percent of Azsigorta’s shares, 31.11 percent of Bank of Baku’s shares), 0.18 percent to Jamil Muradov (chairman of the board of Gilan Holding LLC), and 0.18 percent - to Akbar Abdullayev.

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