BAKU, Azerbaijan, Nov. 30
By Tamilla Mammadova – Trend
Fitch Ratings has affirmed the Long-Term Issuer Default Ratings (IDRs) of JSC Basisbank at B+, Trend reports via the Fitch.
The Outlook is Negative, reads the official statement from Fitch Ratings.
The influential rating organization takes into consideration the fact that the share of impaired loans increased to 6.8 percent at end-3Q2020 from 5.4 percent at end-2019, driven by the pandemic outbreak.
Further, Fitch assesses the coverage of impaired exposures by specific loan loss allowances (LLAs) as only moderate (19 percent), reflecting reliance on hard collateral. At the same time, the share of impaired loans net of total LLAs was a low 16 percent of FCC at end-3Q2020.
“The bank's profitability weakened as a result of lower economic activity and higher LICs.The ratio of operating profit to regulatory risk-weighted assets (RWA) declined to 1.5 percent in 9M2020 (annualized) from 2.9 percent in 2019, while the cost of risk surged to 1.1 percent from 0.1 percent. Pre-impairment profitability was pressured by narrowing margins and lower credit growth. Pre-impairment profit declined to 3.2 percent of average loans in 9M2020, but we expect it to improve amid the recovering economic activity,” the report said.
According to Fitch, capitalization is a rating strength of Basis.
“The FCC to regulatory RWA ratio was a healthy 19.7 percent at end-3Q2020, supported by moderate credit growth and internal capital generation. Regulatory capital ratios in 2020 were hit by pre-emptive provisions created by banks in 1Q2020, as instructed by the National Bank of Georgia (NBG). Basis has already rebuilt its capital buffers in 2Q2020 and 3Q2020 to levels sufficient to be compliant with pre-pandemic prudential requirements,” reads the official statement.
The Fitch added that Basis is mainly funded by customer deposits (52 percent of end-3Q2020 liabilities), which have been broadly stable despite the outbreak of the health crisis. Non-deposit funding is also significant and includes loans from international financial institutions (IFIs; 30 percent) and interbank borrowings (15 percent, mostly repo with NBG).
"We believe that refinancing risks are manageable. Liquidity position is healthy - at end-3Q2020 the cushion of high liquid assets (cash, NBG placements net of obligatory reserves, short-term interbank and unencumbered securities eligible for repo) made up 18 percent of assets, covering 42 percent of deposits," the report said.
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