Fitch affirms International Bank of Azerbaijan at 'B-'
Fitch Ratings has affirmed Open Joint-Stock Company International Bank of Azerbaijan's (IBA) Long-Term Issuer Default Rating (IDR) at 'B-' with Stable Outlook. A full list of rating actions is at the end of this commentary, APA reports citing the Agency.
IBA's ratings are based on its intrinsic credit strength, as measured by its Viability Rating (VR) of b-. The VR continues to capture the risks stemming from the cyclical and oil-dependent operating environment, which we assess at b+/Negative. These risks are additionally aggravated by the ongoing economic downturn caused by the COVID-19 pandemic and the sharp fall in oil prices. IBA's VR is additionally pressured by substantial market risk due to its unhedged short US dollar position, which exposes the bank's capitalisation to the risk of currency depreciation.
Fitch believes that some aspects of IBA's credit profile are consistent with a higher rating (in particular, asset quality, franchise and funding and liquidity), but IBA's unhedged open currency position constrains the ratings at 'B-'.
IBA reduced its open currency position to USD0.7 billion at end-4M20 from USD0.8 billion at end-2M20 but this is still almost equal to the bank's regulatory capital. The risks to IBA's capitalisation are mitigated by the bank's large capital buffers, with regulatory Tier 1 and total capital ratios both equal to a high 33% at end-1Q20. Fitch notes that currencies in other oil-producing countries in the region (Russia and Kazakhstan) depreciated by about 20% in 1Q20. IBA's capital buffer is sufficient to withstand a lowering of the exchange rate to 2.5 AZN/USD, which would represent a severe currency shock, and still maintain its regulatory capital ratios above the statutory minimums of 6% and 11% for Tier 1 and Total capital ratios, respectively.
Fitch believes that IBA's asset quality is reasonable, supported by a high share of good-quality interbank placements and securities on its balance sheet. IBA's net loan book (25% of total assets) is the primary source of impairment risks, which are driven by the coronavirus outbreak and lower oil prices. We expect IBA's impaired loans (Stage 3 loans under IFRS 9) to increase to double-digit levels from a moderate 7% at end-2019. The bank's focus on state-related corporate borrowers somewhat reduces loan quality risks, although unsecured retail is significant at 23% of gross loans.
IBA's profitability is decent as reflected by a high ratio of operating profit to risk-weighted assets (7% in 2019). IBA's recurring pre-impairment profit equaled a high 14% of gross loans, although near-term pressure on pre-impairment performance will stem from weaker loan growth, lower transactional income and some margin compression. Fitch expects the net result in 2020 will additionally be dampened by elevated loan impairment charges. In addition, IBA's unhedged open currency position could result in a large one-off hit to profitability if the local currency depreciates.
In Fitch's view, there is no immediate pressure on IBA's funding and liquidity profile from the current economic downturn. Wholesale funding sources are limited and comprise primarily the USD1 billion eurobond issued as part of the recent restructuring and mostly held by the State Oil Fund of Azerbaijan. The bank's reliance on sovereign-related customer deposits (51% of total liabilities) supports the stability of the funding base. Although moderate deposit outflows are possible, particularly if devaluation pressures intensify, we expect the bank's liquidity buffers to remain strong. At end-1Q20, liquid assets exceeded IBA's total customer funding.
The affirmation of the Support Rating at '5' and Support Rating Floor at 'No Floor' reflects Fitch's view that support from the shareholder, the Azerbaijan sovereign (BB+/Negative), cannot be relied upon following the bank's default in 2017, despite IBA's state ownership.
IBA's senior unsecured debt is rated 'B-', in line with the bank's Long-Term IDR, reflecting Fitch's view of average recovery prospects, in case of default.
Foreign investments worth about AZN 1.6 bln. put in Azerbaijani economy in four months
Azerbaijan signed contracts worth $ 2 bln. with contractors in framework of ADB projects during last 5 years
31.8% of state budget spend for finance of socially-oriented expenditures last year
Funds spent on census of population and implementation of municipal elections disclosed
Number of COVID-2019 cases across globe up by over 117,000 in past day - WHO
Turkey's COVID-19 cases remain at 'anticipated level'
Amazon UK website defaced with racist abuse
Kremlin spokesman: "Constitutional amendments voting date to depend on COVID situation"
Trump on Riots in Minneapolis: National Guard Should Be Used in Other States Before It's Too Late
Coronavirus cases in Belarus exceed 42 thousand
Italy records 75 new coronavirus deaths, 355 new cases
SpaceX DM-2 Crew Dragon Docks With International Space Station
Malta to reopen its airport on July 1
Quake jolts Almaty
Agenda of meeting of Azerbaijani Parliament scheduled for June 1 unveiled
Hundreds gather in Trafalgar Square to show solidarity with US protesters following death of George Floyd
Canada to promote holidays at home because of COVID-19 border closures
EU trade commissioner Hogan mulling candidacy for WTO chief
Azerbaijan’s MIA: Restaurants may function until 10:00 p.m. beginning from today
French soprano Mady Mesple died
Spring session of Azerbaijani parliament ends
Number of confirmed coronavirus cases in Azerbaijan reach 5494, with 3428 recoveries and 63 deaths
Azerbaijan documents 248 fresh coronavirus cases, 101 recoveries, 2 deaths
First meetings of extraordinary session of Azerbaijani Parliament to be held on June 1 and 2
Azerbaijan determines fines for violation of requirements of use of mask during quarantine period
People more important than the economy, pope says about Covid crisis
Saudi Arabia reopens mosques with strict regulations for worshippers
Speaker: “No any secret regarding coronavirus in Azerbaijan”
Date of resumption of Azerbaijan Premier League disclosed
Pope Francis congratulates Azerbaijani President
Azerbaijan’s Defense Ministry responds to accusations of Vahid Ahmadov
Plots of land to be allocated in Azerbaijan and Turkmenistan for both embassies
Azerbaijani airline companies extend period of free-of-charge assignment of air tickets
Committee chairperson of Milli Majlis: “34 children were victims of Armenian terrorism during ceasefire period”
Ministry of Youths and Sport permits trainings in the open air at Olympic Sport Complexes
OPEC+ close to agreement to bring forward meeting to June 4
Daily coronavirus cases in Moscow exceed recoveries for first time since May 24
Somali minibus hits roadside bomb, six killed
Germany’s ambassador: “We can rely on Azerbaijan as a partner in the region” - INTERVIEW
63 people die of coronavirus in Iran in past day
TABIB: Those who use tobacco products are at increased risk of COVID-19 infection
Uzbekistan reports 8 new COVID-19 cases, 3,554 in total
King of Thailand congratulates Azerbaijani President
MoD: Azerbaijani army definitely to use its right to use force to liberate the occupied territories
Azerbaijani Parliament adopts military finance and security cooperation agreemet Baku and Ankara
President of Portugal congratulates Azerbaijani President
Number of coronavirus cases reach 40 in occupied territories of Azerbaijan
Romania PM breaches own virus rules, fined
Azerbaijan abolishes visa requirement for Turkish citizens traveling for 90 days
Azerbaijani Parliament approves Preferential Trade Agreement between Azerbaijan and Turkey
Azerbaijani MP: “Pardoning of Ramil Safarov unambiguously within the legal framework of the obligations assumed by our state"
Washington DC declares May 28 Azerbaijan National Day
Russia reports 9268 coronavirus cases over past day
Global coronavirus cases surpass 6 million
Paris citizens enjoy city parks as they reopen amid eased COVID-19 lockdown - VIDEO
Largest electric aircraft completes successful flight - VIDEO
The Azerbaijani flag has been projected on the world's tallest building
Azerbaijani Defense Minister attended the opening of the new medical building of the Main Clinical Hospital - VIDEO
Azerbaijani MP suggests to establish shelters for beggars
Azerbaijan commemorates Khojaly genocide - PHOTOSESSION
14 years pass since establishment of the Ministry of Emergency Situations: They always come to your aid in any difficult moments - PHOTOSESSION - VIDEO
First Vice-President Mehriban Aliyeva attended opening ceremony of rebuilt Azerbaijan pavilion at Exhibition of Achievements of National Economy in Moscow - UPDATED
Open Doors Day and the military oath-taking ceremony were held on the occasion of the State Flag Day
Restriction imposed on entry into and exit from Azerbaijan via land and air ways extended until June 15