Moody's Investors Service has today taken rating actions on four Azerbaijani banks. Moody's downgraded the Baseline Credit Assessments (BCAs) and downgraded the long-term local- and foreign-currency deposit ratings of Xalq Bank, Bank Respublika, Bank of Baku and VTB Bank (Azerbaijan).
The outlooks on the long-term local- and foreign-currency deposit ratings of all four banks remain negative.
The rating actions reflect worsened financial fundamentals of Azerbaijani banks amid prolonged unfavorable operating conditions and the negative impact from local currency devaluation, in particular significantly deteriorated asset quality, net losses due to heightened credit costs and/or foreign exchange losses, materially eroded capital buffers and vulnerable funding and liquidity. Funding conditions for Azerbaijani banks have been constrained by very high level of deposit dollarization, a lack of local-currency liquidity, volatile customer deposit base and limited and costly access to capital markets. This led Moody's to lower the macro profile of Azerbaijan, Government of (LT Issuer Rating Ba1, Outlook: Rating Under Review) to "Very Weak+" from "Weak-". Moody's expects pressure on Azerbaijani banks to persist given: (1) subdued lending prospects and net losses, (2) a high provisioning burden and tighter regulation requiring additional recapitalization, (3) persistently high dollarization of funding, resulting in large foreign-currency mismatches and reliance on costly hedges.
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