Fitch Ratings says that the recently completed merger of Azerbaijan's Atabank OJSC (AB; B-/Negative/b-) with Caspian Development Bank (CDB) has no immediate impact on AB's ratings. This reflects Fitch's base case view, based on public disclosure, that the positive impact from the higher capital ratios of the merged bank is counterbalanced by recent loan deterioration, meaning the post-merger credit profile is likely to be still commensurate with the 'B-' rating level.
After the merger, control over the merged bank was transferred to SG, which subsequently injected AZN20 million of equity into AB: "We take a positive view of the increased capitalisation of the merged bank".
“Negatively we view the significant weakening of asset quality, mainly attributable to the pre-merger AB, whose non-performing loans (NPLs, 90+ days overdue) increased to around 30% of gross loans at end-2016 (based on IFRS accounts) from 13% at end-2015, while CDB reported negligible NPLs at end-2016. Fitch estimates that the combined NPL ratio for the merged bank should be around 23%, while reserve coverage (based on end-2016 IFRS accounts) would have been about 55%”, the Agency said.
Fitch will conduct a further detailed analysis (including with reference to non-public disclosure) in the course of an upcoming rating review to take a more definitive view on the bank's post-merger credit profile and consider potential rating implications.