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Â«Moody’sÂ» affirms Bank Respublikaâ€™s ratings

14 March 2011 08:11 (UTC +04:00)

Baku. Vahab Rzayev â€“ APA-Economics. Moody’s Investors Service has [March 11] affirmed the E+ bank financial strength rating ("BFSR") and B2/Not Prime long-term and short-term local and foreign currency deposit ratings of Bank Respublika ("Respublika"). The outlook on the long-term global scale ratings is stable.

According to Moody’s, Respublika’s E+ BFSR, which translates into a Baseline Credit Assessment (BCA) of B2, remains constrained by (i) its relatively small size and limited franchise, (ii) moderate single-party concentrations in the loan portfolio; and (iii) high exposure to foreign currency lending. The ratings also reflect Respublika’s satisfactory financial indicators, including liquidity and capitalisation.

In 2010, Respublika reported a net loss of AZN2.2 million (US$2.8 million) under Azeri GAAP (unaudited), as its profitability deteriorated due to higher loan loss provisions, as well as lower core revenues related to the shrinkage of the loan book. In addition, Moody’s notes that the bank also experienced an increase in funding costs.

Although Respublika’s cost of risk increased in 2010, Moody’s believes that the bank has already covered most of the anticipated loan losses, and the rating agency does not expect that loan loss provisions would materially constrain profitability in 2011. In addition, Respublika’s profitability will be supported by an expected acceleration of credit growth, and an increasing proportion of higher-yielding assets on the balance sheet, with a relatively stable fee and commission income.

According to the bank, the level of non-performing loans (loans 90+ days overdue) peaked at around 6.5% of gross loans in 2010, and is expected to gradually decrease in 2011 due to new lending and problem loan recoveries. Moody’s also observes that Respublika’s capitalisation is currently adequate, with Tier 1 and Total capital ratios of 15 and 23%, respectively, at 31 December 2010. The capital buffer is sufficient to absorb the bank’s expected credit losses.

Moody’s also explained that Respublika’s ratings have limited upward potential in the short to medium term. Any possible upgrade of Respublika’s ratings will be contingent on the bank’s ability to materially strengthen its franchise, while also demonstrating a sustained track record of improvement in financial fundamentals. Conversely, downward pressure could be exerted on Respublika’s ratings by any material adverse changes in the bank’s risk profile, particularly any significant impairment of the bank’s liquidity position, and failure to maintain control over its asset quality.

Moody’s last rating action on Respublika was on 19 November 2008 -- when Moody’s changed the outlook on the B2 long-term foreign and local currency deposit ratings of Respublika bank to stable from positive