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Fitch Affirms Kapital Bank at ’B+’

02 February 2012 07:55 (UTC +04:00)

Baku. Vahab Rzayev â€“ APA-Economics. Fitch Ratings has affirmed Azerbaijan-based Kapital Bank’s (KB) Long-term foreign currency Issuer Default Rating (IDR) at ’B+’, with a Stable Outlook. A full list of rating actions is at the end of this comment. KB’s rating reflects Fitch’s view of the potential for support from the Azerbaijan authorities (’BBB-’/Positive) if needed, given the bank’s important role in distributing pensions through the largest country-wide branch network, its active involvement in government-financed operations and the close informal relationships between the bank and its shareholders and government authorities.

KB’s Viability Rating reflects the bank’s weak capitalisation, asset quality and performance, high related party lending and limited commercial franchise. At the same time, the rating also considers the bank’s satisfactory liquidity position, supported by largely matched asset and liability maturities, the absence of material non-government wholesale funding and a significant cash cushion which covered roughly 65% of end-Q311 customer funding.

The bank’s loss absorption capacity (the amount of additional reserves it could create without breaching minimum capital requirements) at end-Q311 was less than the amount of unreserved non performing loans (NPLs; overdue for 90 days). A substantial 55% of the portfolio at the same date comprised policy loans funded by the Azerbaijan authorities and guaranteed by the Ministry of Finance. A further 20% of loans were unseasoned related party construction exposures, albeit with apparently quite low loan to value ratios. NPLs in the remaining portion of the book were 28%, higher than at all other Fitch-rated banks in Azerbaijan. An equity contribution of AZN20m planned for 2012 will result in only temporary improvement in the bank’s capitalization as it is likely to be consumed by loan growth and operating losses.