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Fitch may still cut International Bank of Azerbaijan ratings

28 February 2012 11:54 (UTC +04:00)

Baku â€“ APA-Economics. Fitch Ratings has maintained International Bank of Azerbaijan’s (IBA) Long-term Issuer Default Rating (IDR) of ’BB+’, Support Rating of ’3’ and Support Rating Floor of ’BB+’, on Rating Watch Negative (RWN), Reuters reported.

IBA’s Long-term IDR is driven by potential support from the Azerbaijan authorities, given the bank’s majority state ownership, high systemic importance, its part policy role and its moderate size relative to the sovereign’s resources. At the same time, the prolonged delays with the recapitalisation of the bank, its sizable minority ownership and weaknesses in corporate governance weigh on the rating.

Fitch has been informed that on 21 February the Central Bank of Azerbaijan (CBA) converted AZN150m of short-term senior facilities extended to IBA into five-year subordinated debt. For regulatory purposes, this instrument will be classified as Tier 1 capital, and should therefore just be sufficient to bring the bank’s regulatory capital
adequacy ratio back above the minimum 12% level, for the first time since January 2010. In addition, the bank has announced a proposed AZN100m equity issue, which is subject to approval at the shareholders meeting scheduled for end-March 2012. In anticipation of this, the Ministry of Finance (IBA’s main shareholder with a 50.2% stake) has already transferred AZN50m to the bank. However, minority shareholders will have up to one year after the shareholder meeting to purchase shares, which in Fitch’s view is likely to considerably delay completion of the issue.

The rating actions are as follows:
Long-term foreign currency IDR: ’BB+’, maintained on RWN
Short-term foreign currency IDR: ’B’, maintained on RWN
Viability Rating: downgraded to ’f’ from ’cc’, RWN removed
Support Rating: ’3’, maintained on RWN
Support Rating Floor: ’BB+’, maintained on RWN