Finance

Finance

Fitch upgrades four Azerbaijani banks

28 March 2012 07:32 (UTC +04:00)

At the same time, Fitch has affirmed Texnikabank (TB) and AGBank’s (AGB) Long-term IDRs at ’B-’. The Outlooks on all four banks are Stable. A full list of rating actions is at the end of this commentary.

The upgrades of UB and DemirBank reflects Fitch’s acknowledgement of their relatively sound credit profiles in the post-crisis environment, as reflected by either better asset quality metrics (in the case of DemirBank) or greater loss absorption capacity (UB) compared to peers. Although both banks’ profitability has been notably reduced relative to pre-crisis levels, they have continued to generate profits on a cash basis, while accumulated problem loans have been properly recognised and prudently reserved.

In Fitch’s view, UB and DemirBank also have somewhat sounder corporate governance than peers, translating into greater transparency, lower related party lending and lesser accounting risks. Cooperation with international financial institutions (which hold minority stakes in both banks) has also been beneficial in terms of capital and liquidity replenishment, in particular for Unibank.

The ratings of TB and AGB continue to reflect their weaker credit metrics, in particular significant unreserved non-performing loans (NPLs) and potential for further NPL recognition from restructured loans, combined with only moderate capacity to absorb additional credit losses. The quality of their capital and reported profits is also undermined by the high proportion of accrued interest income not received in cash (particularly in the case of AGB).