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Fitch Ratings can upgrade Bank Techniqueâ€™s ratings

24 December 2012 10:53 (UTC +04:00)

Baku. Vahab Rzayev – APA-Economics. Fitch Ratings says that Azerbaijan-based Bank Technique's (BT, former Technikabank) ratings could be upgraded if the bank successfully carries out measures to strengthen its recapitalisation. However, significant execution risk attached to the plans and their limited scope mean that an upgrade is still uncertain and, if it takes place, would likely be only moderate.

BT's 'CC' Long-term Issuer Default Rating (IDR) and its 'f' Viability Rating currently reflect the sharp deterioration of the bank's liquidity position and erosion of its capital in Q212 following the arrest of one of the bank's key shareholders (see "Fitch Downgrades Technikabank to 'CC'" dated 21 May 2012 available on www.fitchratings.com).

BT's controlling shareholder World Wines, which currently holds a 75% stake has since installed a new management team which is putting in place measures to improve the bank's solvency. Firstly, World Wines and Kazimir Investment Caspian Fund (KIFC, a 10% stake) are expected to inject AZN16m into BT's equity in Q113. Secondly, TB has informed Fitch that it has agreed to dispose of some repossessed collateral on its impaired loans, potentially resulting in a net gain of AZN65m. An additional positive capital effect of AZN10m could be achieved if BT sells its subsidiaries (including a leasing company).

Fitch views these plans as realistic but notes that the total capital effect of all these measures is AZN91m which is slightly below the AZN112m of capital which Fitch calculates BT required at end-Q312 to comply with the minimum 12% regulatory capital requirement. However, management also plans to deleverage its balance sheet by refinancing some of its largest loans with other banks, and thereby significantly reducing risk weighted assets. Management expects that if it implements all of these measures, the bank will be in compliance with local capital adequacy regulations by end-Q113.

Fitch plans to conduct a review of the bank's ratings once the success of the above measures can be assessed, probably in Q113. Positive rating actions are possible if the bank strengthens its capital and is once more viewed by the agency as a viable entity. Further delays and uncertainties with the recapitalisation could result in an affirmation of BT's 'CC' Long-term IDR. The IDRs could be downgraded to default level if BT's liquidity position weakens further without the bank receiving external support from its shareholders or the central bank, rendering it unable to service its obligations.