Finance

Finance

Moodyâ€™s downgrades Unibankâ€™s rating

22 January 2016 10:14 (UTC +04:00)

Baku. Yegane Lachinzade - APA-Economics. The downgrade of Unibank's BCA to b3 from b2 and downgrade of the long-term deposit ratings to B3 from B2 with a negative outlook reflects the significantly worsened asset quality and declined capitalization following the manat depreciation as well as Moody's expectation of further pressure on the bank's credit profile from a heightened provisioning burden.

Unibank has a high share of foreign currency loans at 44% of its loan book as of December 1, 2015, which exposes it to the risk of continued asset quality deterioration as most of the borrowers, especially in the retail segment, do not have foreign currency revenues and will thus be less able to service their debt. Consumer loans, including credit cards and unsecured consumer loans, comprised around 59% of the gross loan book as of October 1, 2015, according to the bank's management data. Moody's expect a further increase in the bank's problem loans and credit costs given the weakening of borrowers' creditworthiness, a potential increase in unemployment, and higher inflation expectations that will also worsen the population's purchasing power.

Unibank's capital buffer was negatively affected by the manat devaluation following a revaluation of foreign currency assets, LLRs on foreign currency loans and short open currency positions. The rating agency believes that the bank's profitability and capital buffer will be further constrained by the increased provisioning burden amid worsening asset quality.