Moody's assigns first-time Ba3 ratings to VTB Bank (Azerbaijan)

Moody
# 19 January 2015 07:45 (UTC +04:00)

Baku. Musa Ahmadov – APA-Economics. Moody's Investors Service has assigned the following ratings to VTB Bank: local- and foreign-currency deposit ratings of Ba3, standalone bank financial strength (BFSR) rating of E+/Stable (equivalent to a b2 baseline credit assessment [BCA]), and Not-Prime short-term deposit ratings. The bank's long-term global deposit ratings are under review for downgrade in line with the corresponding review on the parent - Russia-based Bank VTB JSC, whose standalone BFSR and long-term debt and deposit ratings were placed on review for downgrade on 23 December 2014 in response to the ongoing severe deterioration in Russia's operating environment and financial market conditions.

The rating action is based on VTBAZ's audited IFRS accounts for the period 2011-13, Q3 2014 IFRS accounts reviewed by the auditors, and information provided by the bank's management.

Moody's parental support assumptions for VTBAZ's deposit ratings take into account: (1) its 51% ownership by Bank VTB and the parent's full operational control; (2) VTBAZ's high integration into VTB, which shares its name and brand; and (3) the VTB group's commitment to develop its Azerbaijan franchise, which is evidenced by a track record of capital injections and funding allocation. VTBAZ has reported an increase in profitability since 2012, with breakeven at year-end 2013 following growth in business volumes and development of higher-yielding retail products. The bank displayed sound recurring revenues with return on average assets (ROAA) of 3.7% and return on average equity (ROAE) of 18.6%, supported by healthy net interest margin of 11.7% as of Q3 2014. However, VTBAZ's internal capital generation still lags behind its soaring asset growth rates; thus, its shareholders appear to be committed to support further business expansion. Following a Tier 1 capital injection of AZN27 million in 2013, VTBAZ's current regulatory capital adequacy ratio (CAR) amounted to 18.4% (vs the required minimum of 12%), and the Tier 1 capital ratio amounted to 14.7% (vs regulatory minimum of 6%) as of Q3 2014. No dividend payouts are planned until 2016.

Moody's considers upward rating action unlikely in the next 12-18 months as VTBAZ's ratings are currently under review for downgrade in line with the parent. The review of the subsidiary bank's ratings will conclude shortly after the conclusion of the review on the parent's ratings.

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THE OPERATION IS BEING PERFORMED